Mid-range hotels grow in China on consumption upgrade of the middle class

Boosted by the emerging middle class in China, international mid-end hotel brands have expanded quickly through franchising in the country.

As at the end of last year, China had 2,342 mid-end hotels, up nearly 34 percent year-on-year. The number of budget hotels reached 21,808, up 10.5 percent from the previous year, according to the China Hospitality Association.

Holiday Inn Express, the largest among such hotels, will continue to penetrate third-and fourth-tier cities in the country.

Holiday Inn Express is among the most rapidly developed brands from the IHG or InterContinental Hotels Group stable, one of the world's top hotel groups.

Industry peer Hilton Worldwide Holdings Inc is expected to have 1,000 hotels in China by 2025, driven mostly by expansion in mid-market brands such as Hampton and Hilton Garden Inn.

A look at Holiday Inn Express in China offers insight into what makes mid-range hotels popular in the country.

Holiday Inn Express provides simple but necessary services like free breakfast, free Wi-Fi and shower facilities.

It operates 101 hotels and 134 more are in the pipeline in China. The 100th Holiday Inn Express hotel opened in January.

Jerome Qiu, vice-president of Holiday Inn Express, said the brand is going to expand in lower-tier cities through franchises. "Many of our existing hotels in third- and fourth-tier cities have received positive reviews," said Qiu.

Via the franchise model in China, the brand signed 74 hotel deals from May 2016 to the end of 2017.

Typically, such franchise deals see IHG appointing a hotel's general manager and providing franchisee support on performance management, risk management, sales, marketing and turnover.

Property owners can save on time by using IHG procurement platform called IHG Mall. In addition, IHG has a website, a mobile phone app and a WeChat account that offer support to property owners. More than 700 suppliers on IHG Mall offer more than 10,000 merchandises for all Holiday Inn hotels, according to Qiu.

Also, IHG offers a one-stop service to combine hotel design and construction to shorten the construction period.

IHG's development team manages the Holiday Inn Express brand and considers a city's GDP, the number of visitors, and local industries and tourism sites, while evaluating its suitability for setting up a hotel.

George Wang, chairman of Beijing Xinrongjin Hotel Management Co Ltd, which owns three Holiday Inn Express hotels in Beijing, said the franchise deals with IHG have helped earn a revenue of 141 million yuan ($22.3 million) and more than 60 million yuan in net profit last year. "The combined net profit from the three Holiday Inn Express hotels is much higher than that of many five-star hotels," said Wang.

Value for money, safety management and risk control are key contributors to the growth of the mid-end hotels, Wang said.

Such hotels still have an immense potential in China given the ongoing consumption upgrade, he said. "For property owners, the medium-range hotels offer best turnover."