Qian Sanmao: Hotel profitability stems from continuous "optimization and innovation"

    In 2013, the average occupancy rate of five-star hotels nationwide was 55.76%, with an average room rate of 620 yuan, and the entire hotel industry was in a loss-making state. This was related to macro-policy factors, business formats, product structure, and declining revenue. In the same city, the room rates of high-star hotels varied by nearly three times, and GOP (gross operating profit) differed significantly due to variations in product structure. Objectively, the hotel industry faces a severe situation but has a promising future. The key lies in how much effort is put into "optimization and innovation." If we focus on cultivating core competitiveness, adhere to continuous updates in corporate culture and concepts, there is still significant "room for development" in hotel profitability. Take Shanghai as an example: among mid-to-large-sized high-end hotels last year, the highest average room rate reached 2,500 yuan, and the hotel with the best revenue structure, Andaz, had room income accounting for 65% of total revenue. A number of high-end hotels achieved a GOP rate exceeding 35%. Shanghai hosts various branded hotels, and whether in terms of profitability, unique features, or overall hardware and software standards, it is representative nationally and leads the way. At the same time, there are also loss-making enterprises due to factors such as system, product structure, and management models. Studying and analyzing some cases in the hotel industry may provide inspiration to the sector.

Currently, the structure formed by the number of hotel rooms and dining seats is either "large rooms, small dining" or "large dining, small rooms." The former is mostly seen in international brand hotels, while the latter is more common among local brands or independent hotels. Due to differences in product structure, this directly leads to trends in both labor costs and operational efficiency. For example, Shanghai Pudong Shangri-La has 950 rooms, with room and dining revenues each accounting for 50%. Within dining, banquets and Chinese/Western cuisine each make up 50%. This structure is excellent—large rooms bring high revenue, and large banquet halls feature fewer staff, higher income, and streamlined operations. The Chinese, Western, and specialty restaurants have been downsized, reducing staffing, while the buffet has been enhanced. At 380 yuan per person plus 15%, reservations are required, making it a unique offering in Shanghai. Andaz Hotel in Shanghai’s Xintiandi has 307 rooms. In 2013, the hotel’s total revenue was 135 million yuan, with room income accounting for 65% of total revenue. The hotel is of medium size, emphasizing room revenue generation while compressing dining services. The lobby bar has a multifunctional role, creating a relaxed, casual, and fashionable atmosphere, which is a unique case in Shanghai. The Indigo Hotel on the Bund has 184 rooms and no Chinese restaurant. It emphasizes the combined use of the Western restaurant and coffee bar. The "Riverside" venue on the 6th floor and the steakhouse on the 29th floor also achieved strong revenue performance. Last year, the hotel’s total revenue was 107 million yuan, with room income at 54% and GOP reaching 38%. These three hotels belong to three different branded hotel groups, with sizes categorized as "large, medium, and small," but they share one common trait: all are "large rooms, small dining," thus achieving good profitability. Revenue quality depends on revenue structure, and their average room rates all exceed 1,500 yuan. Hangzhou West Lake State Guesthouse has 171 rooms and generated 130 million yuan in revenue in 2013, with room income accounting for 55% of total revenue and an average room rate over 1,600 yuan. The hotel adheres to a distinctive operation and takes the premium route, achieving excellent results. Continuous optimization and innovative design highlights have built a loyal customer base. From these four cases, we can draw inspiration: hotel product structure is crucial. If a business has large dining and small rooms, costs will be high, and it’s difficult to achieve a high GOP, because dining occupies more human resources, and the difficulty of hiring and rising labor costs are ongoing trends. The "size" of rooms versus dining is relative to the overall structural scale. Of course, having solid room products that take the premium route, as well as the appropriate ratio of Chinese and Western restaurants aligned with the guest source structure, is also very important.

When our hotel product structure is not so rational, we can consider adjustments at the macro level. How much are the dozens of private dining rooms in the Chinese restaurant utilized? What is the gross margin of dining? What kind of consumer groups are targeted? Then, combined with actual market demand, design new products to seek transformation. High-star hotels are not suited for large-scale dining because the costs are too high, and they have no advantage compared to social catering.

(2) Quality Management Optimization

Quality is the foundation of a business. Why do most international brand hotels charge higher room rates than local hotels? Quality is a key factor. For example, their hardware products clearly have an advantage—mattresses, carpets, facilities, and equipment—all emphasizing durability, comfort, and safety. The brand itself encompasses characteristics such as "quality, corporate integrity, standardization, and cultural individuality." Coupled with global reservation systems and guest sources, international brand hotels have captured a large share of high-quality clientele. Good products win good guests, bringing good profits. Hotels like the Peninsula Shanghai, Waldorf Astoria, Indigo, Andaz Xintiandi, The PuLi Hotel and Spa, Shanghai Jing An Shangri-La, Xijiao Guesthouse, Hongqiao Guesthouse, Ruijin Guesthouse, Park Hyatt Pudong, Grand Hyatt Shanghai, Shanghai Pudong Shangri-La, Four Seasons Hotel, Mandarin Oriental, The Ritz-Carlton, and the International Convention Center are quite representative among Shanghai’s five-star hotels. They share brand advantages and offer solid products, reflected in multiple aspects such as room comfort, practicality, professionalism, and environmental added value. Dining generally doesn’t aim for size but rather for refinement and uniqueness, resulting in stable clientele closely tied to quality. The Shanghai Jing An Shangri-La Hotel opened on June 29 last year, introducing ten innovations in its hardware and software products, which are worth learning from. Enhancing product quality through new technology and practicality, while reducing reliance on manual service, is a trend for the future of the hotel industry.

Local brands and independent hotels still have a considerable gap compared to international brand hotels, such as breakfast quality, room comfort, product standards, and management model standardization.

Many hotels try shortcuts to improve quality, but the effects are minimal. Strictly speaking, there are no fast tracks in hotel quality management—it requires solid, step-by-step progress, starting with details to form a standardized system. Qingdao Seaview is a successful case, achieving excellence over a decade. With solid quality, guests naturally return, leading to "service marketing and visit marketing." Quality is also a reflection of a company’s personality, creating "stickiness" among guests. Otherwise, no gimmick can retain guests long-term. The more mature the market, the greater the range of products consumers can choose from. The ultimate goal of a market economy is "honest business practices," and product quality is the "foundation."

Product pricing depends on market supply and demand. When supply exceeds demand, prices fall below value. This has led to poor performance for most hotels. So, how can businesses survive competition and seek development within survival? Internal management optimization is urgently needed. Management involves multiple aspects. In terms of human resource management, in recent years, due to continuously rising salaries and various funds, coupled with high staff turnover, businesses have struggled. Layoffs have become a common strategy for most hotels, while some focus on restructuring management frameworks—streamlining middle and senior managers. For example, department directors also serve as managers, directly overseeing junior managers, or supervisors doubling as team leaders. This model is effective, reducing managerial staff and intermediate communication layers, making operations faster, more efficient, and significantly lowering management costs. Staffing should be reasonable, considering both versatility and manageable workloads. Long-term overwork will inevitably drive people away—even if salaries are competitive, it becomes overwhelming, leading to resignations. Blind layoffs aimed solely at cutting costs will inevitably affect service quality.

Operational costs for raw materials and consumables should be based on scientific quantification, assessed through quotas, and waste and hidden losses should be eliminated via rewards and penalties. For example, buffet improvements—reducing open-display sections and implementing "buffet à la carte"—ensure guests enjoy every dish hot while minimizing unnecessary waste. Multiple high-star hotels like the Ruijin InterContinental have changed traditional buffet models, earning guest approval. Energy consumption, including "water, electricity, and gas," is also a major component, typically accounting for 5% to 12%. Energy conservation is clearly important, but it must not compromise quality. Introducing new technologies for transformation is essential. New technologies can turn the impossible into possible—cooling water heat recovery, boiler flue gas waste heat recovery, variable frequency control upgrades for pumps and fans, regular cleaning of air conditioning ducts, etc.

Human resource costs account for 20% to 45%. The latter indicates definite losses if a business’s revenue structure is poor. Keeping it within 25% is ideal. These are all relative—revenue structure matters. If revenue quality is good, slightly higher compensation benefits staff stability.

Continuous optimization in corporate operations and management helps enhance product quality and efficiency, achieving GOP growth. This optimization process requires updated concepts and supportive measures. Optimization means constant innovation—transforming on the original basis to inject vitality into the business, enabling breakthroughs from traditional operational and management models. "Breakthroughs" mean keeping pace with the times, being market-oriented, and targeting guest needs to innovate products and management models for sustainable development.

Hotel transformations in recent years have been rapid, with many new brands emerging, management systems innovating, and market demands evolving. Concepts have become one of the critical factors determining the rise and fall of a business or even an entire industry. Online shopping once generated 35 billion yuan in a single day—an unbelievable feat, yet it’s reality. Starbucks Coffee has two breakthroughs beyond branding: first, "self-service," reducing staffing and labor costs; second, making coffee "mobile" with paper cup takeout, which not only convenience guests but also extends limited operational space, reducing rent costs and increasing revenue. This success stems from conceptual innovation, disrupting traditional business models.

Our hotel industry has experienced 35 years of rapid development, forming standardization, modeling, and branding. But strictly speaking, our local brands are still in the nurturing stage, with most lacking international influence. Product homogenization and price competition remain severe. Strengthening brand building and creating culturally distinctive paths is a long-term journey. For example, how can independent hotels emphasize cultural uniqueness, optimize management structures, and adjust product structures? Only when our management concepts are updated can businesses transform toward market-orientation and efficiency. Managers should embody the spirit of the times, be innovative, and adopt attitudes of observation, practice, and collaboration toward new things and models. Many management concepts and business forms we were skeptical about 20 years ago now dominate.

To escape homogeneous competition, distinctiveness must be cultivated. Unique products have standout highlights and selling points. Distinctive operations are a business’s secret weapon, mainly reflected in products but also in cultural uniqueness. A systematic cultural theme is ideal, but even localized, distinctive features—or uniquely outstanding products—can win guest favor. Distinctiveness must be based on product standards, adhering to principles of "practicality, comfort, cultural richness, and experiential value." Since last year, the central government’s eight-point regulations have been strictly enforced, impacting high-star hotels. Some hotels have begun doubting the value of the five-star designation, with a few moving the star logo to inconspicuous locations. These are misconceptions—the "star rating" is the industry’s highest authoritative recognition and an honor for businesses. Hotels should face the market, not just limited public spending. Using star standards to implement long-term, effective supervision of hardware and software products benefits standardization and sustainable development—this is unquestionable.

Many hotels have designed distinctive products and services, leaving lasting impressions and creating "stickiness" among guests. For example, at the Peninsula Shanghai, underground parking costs 60 yuan per hour, but guests dining or staying can park free, and those spending over 300 yuan get four hours free. Laundry service doesn’t require knocking on doors—special devices allow guests to press a button, prompting the service center to retrieve clothes immediately. These two small details have become Peninsula signatures. Peninsula isn’t just synonymous with luxury but also with detail-oriented innovation. The 60-yuan/hour parking fee acts as a barrier for non-spending guests, yet such pricing leaves a memorable impression. Another example: the LED and smart control software in guest areas at Andaz Xintiandi, along with the uniquely designed front desk—two separate square counters paired with complimentary freshly ground coffee and snacks—exude charm and warmth.

Hotel distinctiveness can be designed. When a business has cultural uniqueness and solid products, it gains competitiveness. Creating distinctiveness to enhance product added value is an industry trend. The less replicable a cultural system or originality is, the more enduring the competitiveness.

(3) Innovative Marketing

The internet era has brought many unexpected benefits. Every day, opening a phone delivers a flood of information. Hotel marketing has fundamentally changed. Platforms like Weibo, WeChat, official websites, apps, and third-party networks—Ctrip, eLong, Qunar—offer numerous sales channels, but using them effectively is no easy task.

Market supply and demand treat urban hotels equally, and guest channels are the same, yet the volume of guests acquired varies. This depends on marketing methods, and the chosen channels directly impact guest numbers. In terms of guest structure, it currently consists of four main parts: corporate agreement clients, travel agency clients, online clients, and walk-in guests. The proportion of these four segments directly affects room rates. International brand hotels excel at using their own direct-sale platforms. Groups like InterContinental and Shangri-La strengthen membership programs—"Priority Club Rewards" and "Gold Circle Membership" account for over 30%, and loyalty is boosted through reward points. The InterContinental Group has surpassed 75 million members. In contrast, most local brand hotels, including independents, rely on OTAs (third-party platforms). Besides paying high commissions, businesses remain passive, and GDS also incurs fees. Both OTAs and GDS can be used, but efforts should focus on cultivating direct-sale platforms and developing memberships for long-term growth. Local brand Kaiyuan’s "Shangqi Membership" is also doing well. Zhao Xiaochuan, General Manager of Beijing Hetai Shengdian, discussed many new ideas in his article, including marketing alliances among independents, guest sharing, and building direct-sale platforms—a innovative model and direction. The challenge is unifying hoteliers’ thinking, updating concepts, and participating with cooperation and trust to create mutual wins. Many things thrive through collaboration, which enables complementary strengths and breakthroughs. With over 10,000 independent hotels in China, competition is fierce, and they lack advantages, especially in guest integration and membership reward points. It’s time to "collaborate." Leveraging third-party platforms has proven successful internationally—it’s the way forward.

This year’s market remains challenging, but currently, most hotels maintain good momentum. In truth, the degree of hotel performance growth or decline reflects, to some extent, a business’s ability to respond to the market. The era of public spending is gone for good, and the market will return to "rationality." For businesses, "adjusting structure, optimizing, and creating distinctiveness" may be long-term tasks. Only by following market rules and continuously innovating can companies stay vibrant. Profitability also comes from sustained concept updates and product optimization. There are no shortcuts in business management—only persistent "optimization and innovation." If the "three optimizations" are the "foundation" the hotel industry must solidify today, then "innovation" is undoubtedly the inevitable path to profitability.