Ready for the long run

Luxury European hotel brands strike a chord with Chinese consumers

Michael Henssler, the president for China at Kempinski, the Swiss-based luxury hotels group, says five-star hotel rooms in China are a quarter of the price than in the major capitals of Europe.

The 47-year-old who was appointed president last September says the top tier hotels market in China is saturated.

Michael Henssler, president for China at Kempinski, says despite low room rates, China is a key market for the company. [Feng Yongbin / China Daily]

"When you look at the number of hotels, the market is totally over-supplied. The room rate in the major cities in China is around $150 (107 euros), whereas in mature markets such as London, Paris, New York and Tokyo you would pay three to four times that for a similar product."

Henssler, a German who started his career as a chef, was speaking in the lobby of the company's Beijing hotel, which opened in 1993.

The company was one of the first foreign owned operators to come to China and now has 23 hotels in China with plans for seven more by 2015.

The hotel boss, however, says that despite low room rates, China is a key market for the company.

"Demand is catching up very quickly. If you look at the infrastructure, the demographic changes, the ease of doing business here and the accumulation of wealth and the desire of the Chinese to spend money on entertainment and lifestyle I see many healthy years."

Hennsler admits the lower room rates in China still make it a challenging market for foreign hotel operators.

"The market in China runs at 30 to 40 percent the yield of other more mature markets. It affects everyone," he says.

"You have only to look at what Four Seasons is charging in Paris and what it is charging here and the same with Westin. While the yields are lower, however, the margin is not since the cost structures are different and hence we can operate at the rates."

Kempinski operates in China through Key International Hotels Management, a joint venture it has with Beijing Tourism Group, the State-owned tourism enterprise. Henssler, who is also managing director of Key, insists luxury European hotel brands strike a chord with Chinese consumers, who now often queue outside stores to buy fashion brand items from Louis Vuitton, Ferragamo and Gucci.

"If you ask a Chinese consumer whether she would like an (American) Calvin Klein handbag or a Ferragamo, they would go for the European brand most of the time and that goes for hotels too," he says.

"They like the European concept of luxury which is based on individuality, something different to what everyone else has that gives you a positive surprise," he says.

"In hotels the American concept of luxury is a sort of very high end standardization which is what Ritz Carlton offers. The Japanese idea of luxury is zero default. Everything has to be absolutely, predictably, correct. It has to be 4 o'clock, not 3.59 or 4.01."

As a result of the Kempinski brand fitting the Chinese concept of luxury, Henssler says the company can deliver owners a RevPar (revenue per available room) 15 to 20 percent above other hotels in their tier in China.

"We offer a higher premium to owners running with a Kempinski hotel. In Europe, where we are much older and known for our luxurious portfolio, we can offer a premium 40 to 50 percent above the market average," he says.