Shanghai: Challenge And opportunity In The Post-Expo Era

The 2010 World Expo in Shanghai has finally closed after 184 days. Initial estimates by China Tourism Research suggest that the overall revenue injected into the region as a result of the Expo is approximately CNY80 billion with 34.3% going into accommodation, meaning hotels benefited by revenues totalling CNY27.4 billion that were attributable to the Expo.

Additionally, surveys show that occupancy from May to September 2010 hovered around 80% — which is 30% higher than in the same period of the previous year — and this was coupled with an increase in the average daily room rate of more than 30%. It must be noted, though, that different segments experienced different benefits from the Expo. During the Expo, budget and low- and mid-class hotels experienced a surge in occupancy due to the large volume of domestic travelers, while top tier hotels benefited from high-end corporate events. The year 2010 was significant for Shanghai's hotel sector and was their best year ever. Now the city's hotel industry has entered a period of adjustment.

Conditions for Hoteliers after the World Expo
Although the local hotel sector received an economic boost from the World Expo, hotels at all levels now face new challenges in how to maintain the market segments that were stimulated by the Expo. In short, hoteliers across Shanghai face now short term challenges in maintaining booking levels following the conclusion of this high profile event.

The latest statistics show that Shanghai currently has 313 star-rated hotels and 6,387 social hotels (including budget hotels and serviced apartments). During the Expo some three-star hotels offered hotel rooms priced at CNY2,000 a night, giving the impression that it was hard to get a room. And now it is reported that about 60 more international hotel brands plan to enter Shanghai in 2011.

In November 2010 Huang Tiemin, the vice president of Shanghai Hengshan Group said that given the hotel market situation of supply exceeding demand, and with some hotels charging unrealistic prices, the efficiency of the sector in 2011 will show a double-digit drop. He added that many industry insiders have said that in 2011 the hotel industry in Shanghai will be under pressure. The sector faces major problems including oversupply, shrinking numbers of business visitors and general tourists, and the new hotel brands coming to the Chinese market. All those factors will pose challenges for the hotel industry. Shanghai's Hotels have been facing declining profits and the industry's once surging profits are no longer sustainable. Now when a new hotel opens in Shanghai, it is highly likely that it will make a loss.

In addition, the cost of human resources cannot be ignored. Domestic hotels have always had a strategy of employing numerous staff with ratios of 100 or more employees for each room. The norm in China for a domestic hotel is 110 employees per room in three-star hotels, 120 in four-star hotels, and five-star hotels employ more than 130 people per room. However foreign star-rated hotels employ a maximum of 50 to 60 people for each room. Given the current rate of inflation and labor costs, these ratios are untenable, so reducing the number of staff per room has become an imperative.

Challenges and opportunities co-exist

Although 2011 might not be a good year for some hotels in Shanghai, there are some special opportunities for the whole sector.

World Expo helps upgrade tourism sector

The World Expo has helped Shanghai to become an international city. For instance, the improvement of exhibition facilities and transport systems are helpful for the whole hotel sector and attract more tourists. It is estimated that the Expo has contributed 5% to the city's GDP and helped bring 40% to 50% more investment in the Yangtze Delta region. Tertiary-industry made up 60% of Shanghai's GDP: a new record. In the meantime, Shanghai is expected to become a world leading MICE city thanks to the Expo. In addition to the economy, the Expo has brought benefits to various sectors in the city, and especially the hotel industry. In 2011 the emphasis will be on helping boost the exhibition sector.

The promising MICE sector in Shanghai
Shanghai World Expo helped lay the foundation of hardware and software for the MICE sector in the city. New large-scale exhibition venues have paved the way for the rapid future development of Shanghai's exhibition industry. On the software side, the level of the city's service industries have become more international, information-based, and personalized, which will improve the level of the overall labor force. Shanghai is expected to increase the number of MICE staff, which will become a major focus for the city. Since the end of the World Expo, Shanghai hotel room availability and prices have faced a downward trend. However, the price cuts also makes Shanghai more attractive for business meetings. In fact, the newly-added hotel rooms and convention venues once again attract conference organizers to Shanghai. Perhaps this is a healthy adjustment, which will benefit Shanghai's long-term development.

Many people think that the city's hotels will see more opportunities from MICE business, and the whole market will gradually improve.

Quality services attract high-end customers
Whether a hotel can survive or not ultimately depends on its ability to attract those guests who seek luxury: a group that has been growing in size in China. In 2011, improving hotel infrastructure standards and customer service and the requirement for experience is more specific, more professional, and these sometimes fall below expectation. Hotel managers are also increasingly aware that the customer's expectations are not meet by the hotels' fabric but by what is associated with traditional brands. Hotel guests should not only have a beautiful living environment but should also be offered distinctive and personalized service.

 According to Bernadette Davis, the managing director of the Asia Pacific Chapter of the Hotel Sales and Marketing Association International, Chinese Hoteliers should be asking themselves: "Why should you provide an upgrade to the executive or concierge floor when the customer is prepared pay a premium price compared to a standard room because they want use of the lounge for business meetings?"

The Hotelier's View

Le Royal Meridien Shanghai
Keith Hardie, the general manager of Le Royal Meridien Shanghai, said that thanks to the Expo, Shanghai is a focal point for international media. As a result, there is a tremendous potential for future business in Shanghai. Of course, he doesn't anticipate demand will be as high as 2010, but it will still continue to be very robust. And the hotel will continue to provide high quality service to all its guests.

Hardie said the hotel had further raised the bar of service standards in order to meet the requirements of people from all over the world. The staff has gained precious experience such as dealing with VIP guests who are company CEOs, government officials, and the like. The Expo brought both opportunities and challenges. The hotel not only improved its service and reception abilities, but also enhanced its ability to deal with crises. There is no doubt that Expo led to setting up a good platform that has brought a valuable additional client database to the hotel.

He told reporters that MICE figures overall may increase instead of declining as the business climate in Shanghai remains positive. There is increased interest from many countries and industries keen to look to China for growth and they are using Shanghai as a stepping stone or starting point.

Although most of the pavilions will be removed after Expo, the Chinese pavilion and the Expo Park will be kept as symbols of the 2010 Shanghai Expo. There is no doubt that these venues will attract another flow of tourists and bring more opportunities for the hotel industry.

In conclusion Hardie stated that with a great location at the heart of city center, Le Royal Meridien Shanghai has always been the ideal choice for people who are either on business trip or are in Shanghai for pleasure.

InterContinental Shanghai Expo
Michel Koopman, the general manager of InterContinental Shanghai Expo, said that 2010 Shanghai Expo was a very successful event in China which really helped to promote the city. Due to Expo, the city of Shanghai changed and improved incredibly with its "Better city, Better Life" theme. Shanghai will be the new destination the competes against Bangkok, Melbourne, or Vancouver for big conferences. He thought Shanghai is a perfect MICE destination, especially after the Expo put Shanghai on the map. The InterContinenal has a lot of potential, but they must work together with the different stakeholders — the government, the Shanghai Convention Bureau, the hoteliers, the airlines, and the special events departments — to package Shanghai as the greatest MICE destination in the world.

When asking about reception experiences, Koopman said that the hotel was opened on April 19, 2010: just before the 2010 Shanghai Expo. They did 3,000 trial stays and more than 10,000 trial runs for their food and beverage offerings. All the staff prepared for the opening of the hotel and Expo with lots of training and many trial runs. During the six-month-long Expo, the hotel hosted 57 VIP leaders from different countries including presidents, prime ministers, and top executives from companies, as well as the domestic and international guests who came to Shanghai to visit the Expo. The catering and events services team hosted 41 successful outside catering events for the UK Pavilion, the UAE, and others. The hotel also hosted more than 60 "pavilion day" parties for different countries. These all brought a lot of challenges, but it was also an opportunity to show off their products and services.

Koopman said the hotels had several source market segments. Currently, most of the guests are from the international MICE market, corporate bookings, and some travel agents. After the Expo, the strategy for hotel will be to focus on the following markets: firstly the government, since the hotel owner is a government related company and has a lot of government business contacts. The hotel should provide its professional service for their business. Second are the MICE groups, the unique conference and events venues and facilities of the hotel attract a lot of MICE and event companies that are looking for special venues and first-class service. The third market is corporate guests. The hotel is quite special compared with the other city hotels, it enjoys quiet and comfort with lot of indoor and outdoor connections, including the hotel garden, historical villas, and a luxury spa. As a result guests will feel that the hotel is a city resort for relaxation after a heavy schedule of of work. Lastly, since the hotel is very close to the Mercedes Benz Arena, it had a close relationships with its management and they have already lined up more than 120 concerts and performances this year and it might become the official hotel for their guests. Furthermore, with the large capacity of the Expo Centre which is also just a step away from the hotel, they are also be able with work with its management on catering and events services. Therefore, there are a lot of potential markets and business following the Expo — all of which is very promising.

As for the opportunities brought by the Expo, he said that as the only luxury hotel beside the Expo site and with the name of the Expo, the hotel had enjoyed a great exposure throughout the whole period. It did successful business as well during Expo. After the Expo, they also feel there is promise since the hotel is unique in the city. With its unique location — and with impressive views of China Pavilion, the Huangpu River, and the city skyline — it has very easy access to everywhere in the city, the hotel is only eight minutes from Lujiazui, 10 minutes from Xintiandi, and 15 minutes from Shanghai New Exhibition Centre. It is also surrounded by 12,000 square meters of garden and nine historical villas from the 1930s. It has extensive meeting facilities including a 800-square-meter grand ballroom, and nine different function rooms, all with natural light and state-of-the-art audio video equipment. The hotel also has very spacious restaurants and a spa and fitness center which fit the needs of medium and large conventions. It is the destination for great meetings.

Renaissance Shanghai Yangtze Hotel

Gary Fung, the general manager of Renaissance Shanghai Yangtze Hotel, said it is because of the World Expo 2010 that almost all the hotels in Shanghai achieved great success. With increasing competition and the number of new hotels in the market, it will be a great challenge for hotels to maintain their market share and achieve their budgeted average room rate. He said a hotel needs to show empathy and genuine care for its customers.

According to Fung, in their hotel, corporate, travel agent, and FIT bookings, 20% of customers were Chinese guests, 20% guests were from the USA, and another 17% were Japanese. Be it for business or pleasure, the hotel offers an impressive array of first-class facilities and inventive catering solutions. With five award-winning restaurants and two lounges, guests can indulge themselves with gastronomic temptations ranging from classical Chinese cuisine to modern Western fusion.

He pointed out the hotel is a traditional business hotel, located in the heart of Hongqiao district, so it mainly targets business guests working in this area. During the World Expo, it attracted a lot of guests from tourism groups and travel agents, which gave them a great chance to discover the hotel, so after the World Expo the percentage of leisure guests had increased.

Hilton Shanghai Hongqiao
Hilton Shanghai Hongqiao entered the post-Expo era the minute it opened because it opened after the World Expo. According to Brice Pean, the general manager of Hilton Shanghai Hongqiao, the hotel market in Shanghai had not been affected since the event closed. Many business people and general tourists postponed their trips to Shanghai because of the transport and accomodation problems during the Expo, and this has boosted the city's current tourist flow. The hotel is well positioned to take advantage of this growing market since it has some of the largest and most flexible meeting spaces, as well as the largest ballroom, in Puxi. The hotel is 15 minutes from Shanghai Hongqiao Airport so proximity to the airport and its location in the heart of Hongqiao's business hub makes it an ideal destination and hotel for guests doing business in the city as well as for the MICE market.

The percentage breakdown of its customer base is 75% from mainland China, 15% from Europe and America, and 10% from Japan and Korea. Its management executives are from all over the world in order to provide the best service to meet all kinds of needs. 

He said the hotel value staff who are positive, genuine, helpful and friendly. Hilton Shanghai Hongqiao will extend the Hilton values (Hospitality, Integrity, Leadership, Teamwork, Ownership and Now) and Hilton's vision and mission (Fill the earth with the light and warmth of hospitality) to the team members at the first lesson of their orientation. Besides this, the hotel will have different curricula according to the department and extend to team members the best professional knowledge. In the meantime, he said it is their duty to protect environment for all hotel members. There is a campaign 'Light Stay' by Hilton worldwide which is about how Hilton acts in an eco-friendly way. And Hilton Shanghai Hongqiao will definitely continue this commitment.

When asking about what business opportunities World Expo brought, he said that Shanghai continues to develop rapidly. It is fast becoming a leading commercial and financial hub in Asia and they predict their business will continue to grow in the foreseeable future. In addition, the tourism and business traveler market remains strong after Expo. The hotel's convention and ball rooms will definitely be a highlight and be attractive to MICE guests, both from home and abroad, together with various high-end meetings organizers.

Strategies for Shanghai Hoteliers Post World Expo:

The Jiu San Society: pillar of Shanghai's tourism industry
Currently the capital market is liberal and investments in the hotel sector are at an unprecedented high. Investors tend towards properties with long term holdings. Government departments or industry associations have to guide rational investment in line with scientific planning and avoid a major over-supply of business hotels, and over-concentrated regional resources. With the rapid development of living standards, consumer demand has become diverse and personalized. Tourism demand has shifted from the basic holiday model to routine, short-term, and eco-recreation ones. Therefore, the hotel not only has not has to be attractive to outbound tourists, but also has to meet to the leisure needs of local residents. Hotels should add new tourism resources around the city.

Secondly, design helps enhance values. Changing the stereotyped design of being grand, reducing operating costs, establishing featured and different designs. Decoration could create added value. The classic, creative and breath-taking design could turn rooms into scenic spots or holly destinations.

Grouping and branding management
With the development of network technology, hotels now not only rely on traditional methods, but also tend to use the Internet to offer promotions and reservation services. Promotions are becoming common to all hotels. As a result, hotel brands are becoming increasingly important. Under the circumstances, only global-brand hotels will benefit from the flow. China's home-grown hotel brands will face big challenges as international hotel groups have more advantages in establishing hotel brands, collecting information, room bookings, promotions, training, and management. The priority for Chinese hotels is to develop hotel groups which have capital investment, advanced management concepts, and long-term development goals.

Establishing green hotels

Generally speaking, energy costs run at around 8% or more of a hotel's gross revenue, so a hotel developer needs to map out plans to reduce costs at the initial stage of construction. In future hotels will need to pay more attention to protecting the eco-system and reducing operating costs. Hotels should use advanced geometric modeling with interior lighting. Solar power and geothermal energy will also be used more to save energy costs and reduce air pollution. Disposable amenities should no longer be replaced on a daily basis. And sheets and towels should only be changed at the guest's request.

Management solution provider

Allen Taylor, the manger of IDeaS Greater China and director of sales for IDeaS Asia, says that, given the softer operating environment the Shanghai hotel industry is likely to face following the conclusion of the World Expo, local hoteliers need to be smarter about how they price themselves and what incentives they are offering to attract business — especially since the overuse of incentives to attract guests can actually reduce the revenue generated by a particular venue.

Developing and maintaining good relationships with tour operators and travel agencies will be a key competitive advantage post-Expo. A key opportunity for Shanghai's hotels lies with the delayed demand in the leisure segment. Due to the high cost of visiting Shanghai during the Expo, many people delayed or cancelled their visits to Shanghai in 2010, (although this is more applicable to the overseas market than the domestic Chinese market) and hopefully their interest will be renewed in the coming 12 months.

It is expected that Shanghai will see an increase in competition in 2011. One of the key areas for Shanghai hoteliers to focus on is their RFP accounts. The corporate segment will be back to the forefront as the key business for most of the Shanghai-based hotels, so whoever can secure their RFP accounts, and develop or maintain their local corporate accounts, will have a competitive advantage over their competitors.

Do not over discount or enter into a price war to generate short term demand. There is a danger that when demand drops off local hoteliers will overdo their discounting and offer rates that are too low in order to generate business. That is not to say that Shanghai hoteliers shouldn't be flexible with their best available rates. Ensuring that the property management is alert to market movements and able to react accordingly is essential for an effective revenue management plan, but does not necessarily mean that heavy discounts need be applied.

Hotels need to have a good analysis to monitor their business by market segment level in order to know exactly what the trend is for each key segment. As an example, a hotel might see a significant drop in wholesale business and tour groups after the Expo, as both are leisure business driven. However, their corporate FIT segment might show no sign of dropping, or even potential increase due to the increased inventory availability post-Expo.

In order to be alert to the movement in their key segments, hotels should monitor their segment booking pace regularly, as well as carefully monitoring their daily pick up numbers by segment in order to catch changes in the general trend. Hotels with an automated revenue management solution can benefit from the analysis function of these systems, while hotels that conduct all their analyses manually could potentially end up reacting much more slowly to market movements than their competitors.

With the right investment in processes, technology and staff, it's possible for Shanghai hoteliers to increase performance and maximize revenue even after a large influx of guests (such as that experienced around the World Expo) has ended. While hoteliers across Shanghai experienced high demand throughout the World Expo, in a dynamic and changing market following such a large event, the secret for success amongst local hoteliers lies in flexibility and ensuring that the correct investments are made.