On December 28th, Huazhu Group held the 2023 Partner Conference. At the meeting, Ji Qi, the founder of Huazhu Group, shared her judgment on the current changes in consumption and travel patterns, as well as her views on the future business models and investment strategies of China's hotel industry.
Ji Qi mentioned that overall, China's tourism industry has exploded this year mainly during holidays, with the recovery of commercial tourism being weaker than that of leisure tourism. This includes compensatory consumption after the epidemic, which may be discounted in the future but can still be sustained.
He believes that the travel habits of Chinese tourists have also undergone significant changes, from casual to essential, from luxury to daily necessities, from low frequency to high frequency, from single to multi-level, from planning to casualness. "Chinese people are increasingly valuing pleasure and saving money rather than luxury consumption.".
"The hotel industry is currently in an era of resilience," said Ji Qi. The macro economy is facing various internal and external challenges, entering a stable growth period, and the Chinese hotel industry is undergoing supply side structural reform. The original developer model, development zone model, and landmark model of hotels have gradually ceased, and full service hotels have entered the stage of operating existing assets.
The overall industry data over the past three years shows that limited service hotels composed of economy and mid-range hotels have significantly higher risk resistance than full service hotels. He said that the main business model for China's hotel industry in the future should be a development model that combines limited service and selected service hotels, leasing properties, and franchise brands.
Meanwhile, the travel market is steadily growing; Abundant private capital but limited investment channels; The vacancy rate of properties has increased, and rent has decreased; Material prices have decreased and construction costs have decreased.
Ji Qi believes that the hotel industry is entering another golden period of investment.
In this golden investment period, low prices are the key. He believes that considering cost factors such as rent and property prices, limited service hotels with a focus on economy and mid-range are the preferred investment options for third - and fourth tier cities.
Ji Qi proposed the concept of "from economy hotels to national hotels" in 2018. The "National Hotel" brands under Huazhu include Hanting Hotel, Haiyou Hotel, and Hello Hotel. According to Huazhu's financial report, Hanting currently has over 3500 stores and has become the largest single hotel brand in China.
Huazhu's expansion also follows the hotel investment logic mentioned by Ji Qi. Geographically, Huazhu covers 96% of prefecture level cities and 42% of county-level cities in China. According to the third quarter financial report of this year, 40% of its operating hotels are located in lower tier cities, and 55% of its waiting to open hotels are located in lower tier cities, with a further increase in the proportion. In lower tier cities, the number of operating hotels in Huazhu has increased by 6% year-on-year to nearly 3600 stores, while the number of hotels waiting to open has increased by 20% year-on-year to over 1600. The number of cities covered by the company has further increased to 1217.
Another advantage of Huazhu lies in its brand effect. Ji Qi believes that the future growth hope of China's hotel industry lies in brand franchise, not asset management. For consumers, among many brands, they tend to choose well-known top brands.
He mentioned that Huazhu is gradually reducing its direct stores, considering the relationship between market capacity and market share in the time dimension.
Ji Qi said that assuming China can accommodate 100000 hotels above designated size, Huazhu would need to roughly calculate a cost of 300 billion yuan to obtain a 30% market share. "If we invest 3 billion yuan per year, it will take 100 years. If we invest 6 billion yuan per year, it will also take 50 years. I am about 107 years old." But if we are joining, doing 1500 companies per year, it will only take about 25 years.
According to his observation, the lower the city level, the lower the chain rate, which also brings huge development space. As of the third quarter of 2023, 93% of Huazhu Group's stores come from franchisees. Based on the Q3 financial report, the single store sales of Huazhu franchise hotels increased by 9.2% month on month, slightly better than the average sales of Huazhu self operated hotels at 8.7%.
Under the development strategy of adhering to sinking and accelerating chain operation, Huazhu's performance has experienced a rapid rebound this year. Its single store revenue has increased, and the occupancy rate has also increased quarter by quarter, with the third quarter basically recovering to the same period in 2019.
According to the financial report, the net profit of Huazhu Group in the third quarter was RMB 1.3 billion, with an adjusted EBITDA of RMB 2.2 billion; The revenue increased by 55.1% year-on-year and 15.8% month on month to 23.5 billion yuan; The revenue reached 6.3 billion yuan, a year-on-year increase of 53.6% and a month on month increase of 14.5%.
According to data shared by Ji Qi, the single room revenue of the Huazhu National brand was higher than that of domestic three-star and four-star hotels in the second quarter of 2023, and the single room revenue of mid to high end hotels was higher than that of five-star hotels. In the third quarter, Huazhu China's single room revenue (RevPAR) recovered to 129% of the same period in 2019.