At different stages of development, enterprises encounter different "hurdles." Perhaps this is the story behind the multiple acquisitions by the Jinjiang Group.
"When an enterprise grows to 30, 100, 300, or 1,000 outlets, there is always a hurdle—for example, the profit hurdle, the chain management hurdle, the system platform building hurdle, and eventually the corporate culture hurdle," said an industry insider. Indeed, enterprises face different challenges at different stages. The success of the four major economy hotel giants lies in overcoming their hurdles during their "golden development period." If these hurdles are encountered during the "monopolistic competition period," companies will face greater difficulties. Perhaps this is the story behind the multiple acquisitions by the Jinjiang Group.
InterContinental—The Capital Chain Hurdle
InterContinental Group managed 232 hotel properties across 37 U.S. states, the District of Columbia, and Russia, with a total of over 46,000 rooms. The company had equity interests in 56 of these properties, including six wholly owned assets. At the time, business was good, but after the financial crisis, borrowing in the U.S. became very expensive due to high interest rates, and the hotel group fell into a capital chain hurdle.
On March 18, 2010, Jinjiang International Group, together with the U.S.-based Thayer Lodging Group, officially acquired InterContinental Hotels Group for $300 million. This was then called the largest M&A deal by a Chinese hotel group to date, but it was not well received in the industry. Many believed it was paying a high tuition fee for testing the overseas market. According to public information, the acquisition took on all of InterContinental’s debts and repaid part of them.
In addition, some insiders noted that due to differences in culture, consumer demand, and other factors, domestic brands would face many challenges when operating hotels abroad, such as increased labor costs.
But later facts proved that this was one of Jinjiang’s proudest acquisitions. It was revealed that after nearly five years of operation, InterContinental had doubled in scale, with EBITDA growing from over $30 million at the time of acquisition to currently exceeding $50 million. In the first half of 2015, the average daily rate of managed hotels was $147.8, with an average occupancy rate of 76.9% and average room revenue of $113.6, up 7.6% year-on-year.
Regarding this, hotel industry commentator An Youshichen said that this acquisition not only rapidly expanded Jinjiang International’s overall scale, especially in overseas markets, but also gave Jinjiang an opportunity to enter the international hotel market and learn management philosophies and systems completely different from those of the Chinese hotel market. This was a timely and well-timed acquisition.
Fashion Travel—The Capital Chain Hurdle
Speaking of why Fashion Travel was acquired, insiders revealed that it was mainly because Fashion Travel faced a capital chain hurdle during its development. "Fashion Travel Hotels" were previously supporting business chain hotels in Wanda Plaza complexes, positioned as mid-tier hotels. As Wanda Plaza developed rapidly, Fashion Travel, in its rush to expand, opened stores by taking on debt, eventually falling into a capital chain dilemma.
On April 25, 2013, Jinjiang Shares spent 710 million yuan to acquire Fashion Travel Hotels. In June 2014, 21 "Fashion Travel" hotels in 18 cities within the original Fashion Travel Hotel Group’s Wanda Plaza commercial districts were rebranded as Jinjiang Metropolo Hotels, significantly expanding the scale of Jinjiang Metropolo. After the acquisition, with the support of Jinjiang Metropolo’s mature central channels and various systems, occupancy rates continued to rise, and RevPAR increased by nearly 30 yuan. At the same time, by eliminating headquarters operating costs, hotel expenses gradually decreased, greatly improving overall efficiency.
City Inn—The Profit Hurdle
"City Inn" is an economy-themed boutique hotel brand successfully developed by Overseas Chinese Town International Hotel Management Company alongside its high-end hotel products. As the return on investment in the economy hotel market continued to decline, Overseas Chinese Town decided to focus on the development of mid-to-high-end hotels and sold City Inn hotels.
In September 2013, Jinjiang Metropolo spent 70 million yuan to acquire 100% equity of City Inn Company for 70 million RMB. Jinjiang Metropolo stated that the 10 City Inn outlets would be uniformly rebranded under its Jin Guang Express Hotel and other brands to accelerate brand expansion in southern China.
In the view of hotel industry commentator An Youshichen, this acquisition would yield good results. Jinjiang’s acquisitions of Fashion Travel and City Inn can be categorized as domestic acquisition cases of economy and mid-tier hotel brands. Since the history of domestic economy and mid-tier chain brands is not very long, the feasibility of brand integration is usually higher. After the equity change, the acquirer can rebrand the acquired brand’s hotels, rapidly expanding its own scale and increasing market share in a specific region or segment.
Louvre Hotels—A Win-Win in Capital Cooperation
Louvre Hotels Group operates over 1,100 hotels in 47 countries. Its portfolio includes both high-end and economy hotels, such as Kyriad, Campanile, and Royal Tulip. Jinjiang International Group is one of China’s largest hotel groups, operating over 1,700 hotels in 11 countries, as well as businesses in tourism services and logistics. The two had actually collaborated through brand alliances earlier, and from brand cooperation to capital operations, Jinjiang is gradually expanding its overseas market.
So why did this hotel group choose to sell? On this, Miles.com asked insiders, who said it was not actually an acquisition but rather a zero-cost partnership.
The acquisition has now been fully completed, and Jinjiang will work to achieve complementary strengths and synergies between its existing domestic operations and those of Louvre Hotels Group. It plans to promote Louvre brands such as Campanile and Golden Tulip into the Asia-Pacific market, while Jinjiang’s hotel brands enter the European market, expanding Jinjiang’s market share. According to the 2015 interim report released by Shanghai Jinjiang International Hotels (Group) Co., Ltd., this acquisition brought in about 2.362 billion yuan in revenue, a year-on-year increase of about 90.6%, accounting for about 43.3% of turnover.
Hotel industry commentator An Youshichen believes this cooperation benefits the expansion of Louvre Hotels Group brands in the Chinese market, but how effective it will be for Jinjiang’s existing brands in overseas expansion remains to be seen.
As Jinjiang continues to expand, acquisitions have played an active role. For a group to grow big, relying solely on the development of directly operated stores is clearly unrealistic. Now Jinjiang is planning new acquisitions, bringing Plateno and Vienna into its fold. Why is Zheng Nanyan, known for his sharp market sense, willing to sell the kingdom he built? Why are rumors circulating that Vienna, originally planning to raise funds for an IPO, might sell 80% of its shares to Jinjiang? Stay tuned for the next chapter.
Plateno—The "Fast-Slow" Theory Hurdle
Seeking speed is common during the golden development period of hotels. During the golden age of economy hotel growth, everyone was racing to expand, maximizing their scale—for example, compromising property usage rights to 8 or 10 years instead of adhering to the 15-year rule. Rent was also paid on an actual occurrence basis without proper risk sharing. This directly led to insufficient future development and falling into the dilemma of declining profits. Aside from Jinjiang Inn, Home Inns, 7 Days, and Hanting all faced this issue. Insiders said that the reason Jinjiang maintained steady growth in the later development stage was mainly because it did not seek quick success during the golden period but instead grew steadily. At the same time, due to its state-owned nature, Jinjiang took on risks from the start of operations—for example, insisting on 15-year property leases and using straight-line amortization to spread property rent costs over the entire operational cycle. In-store items were also depreciated by category. Therefore, as operating time increased, hotel profits continued to grow.
After the golden period, the economy hotel industry officially entered the competitive phase. As 7 Days’ profits narrowed, Plateno was about to face the hurdles of property recovery and profit contraction. This made the sale seem reasonable. Although the cooperation model between the two has not yet been finalized, it is highly likely that Plateno’s current operational model will be largely maintained, in line with Jinjiang’s consistent approach.
Miles.com columnist Fang Shihong said that banding together for security and market influence is a common phenomenon in the current hotel market. Additionally, Plateno, which delisted from the U.S. and returned to China, has been slow to go public and may leverage the well-funded Jinjiang Shares to achieve its goal of entering the capital market. Currently, state-owned enterprise reform is the backdrop for acquisitions, and Jinjiang is one of the companies prioritized by the Shanghai SASAC to expand internationally, so it is not ruled out that this acquisition is a tacit agreement to support Jinjiang’s growth and accelerate SOE reform. Acquisition is the fastest and most effective way to grow. Building a battleship before going to sea ensures resilience against storms, and for Jinjiang aiming to go global, expanding its scale is also a key direction.
Vienna—The System Management Hurdle of 300 Stores
For Plateno, this old "rumored girlfriend," Vienna is a newcomer. In August 2015, news spread that Vienna Hotel Group and its related catering business had 80% of their equity acquired by Jinjiang International for $289.8 million, but neither party commented, leaving it in rumor status. According to public information, after 23 years of development, Vienna already had over 500 outlets (including those under construction) in more than 100 cities nationwide, forming a multi-brand layout covering high-end, mid-tier, and boutique hotel markets. If the rumors are true, combined with the acquisition of Plateno, Jinjiang will have 5,000 hotels and 535,000 rooms, twice the size of the current largest Home Inns Group.
As the battlefield for the final showdown between international and domestic hotels, the mid-tier hotel segment is currently in the pioneering phase that economy hotels once were. Vienna, as the pioneer of China’s mid-tier hotels, is facing its own development hurdle—the hurdle of systematic management. Huang Deman, Chairman and President of Vienna Hotel Group, publicly stated that Vienna aims to achieve its "100 Cities, 1,000 Stores" strategic goal by 2017 and its "1,000 Cities, 10,000 Stores" blueprint by 2023. These two goals present significant challenges for any hotel group. For example, managing from 300 to 500, or even 1,000 stores, is vastly different. Traditional manual and systemic management can no longer fundamentally solve problems or effectively operate a brand. Thus, after launching so many brands, a strategic partnership between Vienna and Jinjiang is a good choice for now. However, integration challenges remain significant. As Fang Shihong said, integration is a key focus in the later stages of acquisition. Differences in corporate culture, values, and more will pose challenges, much harder than spending money and requiring time to adjust. With so many brands involved, the development of both parties remains to be further observed.
Conclusion
According to the financial report for the first half of 2015, Jinjiang Hotels achieved a net profit of 629.002 million yuan, a year-on-year increase of 49.23%. This growth was partly attributed to several acquisitions. However, the success of these acquisitions hinges on effective post-merger integration. An insider from the Jinjiang group revealed that this success is largely due to the group’s trust in its professional management team. He noted that the management teams, especially those from overseas, are highly professional and possess their own expert insights into the market. Recognizing this, Jinjiang has granted these professional managers maximum autonomy in managing the acquired hotels. This may also be the most important lesson other Chinese hotel groups could learn from the Jinjiang group.
Looking back at the history of hotel development in Europe and America, nearly every major transformation has been linked to acquisitions. Some have brought positive outcomes, while others have led to collapse. Therefore, regarding Jinjiang’s development, Fang Shihong suggests not moving too fast—rapid mergers and acquisitions often yield poor results. Although the acquired companies currently operate independently, as the group continues to expand, the risks associated with integrating different brand identities within the group will also grow. The industry is also undergoing a wave of state-owned enterprise reforms, so Jinjiang’s future remains uncertain. However, steady progress at this stage is the greatest asset for future development.