The Zhitong Finance App learned that CICC released a research report saying that while recovering their performance in 2023, leading hotel companies are actively exploring new directions to bring long-term growth impetus: focusing on the two paths of “downward expansion” and “upward breakthrough.” It is recommended to pay close attention to the downward penetration of leading hotel chains into low-tier cities and the continuous upgrading of upward product brands, so as to explore the long-term growth space of leading companies.

▍ The main views of CICC are as follows:

“Downward”: Both supply and demand sides of the sinking market have created new variables, and leading chains are expected to continue to expand their stores downward.

1) Supply side: Demand for refurbishing some of the existing hotels or products in the sinking market (Ctrip data shows that the proportion of unrenovated hotels in the sinking market that have been in operation for 6-10 years and more is higher than in Tier 1 and 2 cities). Coupled with the current situation where the vacancy rate of office buildings is increasing and rents are falling, the sinking market may have a relatively better rental and sales ratio.

2) Demand side: China's transportation network continues to sink or empower cross-regional exchanges, which in turn brings customers to the hotel industry. The three major needs of local residents in low-tier cities, foreign leisure, and foreign business travel may have room for growth.

3) Chain brand opportunities: It was discovered that there is still a gap between the hotel chain rate in the sinking market and high-tier cities (Ctrip data shows that as of December 2023, the linkage rate of China's 1/2/3/4 cities and below is about 44/36/25/ 14%, respectively), management (store operation, supervision mechanism and management personnel), customer source (CRS system may bring more stability, lower customer acquisition costs, and a basic customer base with a certain degree of stickiness), chain brands may continue to have advantages in terms of products (design, decoration, supply chain, etc.) Penetrate the sinking market.

4) Competitive pattern: It was discovered that the current sinking market chain brands have initially formed a “3+2” competitive pattern: Top3 Hotel Group's influence continues to radiate into the sinking market, and Shangmei Digital Intelligence and Dongcheng use deep cultivation of the sinking market to maintain a certain market share.

“Upward”: Yaduo leads the middle and high-end hotel market, innovates products, reinvents organizations, explores diversity, or helps improve and upgrade and shape the brand.

In terms of multi-dimensional comparisons such as the number of stores in operation and average consumer ratings, Yaduo is in a leading position in the high-end hotel market in high-tier cities, and Huazhu is also developing high-end through brands such as Orange Crystal, Intercity, and Mercure.

The middle and high-end market can continue to improve through three major paths: 1) based on product strength, multiple innovations lead demand, and focus on shaping quality; 2) improving and upgrading the company's internal corporate culture, organizational structure, management model, etc. or becoming the underlying logical pillar of external product service and customer experience advantages; 3) diversified exploration outside of hotels or beneficial to shaping brand value. Yado is leading the diversified exploration path of hotel groups, entering the retail sector to further shape brand value.

risks

RevPAR's growth fell short of expectations due to pressure on consumption power and travel demand; increased supply or increased competition, which made RevPAR grow less than expected; and the pace of scale expansion was slower than expected.