Character and price key to Kapok hotel survival
China Resources Holdings, a state-owned conglomerate competing in the hotel business with international groups and cash-rich foreign institutional funds, reckons it has found the key to survival by positioning itself between the country's luxury and budget segments.
Five years after China Resources, through its property development arm China Resources (Shenzhen), started its Hotel Kapok boutique hotel chain in Shenzhen the outlook is promising.
'We have invested 100 million yuan in Kapok Shenzhen and it has made a profit since the first year of operation,' China Resources (Shenzhen) vice-general manager Yu Linkang said.
'The occupancy at Kapok Shenzhen is always more than 90 per cent and we are getting a pre-tax profit margin of 12 per cent a year,' Mr Yu said.
The hotel chain has been expanded to Guangzhou, Wuxi and Beijing.
Mr Yu, 36, attributes the encouraging response to the hotel's positioning.
'We have positioned ourselves in the four to 4.5 star hotel segment, where competition is not that fierce. Unlike the traditional type of hotel, Hotel Kapok is a boutique-style hotel with good service plus a little character,' he said.
As a pioneer among mainland players, Hotel Kapok targets the country's growing middle-income class, who while they might not be able to afford deluxe accommodation nevertheless do not want to stay at budget hotels.
The hotel chain's customers are middle management from the mainland and Hong Kong and from overseas, Mr Yu said.
Typical room prices range from 500 yuan to 600 yuan, compared with 800 yuan being charged by the Shangri-la Shenzhen and 168 yuan for the cheapest rooms at the Motel 168 chain.
'Competition in the top end of the hotel sector is very keen, with the participation of overseas foreign players, and there are thousands of budget hotels run by local operators,' said Zhang Wei, the hotel department manager at China Resources (Shenzhen).
'Some are expanding rapidly after getting capital investment from foreign funds or from stock markets. However, there are not many choices if you want something in the middle. We see there is a market.'
The world's top 10 hotel groups, including InterContinental, Marriott and Hyatt, have all entered the mainland market, attracted by the country's growing economy and the prospect of the domestic tourism market.
There were 12,930 star-level hotels in China by the end of 2005, 2,042 more than in 2004, according to ResearchInChina.
The popularity of budget hotels has attracted the interest of foreign funds, with Morgan Stanley buying 20 per cent of Motel 168 for US$20 million in 2005.
Overseas money is also being attracted through share sales. Home Inn, China's leading budget chain hotel, raised US$109 million from its Nasdaq listing in October last year.
Mr Zhang said Kapok Shenzhen had 116 fairly spacious rooms with modern furniture, glassed rather than walled-off bathrooms and a choice of pillows for guests.
Each room has free broadband internet access, while business and fitness centres cater to other guest needs.
Boutique hotels with features not found in budget accommodation did not appear a guaranteed success, given the extra cost and questionable demand.
'We faced a lot of objections when the idea was thrown to the board of directors for the first time five years ago,' Mr Yu said.
However, with this initial success, the company is ready for the next phase of expansion.
'In 2004, the State-owned Assets Supervision and Administration Commission restricted state-owned companies to focusing on their core businesses. As hotels are just a small part of the group's business, we followed the directive to slow our plan to open more hotels. But the expansion will pick up this year,' Mr Yu said.
As the company opens more hotels in more cities, it aims to take another lead by creating a restaurant brand as part of the chain to increase its attractiveness.
'We are going to expand the Nan Yang Northeast Restaurant, which highlights northeast-style food. Wherever Hotel Kapok goes, Nan Yang Northeast Restaurant will be there,' he said.
The Shenzhen hotel has recently completed renovating its restaurant, moving towards a more modern Chinese look.
The design was carried out by David Sung, a grandson of T.S. Sung, one of the team who worked on the HSBC Building on Shanghai's Bund in 1923.