China Remains Unmined Resource for Midscale Hotel Segment

China is on the brink of a gold rush for franchising prospectors.

Hilton Worldwide has been in China with full service and luxury brands Hilton Hotels & Resorts, Waldorf Astoria Hotels & Resorts and Conrad Hotels & Resorts, but the midscale playing field is entirely different.

While the country quickly developed its accommodation product from basic hostels to 5-star luxury during an extended period of rapid growth, the midscale market of 3- to 3.5-star hotels has been largely untapped.

This matters because there is an exponential increase to China’s middle class. The country currently has about 109 million middle class individuals, according to the Global Wealth Report of the Credit Suisse Research Institute. That is already the highest in the world – in front of the United States by about 17 million.

It’s a class of population that has middling tastes, middling values and expects middling price ranges that fall in that wide gap between basic and extravagant. You might recognize the demographic – it’s that upward mobility of wealth that helped drive the U.S.’s growth spurt in a post-World War II economy during the 1950s and 1960s.

And China’s middle class is only going to continue this explosive expansion, even though the world’s second-largest economy posted its slowest growth rate in seven years, by 6.7% in the first quarter of 2016, when official GDP was published by China’s National Bureau of Statistics on Friday, April 15.

By 2022, more than 75 percent of China’s urban consumers will earn between $9,000 USD and $34,000 USD annually, according to market research firm McKinsey & Company. That places the purchasing power of the new Chinese middle class somewhere between Brazil and Italy; a range that just 4 percent of its urban households reached in 2000, but grew to 68 percent in 2012. By that rate, it’s easy to see how the income of these urban-households will at least double by 2022.

The net result is that more Chinese are not only spending more money buying new products, but they’re starting to display the hallmark of a newly wealthy upper middle class – being picky about which brands they prefer and choose to experience.

This is the rich soil in which western brands like Hampton by Hilton can stake their claim.

So we recently introduced Hampton by Hilton in China through a partnership with Plateno Hotels Group to create a model for reaching this midscale market. The master franchise agreement will see about 400 hotels opened over the next decade, including 10 properties by the end of 2016 through a combination of new builds, conversions and adaptive reuse properties.

The partnership is a win-win for both companies, a fusion of two cultures delivering excellent value to a hospitality industry in which each is an expert. Hampton by Hilton is an established, award-winning leader in the mid-priced hotel segment with more than 2,100 Hampton Inn, Hampton Inn & Suites and Hampton by Hilton properties in 20 countries and territories. Plateno Hotels Group operates five brands and over 3,000 hotels in 300 cities across China. Plateno also operates the largest hotel loyalty program in China reaching 80 million members, which will provide a new source of guests for Hampton by Hilton in China.

Hampton and Plateno share a similar guest philosophy, focusing on providing clean, comfortable, affordable accommodations in a variety of locations. Similarly, each aims to help guests focus on their travel goals not their lodging costs. We share similar brand cultures – Hampton is known for its fun-spirited, thoughtful personality, coined Hamptonality. At Hampton each team member focuses on delivering friendly, authentic, caring and thoughtful service (FACT), and Plateno truly embodies that brand philosophy.

Plateno understands the market inside and out with a deep knowledge of the many cultural differences throughout China. In return, by affiliating Hampton with Hilton, Plateno is able to approach a developer and customer and say this western brand has 2,000-plus hotels.

At first, we will target large markets like Shanghai, Beijing and Guangzhou.

In 2014, we introduced a new 3- to 3.5-star hotel prototype, compatible with top-tier cities, serving value-conscious, quality-driven business and leisure travelers. And in March, Hampton by Hilton Guangzhou Zhujiang New Town opened as the newest Hampton by Hilton and the brand’s flagship property in China. The 223-room hotel signifies a breakthrough for Hilton Worldwide’s development and new franchise opportunities as it’s used as a model to continue growth throughout China.

Outside of China’s major cities, future Hampton hotels based in smaller towns will have to be more localized with more options in-house, like three-meal-a-day restaurants. That’s where we’ll be tapping into Plateno’s local expertise. Everything down to the hotel bed, which is considered a status symbol in China, will be carefully considered.

Everyone is watching China, and having the right partners in place makes a great difference in getting a piece of it.

Phil Cordell serves as the Global Head of Focused Service and Hampton Brand Management for Hilton Worldwide, the internationally recognized preeminent hospitality company. The company develops, owns, manages or franchises more than 4,600 hotels globally. Its portfolio includes many of the world’s best known and most highly regarded hotel brands. Cordell leads the focused service brand efforts, including Hilton Garden Inn, Hampton by Hilton, and the newest brand, Tru by Hilton.

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