China’s Growing Service Economy: Super 8 Targets the Local Hotel Market
Congratulations to my good friend, Mitch Presnick, whose company, Tian Rui Hotel Corporation, recently raised $50 million from Aetos Capital, a real estate investment management firm, to expand its Super 8 hotel operation in China.
New investments in hotels are not particularly big news in China, since new hotels open on almost a daily basis in Beijing, Shanghai, Guangzhou and other major, and not so major, cities in China. However, the vast majority of these hotels are targeted at the luxury or high-end segment of the hotel market. Mitch’s announcement is significant because his company has targeted China’s vast local market–hotels which provide rooms for approximately RMB 200 per night.
Born in Brooklyn, Mitch first came to China in 1988 and, until a few years ago, worked in Beijing, handling public relations for many major multinationals with operations in China. Then Mitch caught the entrepreneurial bug and saw an opportunity in China’s economy hotel sector. Along with a few friends, Mitch formed Tian Rui, which succeeded in 2004 in obtaining the China franchise for the Super 8 brand, owned by Wyndham Hotel Group (NYSE:WYN). Since then, Tian Rui has opened 49 Super 8 hotels in China, representing more than 4,700 rooms, and has signed agreements to develop an additional 67 hotels. The Super 8 brand already is among the largest economy chains in China.
Hotel growth in China has been propelled by the country’s rapidly-growing economy, which has increased the amount of business and leisure travel. The World Travel & Tourism Council has predicted that China will become the second largest travel and tourism economy in the world by 2016. In addition, the 2008 Olympic Games in Beijing are expected to bring hundreds of thousands of international visitors to China and attract additional worldwide interest in China as a travel destination.
For hoteliers, Super 8 offers an opportunity previously unavailable to the mid-range: unified marketing and a national brand. China’s highly-fragmented hospitality market leaves numerous two- and three-star hotels as unrecognized islands in their respective cities, left to market themselves against numerous competitors in the same boat. By becoming a Super 8 franchisee, they tap into a national advertising and reservations network unavailable to independent operators.
Mitch’s concept was very simple when he started Tian Rui. He saw that most international investors and hotel chains were targeting the high end of the market, leaving the much larger economy hotel market to the local players. It’s no different than the 1950s, when the first of the national hotel chains like Holiday Inn saw the same opportunity in the United States. Mitch recognized that China’s local business travelers and tourists wanted to stay at hotels which could offer rooms with good, consistent, quality nationally–at an affordable price. By securing the franchise for the Super 8 brand in China, Tian Rui has been able to offer local hotel operators the opportunity to be a Super 8 franchisee, benefiting from the know-how and systems which Super 8 has developed over many years and tapping into a domestic and international reservation system. The capital provided by Aetos will enable Tian Rui to not only franchise, but also to own and operate hotels.
Every product in China has two markets: a higher-end market where international players compete with the best of the Chinese companies; and a much larger local market where prices are at levels that are affordable for the vast majority of China’s population, but which is dominated by purely local players. Mitch has shown great vision in figuring out a way to tap into this local market because it will ultimately represent the main source of growth in China over the long-term.
