Wanda Hotel: Focus More On Second And Third Tier Cities

Shen Feng, the deputy general manager and operation manager of Wanda Hotel Construction Company, recently shared his insights on the trends that are emerging in the development of the hotel industry in China.

Over a span of more than 20 years, Dalian Wanda Group Corporation has developed into a large enterprise group with commercial real estate, luxury hotels, the cultural industry, and chain stores as its four major sectors. For luxury hotels, Wanda Group established partnerships with Accor, in December 2004, with Starwood Hotels & Resorts, in September 2008, and with Hilton Hotels Corporation, in January 2009.

In March 2009, when the global hotel industry was suffering from the effects of the financial crisis, Shen Feng shocked the industry by the announcing Wanda Group's latest investment plan, and saying that the group will invest CNY20 billion in the hotel industry over the next six years. Now that a year has passed, what new plans does Wanda have in 2010? How does the group view the current hotel investment environment in China?

When asked about the hotel industry investment environment, Shen Feng commented that according to a market survey covering over 20 Chinese cities, the hotel market in large cities like Beijing, Shanghai, Guangzhou and Shenzhen is facing the problem of oversupply, with hotel product supply far execeding the increase in guest numbers. At present risks can be great if enterprises invest in hotels in these cities. Even considering the initial and incremental value of real estate, it can still be risky for hotel's revenue. Shen suggests investors should be very cautious when investing in these cities.

Since large cities are facing the situation of market saturation while second and third tier cities offer promising prospects, which cities are suitable for investors? According to Shen Feng, a city with a resident population of more than 2 million, and with total annual retail sales of more than CNY80 billion, can be a good location for a five-star hotel. Survey results show many second and third tier cities currently have no five-star hotels or have just begun to build them. These cities have great investment opportunities. Speaking of guest sources, Shen told China Hospitality News that the mainland China has already become the major guest source market for luxury hotels as mainland Chinese guests accounted for 60% of total hotel occupancy in large cities in 2005. This is also obvious in second and third tier cities.

When asked about the choice of hotel brands, Shen Feng said that three aspects should be taken into consideration. First, the maturity of the brand and its ability to integrate into the special Chinese market, that is, the localization of foreign brands in China. Localization here refers to the combination of foreign brand and management philosophy and local culture, and the combination of a foreign brand's management culture and brand culture and the actual situation in China, regarding the city, guests, and even employees. Second, the coverage of the hotel brand in China, as coverage determines the sales network of the brand in China. Third, the suitability between the positioning of the brand and the positioning of its location.

Wanda Hotel Construction Company is in charge of Wanda Group's development of five-star and platinum five-star hotels across China. Most Wanda hotels are developed as part of a complex project for a city instead of as an independent project.

Shen Feng said that in 2010, Wanda Group plans to open seven new hotels in Wuxi, Hefei, Fuzhou, Yichang, Xiangfan, and Sanya. Second and third tier cities will be the major focus of Wanda's hotel sector. By the end of 2010, Wanda Group is expected to have 45 hotels in business.