Thursday, April 17, 2008

Budget Hotel

China's budget hotel industry, which has less than 10 years' history, has again come under the limelight. On one hand, it is the domestic giant Home Inn on an acquisition spree; on the other hand it is the rapid expansion of international predators. In less then 4 years, the number of budget hotels in China had grown from 166 in 2004 to 1476 in October 2007, almost a 1000% growth. As the industry becomes more mature, many problems previously swept under the carpet are now surfacing.

Cost challenge

Compared to ordinary hotels, cheap rent is the major feature of budget hotels, as well as the main reason for the industry's fast expansion. But as the number of budget hotel surges in China, budget has become the biggest issue faced by budget hotels currently.

"Cost increase is a dire problem for budget hotels. Apart from general cost inflation, costs associated with expansion activities have been the chief reason for cost increases in most budget hotel chains." said Mr Hu Shengyang, CEO of Shanghai Inntie Hotel Management Consulting. Hu suggested that the concentration of location selection by budget hotels and their exponential growth in numbers have resulted in a reduction of potential sites. This intensifies the competition for high grade properties between hotel brands, directly pushing up site acquisition costs. Meanwhile, other costs such as personnel, building and management are also going up.

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