Will China Welcome a Mid-Range Hotel?

Hotel Jen marries high design with smart business strategy as it targets an overlookedand growingsector of the hotel market

The Chinese hotel boom continues. This March yet another new property opened its doors in Hong Kong's bustling Western District. But Hotel Jen, as the newcomer is called, is unlike any of the myriad other brands that have sprouted in China's fast-growing hospitality market.

Hotel Jen is a study in sleek, ultramodernist design: Light, airy rooms are equipped with high-speed WiFi. In the lobby, wall-mounted flat-panel TVs pulse with rapid-fire images. A rooftop pool overlooks the city's harbor. Despite the glitz, this is not one of the thousands of new high-end luxury hotels. Nor, clearly, is it a budget offering, an equally competitive sector of the market. Rather, Hotel Jen is an experiment—the first, most likely if it's successful, in a line of mid-range hotels aimed at the burgeoning population of Chinese business travelers. It's also a signal that design, as a tool of brand creation, is trickling down from China's luxury sector.

Hotel Jen is born into a rapidly changing environment. China's economic liberalization has fueled a countrywide building boom that has littered the nation's skylines with most of the world's cranes. The World Bank estimates that by 2015, half of new-building construction around the globe will take place in China. And upcoming events such as this summer's Olympic Games and 2010's World's Fair and Asian Games are further sparking growth—and a $10 billion business travel market.

Affordable but Attractive Accommodations

Until now, though, the hotel market has boomed at the extremes: high-end four- and five-star luxury properties and low-cost, homegrown budget accommodations. "The Chinese market is relatively devoid of mid-market brands," says Patrick Ford, president of the Portsmouth (N.H.) global real estate company, Lodging Econometrix. Indeed, the number of budget hotel rooms has grown in the past eight years from practically zero to more than 100,000; there are more than 700,000 rooms in four- and five-star properties. But mid-market locations are still too few and far between to be counted. "There's just not a lot right in the middle," says Ford.

Enter Hotel Jen. The slickly styled brand is the brainchild of San Francisco firm MetaDesign and Hong Kong's The Kerry Group, which owns the five-star Shangri-La Hotels & Resorts. Hua Kuok, the senior Kerry executive in charge of the project, says the company decided early on to let design be the brand's differentiator, providing affordable but attractive accommodations, then a novelty in China. "We believe that extensive design application will translate to customer loyalty and, ultimately, long-term business results," he says.

When MetaDesign got the commission for the hotel in late-2006, it first focused on creating a brand identity. The designers homed in on four key values—being pragmatic, efficient, clean, and natural—that served as guideposts in coming up with everything from the brand's logo to uniforms for the hotel's service staff. One result: Rooms designed with warm tones, with furniture and room dividers made of light-colored woods.

The group also created twin logos in English and simplified Chinese, both based on the Gotham typeface, to create a hip and potentially global brand. In English, the "E" is an ideogram, similar to the Chinese character for "shelter." Custom typography was developed for the Chinese name so both logos would occupy exactly the same footprint. "Jen comes from the Confucian symbol for love," says Brett Wickens, MetaDesign's vice-president and executive creative director. "But it also has a sense of 'we the people,' so we played on that with a tongue-in-cheek Maoist red."

Success Uncertain

Rather than construct a new property, The Kerry Group spent about $12 million to redesign an existing hotel in partnership with MetaDesign, which commissioned architects and other manufacturers to create everything inside from the cafeteria's silverware to the furniture in each of the 280 rooms.

The result is in marked contrast to the small, dingy rooms at many of the country's budget chains. Each room comes with a bevy of extras, including wireless and broadband and liquid-crystal display TVs. In the smaller ones, designers located the bathroom sinks and closets between the front doors and bedrooms, creating a more cloistered, private sleeping environment. Designers also laid out certain rooms so they could be used as daytime offices for business travelers. Rates range from $100 to $180 for the high-end suites, compared with about $50 to $100 for bare-bones budget accommodations elsewhere.

But like many brands trying to break into a new market, Hotel Jen's success is uncertain. Kuok says since the hotel's opening on Mar. 1, occupancy slightly lags that of the same property before the rebranding. He says that's "to be expected for a new brand entering the market."

Copycats May Cut Into Market

Consultant Patrick Ford expects the company to do well. "The Kerry Group knows the market extremely well," he says. "They'll be known as a Chinese company, which could be a big advantage in front of the Chinese middle class."

Still, the hotelier could face some difficulties. It will have to target two distinct groups of potential customers, pitching lower prices to those who currently stay in luxury hotels while trying to entice budget customers with Hotel Jen's upscale amenities and design. And a global economic slowdown could contribute to a slowdown in travel to the country, though the Chinese business scene doesn't show signs of that.

The biggest challenge may be from copycats. In the U.S., design-savvy boutique hotels have been so successful that they now face competition from industry sub-brands such as Starwood Hotels & Resorts' (HOT) new Aloft hotels and InterContinental Hotels Group's (IHG) Hotel Indigo. More established Chinese hospitality brands may do the same, cutting into Hotel Jen's market.

At the moment though, Hotel Jen has few direct competitors, and it is opening at a time of unprecedented growth in travel to and within China. The latest official data available show that, in 2006, 1.39 billion domestic trips by Chinese tourists generated $85 billion, an increase of 17% from 2005. Even a small fraction of that could mean millions of dollars of potential business for the new chain.

Click to view a slide show of Hotel Jen images.

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