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Survival of the fittest

The challenges and promise of China’s budget hotel industry


Survival of the FittestThe budget hotel sector has seen rapid growth in China with its unique value proposition. The economic slowdown made much less impact to this sector than to other hospitality categories. The long term development looks promising while in the short run, chain operators are facing various challenges. As the competition becomes fiercer and big players are locked in "rooms race", budget hotel operators will have to deal with profitability / cash issue at the corporate level even though individual hotels are performing well.

Based on Deloitte's interview with significant industry insiders and internal staff survey, there are a number of factors contributing to the future success in this highly competitive market, among which, customer retention and cost control appear to be the most significant themes.

We discuss in detail in this report the key factors related to customer retention and cost control, and how they affect a corporation's performance. We also examine the possibility of hotel operators increasing the accommodation prices in the long run to improve its bottom line.

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