BEIJING—Best Western International is pushing forward with development efforts in China’s second- and third-tier cities as macroeconomic conditions in the country stagnate.
William Dong, president of master licensee Best Western International China, said the company has 13 properties in the active pipeline for 2014. Eight of those hotels will be under the core Best Western brand; four will have the Best Western Premier designation; and one will be branded under the Plus descriptor. The company has 39 hotels operating in China, 30 of which are under the core brand and the remaining nine are Premier.
The new hotels are also likely to have up to 50% more rooms than existing Best Western properties, Dong said.
Two years ago, the company began putting an emphasis on third-tier cities and county towns in China, Dong said. People who venture out to these secondary markets often are looking for branded hotel options, which has presented Best Western with an opportunity to capture those guests.
“They want to search for a brand because a brand can guarantee them something,” Dong said last week during a press briefing at the Best Western OL Stadium Hotel Beijing.
There’s plenty of room for growth in such markets, Dong said during an interview with Hotel News Now. He said there are 175 county towns and third-tier cities in China that boast populations of more than 1 million people.
“With the improvement of transportation (infrastructure), the high-speed train, highways, those cities have really good potential,” he told HNN.
Developers appear to be broadly optimistic about their chances in China as there are an equal number of properties in the pipeline overall at the upscale and upper-upscale level as there are at the economy and mid-market level, said Ron Pohl, senior VP of brand management and member services with Best Western. “That’s a pretty significant shift,” he said.
The development drive will introduce Best Western to the western region of China where the brand has no presence but is also less developed than other parts of the nation, Dong said. The move to this region means the company will find more prospective owners who don’t know much about the brand, he said.
“We will spend more time to educate them, why they need an international hotel chain and what an international chain can bring to them, and our support and the importance of a brand in Internet booking,” he said.
Development obstacles
The challenges in China run deeper than simply educating owners about the brand, however.
For one, inbound and domestic tourist traffic was largely flat in 2012, according to the most recent data from the China Tourism Academy. International arrivals totaled 57.7 million travelers in 2012, up 0.3%, while domestic tourism numbers also edged up by 0.3% to 3 billion. Dong said domestic travelers are Best Western’s core customer group, with international travelers accounting for fewer than 10% of its business.
Hotel performance has suffered alongside the slow growth in domestic and international travel volume. During the first quarter of 2014, Chinese 3-, 4- and 5-star hotels all saw declines in rate and occupancy, according to the National Statistical Bulletin of Star-rated Hotels.
Dong said poor economic conditions in key markets around the globe, such as in Europe and North America, account for part of the reason behind the stagnant volume of international arrivals, while negative currency fluctuations also played a role.
“It is quite tough for hotels in China,” Dong said, adding, “There are some things we can’t control.”
Just getting a hotel open is a daunting process, as getting the necessary approvals can take months, Dong said. For example, the company has a property waiting to open in a third-tier China city where “everything was ready five months ago,” but is still not open because it is waiting on the necessary fire permits.
“No matter what business in China, you have to have a good relationship with the government,” he said.
Finally, financing is another obstacle Best Western and other hotel companies face. In China, the financing sector is centrally controlled by the government. During 2010 and 2011, the government released a lot of funds to the market, which enabled Best Western to take on more projects.
“Last year we were affected by the finance,” Dong said. “The government tightened up the fundings.”
Editor’s note: Best Western International paid for all travel, food, hotel and entertainment expenses related to the trip. The company had no say over editorial content.