Luxury Hotels Contend for Second-tier Cities

When the market in China’s major cities reaches the saturation point, the luxury hotels begin to take the second-tier cities as their new bases.

Langham, the international luxury hotel chain, plans to establish six new hotels in China in next five years. Different from the past, the locations of these hotels are not limited to Beijing, Shanghai and Guangzhou. Langham extended its arm to Ningbo, Dalian and some other not that kind of “metropolis”.

“Getting into the second-tier cities of China gets along with our development plan,” said Bob van den Oord, vice president of marketing and promotion department of Langham. The expansion strategy Langham takes is to build flagship hotels in the major cities, based on which it expands to their surrounding cities.

Bob van den Oord believes that the second-tier cities in China, whose population is close to the one in major cities, have the potential to grow to be a regional central city in industry, finance and facilities. “We expect our business to see development in these key places. The cities like Dalian and Ningbo ally with Langham’s brand positioning.”

Langham is jointed with Shangri-La, who is actively seeking for market opportunities in the second- and third-tier cities. It firstly established hotels in Baotou, Changchun and Changzhou, which are followed by Diqing, Manchouli, Tangshan and Qinghuangdao. In the next three years, about ten Shangri-La hotels will be established in the second- and third-tier cities of China.

According to the statistics, there are 225,000 rooms or 1,000 hotels being built in China. Most of these hotels serve for the high-end segment market.

Walking out the metropolis in China, the luxury hotels have a bigger access to the local market by setting foot in the second- and third-tier cities. Zhu Fuming, marketing director of Shangri-La says that the international hotels in China previously mainly served fro the business travelers, especially the ones from foreign countries. However, the number of these customers greatly reduced due to the financial crisis. One big feature of the second- and third-tier cities is that they have higher localization level and are less influenced by the financial crisis.

For this, Zhu Fuming says that the export-oriented enterprises in China are forced to transfer a certain part of their business to the domestic market by the financial crisis. They may try to expand in the second- and third-tier cities which get smaller marks of the financial crisis. Therefore, the need for conference rooms in hotels will increase in these cities. So will the business travel market.

According to the estimation of McKinsey, the number of rich families will increase from 1.6 million in 2008 to 4.4 million in 2015. 75% of the new rich families will root in the “places other than the major cities”.

Though not all the rich families can afford one or several nights in the luxury hotels, it at least tells a truth that the great potential market lies outside of Beijing, Shanghai and Guangzhou.

Take the member of the Leading Hotels of the World, there are 10 luxury hotels in Paris, 11 in London and 12 in New York. In Beijing there are three luxury hotels, two fewer than Shanghai. In Qinghuangdao, Diqing and some other not-so-famous cities, the high-end market is still blank.