Hilton aims for 400 Hamptons in China
Hilton aims for 400 Hamptons in China
31 OCTOBER 2014 9:13 AM
Hilton inked a deal with heavyweight China developer Plateno Hotels Group to bring 400 Hampton-branded properties to the country’s middle market.
GLOBAL REPORT—There’s a big opening in the Chinese hotel industry’s middle market, and Jim Holthouser sees Hilton Worldwide Holdings’ Hampton brand filling in that gap.
The company on Thursday announced an exclusive licensing agreement with China-based Plateno Hotels Group to develop more than 400 Hampton by Hilton hotels in first-tier and secondary markets throughout China. The first property is expected to open by the end of 2015.
“If you look at China today, there are two groups of hotels,” said Holthouser, executive VP of global brands for Hilton. “There are the 5-star-plus Western chains that are serving wealthy groups of travelers, and then you have the smaller domestic chains in the 1- and 2-star market—what we would call ‘economy’ in the U.S.”
China leads the Asia/Pacific region in terms of existing supply* with 10,979 hotels comprising 1.8 million rooms as of September, according to STR Global, sister company of Hotel News Now. There are 1,011 hotels with 291,401 rooms under contract. Of those, 489 hotels comprising 147,197 rooms are under construction. 
He said a growing and actively traveling middle class in China caught the attention of Hilton’s global development team. There are 1.4 billion people with growing affluence and appetite for travel in China, he said. 
For outbound travel, Holthouser said that within the next decade he expects to see 200 million Chinese travel internationally. And when they do, he wants them to be familiar with the Hampton brand so they stay at the brand, or other Hilton-branded hotels, elsewhere in the world. Outbound travel a year ago totaled 100 million people, Holthouser said. A decade ago, there was no outbound market in China.
“Only 5% of Chinese have passports,” he said. “What you’re getting ready to see is the largest source of new lodging demand ever unleashed.”
During an earnings call with analysts Friday, Hilton CEO Chris Nassetta said Plateno’s loyalty program will help drive demand.
“The partnership is a win-win for both companies. … This agreement will allow us to accelerate our efforts to achieve broad geographic and chain-scale distribution in China … and on a capital-light basis,” he said. 
Holthouser said the company has been looking at ways to establish a meaningful stake in China for several years. Working with Plateno, which operates a portfolio of more than 3,000 hotels in 300 cities across China, including 2,000 7 Days hotels, was the answer.
“There is a substantial demand in China for a quality midscale lodging option, and we believe that Hampton is the right product to meet this need,” Plateno CFO Eric Wu said in a statement. Officials at Plateno were not immediately available for further comment.
Worldwide, Hampton counts more than 1,900 properties comprising 195,000 rooms in 17 countries and territories. Hilton intends to build out its Hampton portfolio in China during the course of the next five to eight years, Holthouser said. 
Most of the growth will come from new builds. “There’s just not much to convert from,” he said.
The hotels will be at the 3-star level, Holthouser said. “It’s about doing the basics very well,” he said.
The rooms will be 300 square feet in size, approximately the same as the company’s European portfolio. The furniture, fixtures and equipment will have more of a Chinese flair with bolder colors than are seen in the U.S.
Development challenges
When the company initially began looking at developing in China, officials knew navigating the red tape and political environment in the country would be difficult. Executives spent two years looking for a local partner.
“We didn’t want to take Hampton in China and then 10 or 15 years later have (only) 40 hotels,” Holthouser said. “To grow rapidly and take advantage of the opportunity to have a good way to franchise, you need to have a relationship with people who build that level of hotels. And none of that we really have.”
Plateno, which will sell and qualify franchisees and manage the hotels, does have those relationships with local government sources and others that Hilton otherwise lacked. Hilton officials especially were impressed with how Plateno was able to grow the 7 Days brand.
“To grow very rapidly in a market where no one is, you really have to have good local partners,” Holthouser said. “They have thousands of relationships with local hotel (companies), and we don’t.”
He added: “One of the things I have learned from five years of working in China is these people move fast.”
“I am 100% confident that doing it with them is going to accelerate our ability to penetrate the 3-, 3.5-star (segment) versus doing it on our own by multiples,” Nassetta said during the earnings call.
Hilton has 17,000 rooms operating in China, and another 50,000 rooms in the pipeline.
Hilton’s investment in the hotels will be minimal. Local owners will bear the lion’s share of the financing cost. The cost to develop in China is “all over the board,” Holthouser said.
“If you develop in a first-tier city, it’s going to be like developing in Manhattan here,” he said. “The cost is very expensive on a per-key basis. Second and tertiary markets (are) going to be a little bit (less expensive).
“What’s different in China than in the U.S. is the cost of labor. There’s wage pressure in China,” he added.
Despite those costs, Holthouser is optimistic about Hilton’s development opportunity in China. While there have been concerns about the slowdown of the country’s real estate sector, Holthouser said China is still seeing strong growth numbers.
“I’m pretty confident,” Holthouser said of whether the company will hit its 400-hotel goal.
HNN’s Patrick Mayock contributed to this report.

Correction, 19 November 2014: An earlier version of this story listed the existing supply as pipeline figures.

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