A woman steps out of a Home Inn hotel in Shanghai. Home Inn will reportedly own a network of 1,600 hotels in China in the coming five years, 200 fewer than what 7 Days Inn plans. Asianewsphoto

Budget hotel operator plans to expand fast and furiously

"Will 7 Days Inn overtake Home Inn soon?" That is the question on many people's lips after the former listed in the US in November, 2009.

Days after the listing, founder and chief executive officer of the Guangzhou-based budget hotel, also China's third largest player in the sector, announced the company would be seeking rapid expansion.

"In five years, the number of hotels under the operation of the 7 Days Inn will surpass 1,800. We will expand more deeply and widely nationwide," said Alex Zheng, the company's CEO.

"There is no doubt that 7 Days Inn will be the leading player in the industry, outperforming Home Inn," he added with emphasis.

Currently, 7 Days Inn has 320 hotels, while Home Inn, the leading brand, and the first Chinese company from the sector to list on the NASDAQ, in 2006, has a portfolio of 600 hotels.

"We will have an additional 200 properties annually from 2010," said David Sun, CEO of Shanghai-based Home Inn.

That means, five years later, Home Inn will own a network of 1,600 hotels in China, 200 fewer than what 7 Days Inn plans.

"I don't think Home Inn will be overtaken for a long period of time. I firmly believe this cannot be an easy task," said Sun.

Home Inn was not an early bird in the budget hotel industry. Jointly established in 2002 by Beijing Tourism Group and China's major tourism service provider Ctrip.com, Home Inn, however, has undoubtedly been the quickest in expanding its network.

From the five hotels covering 487 rooms in its early days, Home Inn had more than 80 hotels under its operation when the company made an initial public offering (IPO) on the NASDAQ in 2006. The figure is now more than seven times that.

Home Inn started a trend when it became the first Chinese budget hotel operator to get listed, a move which also sparked interest from overseas investors in the lucrative Chinese budget hotel industry.

"The truth is we set an example for many to follow," said Sun.

One of the then founders of Home Inn, Ji Qi, in early 2005, founded Hanting Inn, another leading budget hotel brand that is preparing for an IPO on the NASDAQ.

"Hanting Inn has been closely following the example (of Home Inn)," said Zheng.

Twin sides

Expansion is one side of the success story and, on the other side, Home Inn has been committed to carrying out "a consistent standard and quality service in all its properties," said Sun.

Home Inn has published 18 books of guidelines, nicknamed the "Home Inn Bible", on standardizing staff duties and performance.

"This (standardization) cannot easily be bettered," said Sun.

In China, the top three budget hotels, including Home Inn, Jinjiang Inn, the first budget hotel brand, and 7 Days Inn, created sales amounting to 40 percent of the sector's total. Foreign brands have made forays into the market, but they were outperformed by their domestic counterparts in both network and recognition.

The United States-based Super 8, the leading player worldwide, has 120 hotels under its operation in China. Ibis, the leading European budget hotel brand, is also lagging far behind, with just 36.

Experts unanimously believe Home Inn and 7 Days Inn are at the top of their sector.

"I don't care much about the others, except for Home Inn. It will be the only competitor for 7 Days Inn," said Zheng.

The group was an industry latecomer. In 2005, Zheng and partners founded 7 Days Inn in Guangzhou. It didn't begin to expand nationwide until the company got its first round of investment from the US private equity firm Warburg Pincus. Before the IPO, it received injections of three rounds of venture capital.

Most profitable hotel

7 Days Inn is the most profitable company in the industry, with a net profit ratio of 65 percent, 10 percentage points higher than Home Inn, insiders revealed.

"Cost control is what separates itself from its peers," they said.

It's CEO and also the founder Zheng majored in technology at university and worked for many technology companies. Now in his 40s he is known as a "cost control master" for leveraging hi-tech tools.

7 Days Inn has a strong and professional team on project development to measure on whether hotels are located at prime sites that could generate high occupancy rates. Its well-developed online reservation system helps the company save a lot on recruiting workers. "More than 60 percent of sales come from online reservations," said Zheng.

Moreover, the comparatively low room rates made it possible for the 7 Days Inn to quickly become popular and build up a band of loyal customers. Now, the company has 8.7 million people registered as members. They reportedly make up 80 percent of its sales.

On average, revenue per available room (RevPAR) for the 7 Days Inn hotels nationwide is 170 yuan, 20 yuan lower than Home Inn. The revenue per room for Jinjiang Inn is the highest among the top three players.

Zheng believes the picture ahead is turning rosier. "The IPO is just a beginning. As the network expands, brand recognition gets stronger, and our competitive edge turns sharper. It's all coming together perfectly," he said.

(China Daily 12/28/2009 page3)