In this exclusive HM column, Patrick Bosworth, the co-founder and CEO of revenue strategy technology company Duetto, makes his case for why having a clear focus on China can no longer be an afterthought for U.S. hotels and companies.
What is your China strategy? If you can’t answer that question right now, you’re drastically behind the rest of the global hotel industry, which is attracting unprecedented interest from Chinese investors and tourists.
Just this week, Han’s Holding Group filed a development application for a $500-million mixed-use property in Sydney, which is impressive, but pales in comparison to last month’s multibillion-dollar investments by HNA Group in Hilton Worldwide and China Life Insurance in Starwood Capital Group.
What this incredible activity says to me is this: Chinese companies, seemingly across the board, view the global hospitality industry as a rewarding place to invest. The hotel space now has a few worldwide players after much consolidation, but it took decades to form, and it could be upended to look completely different in only a couple years.
Chinese Investors Raise the Stakes
Up to now, the global hospitality industry has been dominated by firms from the U.S. and Western Europe. There had not really been other markets of major influence—until Chinese investors started acquiring major stakes in those companies from the West.
The trend of major institutional investors from China eyeing Western hotels and companies has been active for the past several years. Some have had a major impact on massive mergers and acquisitions, even when they miss out on the action, as Chinese insurer Anbang did when its bid for Starwood Hotels and Resorts lost out to Marriott International’s earlier this year. Anbang, of course, is doing just fine for itself, having acquired most of Strategic Hotels & Resorts in September.
As HOTEL MANAGEMENT editors have written previously, Chinese investors have turned to real estate assets, like American and European hotels, for safe haven on fears of a volatile Chinese economy. In fact, as CBRE noted in an August report, Chinese groups accounted for three-fifths of total Asian outbound investment.
If Chinese companies are looking to get money converted out of renminbi into dollars, euros and pounds, the hospitality industry is a good place to do it, particularly as Chinese outbound tourism is in its infancy. Given all those reasons, it’s fascinating to see how big a bet Chinese companies are making and what that might mean for the industry.
Even though there are periodic ups and downs in this industry, major investors see hotels as a relatively safe place to park money over the long term.
It’s an industry driven by real estate, and the product of a hotel stay doesn’t go in and out of vogue. We talk about the prospect of disruption a lot, but let’s be honest: The home-sharing format is never going to completely replace the hotel experience. There is always a place for a proper hotel with a concierge and front desk, a three-daypart restaurant and a location in a thriving city center or near a convention site.
A Growing Base of Hotel Guests
These new partnerships with Chinese investors are also beneficial to hotel companies looking to grow within China and appeal to its growing middle class of leisure travelers who are increasingly traveling to the U.S. and Europe.
Hilton Worldwide CEO Chris Nassetta talked about this during the company’s most recent earnings call with investors, touting HNA Group’s exposure to China’s travel and tourism industry, including an airline with millions of loyalty club members.
“We have our customer base, they have their base, and there is not much overlap between our customer base and theirs,” Nassetta said. “So there is opportunity to connect those bases. It’s mutually beneficial.”
He added that HNA’s relationships and reach with Chinese lenders and markets would be another tailwind for growing in that country.
Hotels should also be ready to invest in their properties and the experiences they can offer Chinese guests. According to a recent study by the British Hospitality Association, tastes of Chinese consumers are expected to creep upward from their current preferences for three- and four-star hotels. The report’s authors suggested hotels be able to accept Chinese credit cards, offer familiar food-and-beverage options and have Mandarin speakers available to lead tours or handle customer-service issues.
The upshot of all this interest in Western hotel companies from Chinese investors and consumers is that this industry is more global than ever. As hotel markets in the West mature further and face a cyclical slowdown in growth, they’ll need to be open to new opportunities coming from China.
All why this is a must: Make sure your property has a plan for attracting these new guests and backers looking to put more money into hotels.
Patrick Bosworth is co-founder and CEO of Duetto, a San Francisco-based developer of revenue strategy technology for hotels and casinos. Before leading Duetto, he was director of yielding and business strategy for Wynn Las Vegas.