Enterprises encounter different “hurdles” at various stages of development. Perhaps this is the story behind Jinjiang’s numerous acquisitions.
“When a business grows to 30, 100, 300, or 1,000 outlets, there are always hurdles — such as profitability hurdles, challenges in chain management, setting up system platforms, and eventually the hurdle of corporate culture,” an industry insider said. Indeed, enterprises face different “hurdles” at different stages. The reason why the big four economy hotel brands succeeded is that they overcame their “hurdles” during their “golden growth period.” Once these hurdles are encountered during the “monopolistic competition period,” businesses will face considerable challenges. Perhaps this is the story behind Jinjiang’s many acquisitions.
InterContinental — The Hurdle of Cash Flow
InterContinental Group managed 232 hotel properties across 37 U.S. states, the District of Columbia, Russia, and more, with a total of over 46,000 rooms. The company had equity interests in 56 of these properties, including six wholly owned assets. Business was good at the time, but after the financial crisis, borrowing in the U.S. became expensive due to high interest rates, and the hotel group ran into a cash flow 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. At the time, it was called the largest M&A deal by a Chinese hotel group to date, but it was not well received by the industry, with many believing it was paying a steep tuition fee for testing the overseas market. According to public data, the acquisition assumed all of InterContinental’s debts and repaid some of them.
In addition, industry insiders pointed out that Jinjiang Group’s acquisition of InterContinental Group for overseas expansion faced many issues due to differences in culture, consumer demand, and other factors. Domestic brands operating overseas hotels would face challenges such as increased labor costs.
But later facts proved that this was actually one of Jinjiang’s proudest acquisitions. It was revealed that after nearly five years of operation, InterContinental had doubled in size, with EBITDA growing from over $30 million at the time of acquisition to more than $50 million currently. In the first half of 2015, the average room rate for managed hotels was $147.8, with an average occupancy rate of 76.9% and an average revenue per available room (RevPAR) of $113.6, representing a year-on-year increase of 7.6%.
Commenting on this, hotel industry critic Anyuxichen said that this acquisition not only rapidly expanded Jinjiang International’s overall scale, especially its presence in overseas markets, but also gave Jinjiang the opportunity to enter the international hotel market and learn management philosophies and systems completely different from those in China’s hotel market. This was a timely and well-timed acquisition.
Fashion Travel — The Hurdle of Cash Flow
Regarding the initial reason for acquiring Fashion Travel, informed sources revealed that it was mainly because Fashion Travel encountered a cash flow hurdle during its development. “Fashion Travel Hotels” were previously business-oriented chain hotels that complemented the “Wanda Plaza complexes,” positioned as mid-tier hotels. As Wanda Plaza developed rapidly, Fashion Travel, in its rush to expand store numbers, opened hotels with borrowed funds, eventually falling into a cash flow dilemma.
On April 25, 2013, Jinjiang Shares spent 710 million yuan to acquire Fashion Travel Hotels. In June 2014, 21 “Fashion Travel” hotels located in Wanda Plaza business districts across 18 cities under the former Fashion Travel Hotel Group 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 reservation channels and various systems, the occupancy rate continued to rise, and RevPAR increased by nearly 30 yuan. At the same time, by eliminating headquarters operational costs, hotel expenses gradually decreased, greatly improving overall efficiency.
City Inn — The Hurdle of Profitability
“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 the 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 stores would be uniformly rebranded under its Jin Guang Express Hotel and other brands to accelerate brand layout in southern regions.
In the view of hotel industry critic Anyuxichen, 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 greater. After the equity change, the acquirer can rebrand the acquired brand’s hotels, rapidly expanding its own scale and increasing market share in certain regions or segments.
Louvre Hotels — A Win-Win of Capital Cooperation
Louvre Hotels Group owns 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 engaging in tourism services and transportation logistics. The two actually had brand alliance collaborations 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 informed sources, who stated that this was not actually an acquisition but rather a zero-cost partnership, more like a collaborative relationship.
The acquisition has now been fully completed, and Jinjiang will strive to achieve complementary strengths and synergies between its existing domestic operations and those of Louvre Hotels Group. It will 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 approximately 2.362 billion yuan in revenue, a year-on-year increase of about 90.6%, accounting for about 43.3% of turnover.
Hotel industry critic Anyuxichen believes this collaboration benefits the expansion of Louvre Hotels Group’s 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 one by one is clearly unrealistic. And 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, which originally planned to raise financing for an IPO, might sell 80% of its shares to Jinjiang? Stay tuned for the next installment.
Plateno — The “Hurdle” of Fast vs. Slow Theory
Speed was a common phenomenon during the golden growth period of the hotel industry. During the golden age of economy hotel development, everyone was racing to claim territory, 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 distribution. This directly led to insufficient future development and falling into the dilemma of diminishing profits. Aside from Jinjiang Inn, brands like Home Inns, 7 Days, and Hanting all faced this issue. Informed sources said that the reason Jinjiang maintained steady growth in the later stages of development was mainly because it did not seek quick success during the golden period but instead proceeded 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 the straight-line amortization method to distribute property rents across the entire operational cycle. Items within the stores were also depreciated by category. Therefore, as the operation time increased, hotel profits continued to grow.
After the golden period, the economy hotel industry officially entered a phase of competitive struggle. As 7 Days’ profits continued to shrink, Plateno was about to face the hurdles of property recovery and profit contraction. This made the entire 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 preserved, which aligns with Jinjiang’s consistent approach.
Fang Shihong, a columnist for Miles.com, said that banding together to gain a sense of security and vie for market influence is a common phenomenon in the current hotel market. In addition, 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 the acquisition. 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 between the two to support Jinjiang’s growth and accelerate state-owned enterprise reform. Acquisition is the fastest and most effective way to grow stronger. Building a solid foundation before venturing out to sea is the only way to withstand the waves. For Jinjiang, which aims to go global, expanding its scale is also one of its key directions at present.
Vienna — The System Management Hurdle of 300 Stores
Compared to the veteran “rumored girlfriend” Plateno, Vienna is the newcomer. In August 2015, news spread that Vienna Hotel Group and its associated catering business had 80% of their equity acquired by Jinjiang International for $289.8 million, but neither party commented, leaving the matter still in rumor territory. According to public data, after 23 years of development, Vienna already had over 500 stores (including those under construction) in more than 100 cities nationwide, forming a multi-brand layout primarily covering the high-end, mid-tier, and boutique hotel markets. If the rumors prove true, along with the acquisition of Plateno, Jinjiang Group will own 5,000 hotels and 535,000 rooms, equivalent to twice the size of the current largest Home Inns Group.
As the final battleground of the international versus domestic hotel competition, the mid-tier hotel segment is currently in the pioneering stage that the economy hotel market once was. Vienna, as the pioneer of China’s mid-tier hotels, is facing its own developmental hurdle at this time — the hurdle of systematic management. Huang Deman, Chairman and President of Vienna Hotel Group, publicly stated that by 2017, Vienna aimed to achieve its strategic goal of “a hundred cities, a thousand stores,” and by 2023, realize the blueprint of “a thousand cities, ten thousand stores.” These two goals represent significant market challenges for any hotel group. For example, scaling from 300 to 500, or even 1,000 stores, makes hotel management fundamentally different. Traditional manual and systemic management can no longer effectively solve problems or operate a brand well. Thus, after launching so many brands, a strategic partnership between Vienna and Jinjiang is a good choice at present. However, integration challenges remain significant. As Fang Shihong said, integration is a key focus in the post-acquisition development phase. Differences in corporate culture, values, and more will pose challenges — much harder than spending money — and will require 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 reported a net profit of 629.002 million yuan, an increase of 49.23% year-on-year. This growth was partly thanks to several acquisitions. The success of these acquisitions, however, hinges on post-merger integration. An insider from the Jinjiang group revealed that this success is largely due to the group’s trust in its team of professional management executives. He stated that the professional management team is highly skilled, especially those from abroad. They have their own professional insights into the market, and precisely because the group understands this well, it grants maximum autonomy to professional managers in 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 tied to acquisitions. Some have had positive outcomes, while others have dragged companies down. Regarding the development of Jinjiang, Fang Shihong suggests not moving too fast — rapid mergers and acquisitions often yield poor results. Although the acquired companies still operate independently for now, as the group continues to grow in scale, the risks of integrating different brand identities within the group will also increase. Given that the company is currently in the midst of the wave of state-owned enterprise reforms, the future development of Jinjiang remains uncertain. However, steady progress at this stage is still the greatest asset for future growth.