Budget hotels' expansion 'roomy'

While Zhu is working on his ambition for 500 hotels, most of the industry giants can already boast more than 1,000.

Some problems occurred during the big players' rapid expansion and their profits started to shrink from early 2012.

Home Inns suffered a loss in net profits in the first quarter of 2012 because of an operating loss by Motel 168, according to its financial report.

In the second quarter, although the net profit was positive, it still decreased by 85.69 million yuan compared with the same period of 2011.

Home Inns' second quarter financial report shows that the hotel company's occupancy rate decreased by about 5 percentage points in the second quarter of 2012 compared with the same period in 2011.

The company attributed the decline to the lower occupancy rate of the Motel 168 brand, which was purchased by Home Inn in 2011 and is still being integrated.

However, the difficulty of integrating the different products will not stop the budget hotel companies' ambitions to expand.

"We are confident about China's hotel market and Motel 168's performance will improve, after we finish the integration," said Sun Jian, chief executive officer at Home Inns, which plans to increase the number of its hotels from 1,600 and 190,000 rooms to 5,000 hotels in the next decade, a growth rate 2.5 times the speed of the last decade.

"Over the next three to five years, the industry will remain in the fast-expanding stage because budget hotels only account for a very small share in the whole market," said Ye.

7 Days, which is the second largest budget hotel company in China, has similar view on expansion to its rival.

"We will pay more attention to the business development of franchise stores in order to expand faster in the industry," said Lin Yunzhou, CEO of 7 Days.

The company adjusted its 2012 plan from 360 new hotels to 400 in June. In the new plan, the number of new franchises was up to 320 from an original 240 and the plans for directly managed hotels was decreased from 120 to 80.

Franchises are a business model with lower risk, lower investment but higher profit, Lin said.

wangwen@chinadaily.com.cn