At the end of 2023, the chain hotel market saw a resurgence of gunpowder. On December 28, 2023, at the Huazhu Partner Conference, Huazhu Group CEO Jin Hui announced the new product of Huazhu's All Season Hotel 5.0, targeting mid-range hotels for further upgrades. Currently, hotel groups such as Yaduo and Shoulv Rujia are upgrading their products, resulting in an endless stream of 4.0 versions, upgrading in terms of service and spatial integration. When many hotel groups were immersed in the 4.0 version, Huazhu took the lead in targeting the 5.0 product and focusing on the mid to high end market. For a while, the mid to high end hotel market was fiercely competitive. For franchisees, the investment return cycle and market feedback are the core of hotel investment franchising. Whether to choose new franchise products in the future depends on whether they have core competitive advantages.
Launch 5.0 new products at the end of the year
By the end of 2023, Huazhu was the first to launch a full season 5.0 product.
It is understood that Huazhu has released a new 5.0 product for the entire season at the conference, which has been upgraded in terms of aesthetics, experience, and business model. Advance positioning layout is also sufficient to demonstrate Huazhu's ambition for the mid-range market. Huazhu stated that its seasonal brand has just opened 2000 stores, making it the fastest-growing brand in the history of mid-range hotels.
In response to the changing trends in the hotel industry, Ji Qi, the founder of Huazhu Group, believes that the main business model for China's hotel industry in the future should be limited service and selected service hotels, combined with rental properties and franchise brands. The overall industry data over the past three years also indicates that limited service hotels composed of economy and mid-range hotels have significantly higher risk resistance than full service hotels.
Regarding the intention of Huazhu to launch the full season 5.0 version at this time point, Yuan Xueya, Chief Consulting Officer of Shanghai Xingshuo Hotel Management Consulting Co., Ltd., analyzed that on the one hand, in the post pandemic era, consumers will pay more attention to the year of hotel construction and renovation when choosing hotels on OTA platforms, and prefer to stay in new hotels. On the other hand, Huazhu needs more franchisees to maintain the expansion of its incremental hotel share. Huazhu maintains its leading position with new products and intends to continue to stay ahead of other hotel groups.
Huazhu has also announced its achievements in 2023. Since then, Huazhu has received over 250 million visitors. According to incomplete statistics, one out of every 12 travelers chooses Huazhu Hotel. Huazhu currently covers 96% of prefecture level cities and 42% of county-level cities in China, with an average of 4 Huazhu hotels opening every day.
In the view of Zhao Huanyan, Chief Knowledge Officer and Senior Economist of Huamei Hotel Consulting Agency, the main battlefield of current market competition is the stock market, specifically reflected in the competition for hotel owners to join. The main means of competition is brand upgrading, enhancing brand influence and attractiveness. Therefore, there is an urgent need for hotel groups to upgrade their brands.
The battle between the mid to high end is becoming increasingly fierce
In recent times, various hotel groups have been competing to upgrade and launch new products, and the constant emergence of 4.0 versions has also intensified competition in the mid to high end hotel market.
Not long ago, Shoulv Rujia Hotel Group launched the Rujia Selected Hotels 4.0 version, which creates a strong experience and high return investment model through visual upgrades, spatial integration, and service overlay design. In addition, Yaduo, which focuses on mid to high end brands, is also accelerating its launch of new products. In November 2023, Yaduo released a new product version 4.0 called "Jianye", which upgraded the existing version in areas such as breakfast, sleep, and business space, and provided a higher investment return model for franchisees. In the fourth quarter of 2023, various hotel groups are further expanding the mid to high end business and tourism hotel market through product upgrades and iterations.
In addition to product upgrades, various hotel groups are also competing against the number of high-end hotels. According to the 2023 Q3 report released by Jinjiang Hotel, as of September 30, 2023, the number of mid-range hotels opened was 6984, accounting for 57.54%. Shoulv Home also stated that it will continue to transform and upgrade its core hotel brand, as well as focus on iterating mid to high end hotel products. Focusing on Huazhu, at the third quarter performance conference, Jinhui stated that Huazhu will continue to focus on economy oriented national and mid-range hotels, serving the mass market. Data shows that 48% of the hotels to be opened in China in the third quarter were mid-range hotels, and the proportion of mid-range hotels increased by 5 percentage points year-on-year.
In Yuan Xueya's view, most of the top hotel groups in China are listed companies, and the capital market requires them to constantly maintain their stock prices with new stories. At the same time, chasing new and discarding old is also a process that each group needs to go through. Therefore, by upgrading and iterating products, they can layout the mid to high end market and create differentiated competition with other groups.
Franchisees value market feedback more
The constantly iterating hotel products have given franchisees more thinking when choosing, and for franchisees, the most important thing is still market feedback.
Zhao Xiaobo, a franchisee of all season hotels in Guanshanhu District, Guiyang, told Beijing Business Daily that for franchisees, investment return expectations, operational management, brand influence, etc. are the core criteria for investors to choose franchise brands. After the release of the full season 5.0 version in Huazhu, the design tone, functional facilities, and cost of the new product have become the focus of attention for franchisees. The new franchisee will assess whether the product can stand out among competitors in the same type of hotel, lead the industry, and achieve their investment expectations. Old franchisees need the brand to provide sufficient tolerance for the hardware issues of their old stores, actively help them upgrade and transform, and maintain market competitiveness for both old and new products.
Zhao Xiaobo's all-season hotel, version 3.5, opened in July 2018. Although the hotel has been open for more than five years, the hardware facilities are well maintained, and he is currently not considering upgrading and iterating the hotel. Perhaps in the coming years, he will decide whether to upgrade to version 5.0 based on market feedback. He said that the release of version 5.0 did provide franchisees with more choices, and for consumers, most of them would prioritize new products to experience and consume. With the rapid development of the brand throughout the season, franchisees can choose whether to update their products according to their own needs.
Another franchisee from version 4.0 of the entire season also mentioned that investing in franchising not only depends on the brand's drainage effect, but also on the investment return cycle of the product. Investing in hotels and achieving a return on investment within five years is the most ideal state. Although Huazhu has not yet disclosed the investment return cycle and other details of the full season 5.0 product, it cannot be denied that the new version of the product has attracted the attention of many franchisees.
Regarding the opportunities and risks of hotel investment, Ji Qi believes that the hotel industry is currently in a "resilient era", and another golden period for hotel investment has emerged. The advantages of brands and chains have become increasingly prominent, and in recent years, the hotel chain rate in China has also been gradually increasing. At the same time, the hotel industry in third - and fourth tier cities in China has greater growth potential. And hotel investors should also take risk prevention measures in hotel investment in lower tier cities by choosing "good brands, good products, and good rent".
"Although the full season 5.0 version has been launched, whether franchisees are willing to invest and whether the original investment has already paid off to generate further investment are the issues that need to be considered next." Yuan Xueya pointed out that currently, Huazhu is constantly screening products in line with marketization, but it is not ruled out that there may be oversupply in some regions, which will have a certain impact on the housing prices sold by franchisees. However, Huazhu has its own traffic, and franchisees are also relying on the large membership traffic of the group to maintain a high rental rate.