The county town is a bit small to accommodate a "Hilton".

At the end of 2024, several international hotel brands have successively set their sights on the booming county economy. Among them, InterContinental Hotels Group announced that it will target cities and counties below the third-tier as its development goal in the future. Coincidentally, Hilton directly listed 25 city names including Meishan and Jingjiang.

In fact, international hotels that have always taken the high-end route have been sinking several times in the past two years. 30% of Marriott International's new hotels opened in 2024 are located in cities below the third-tier. In March 2024, Wyndham Hotel Group signed a project in Gulin County, Luzhou, Sichuan, becoming the first high-end international hotel brand to enter the county. Last year, more than 70% of InterContinental Hotels' opened hotels and 85% of hotels under construction were located in second to fourth and fifth-tier cities.

The rush of high-end international hotels to sink is directly related to the consumption outside the Fifth Ring Road that has emerged in recent years, especially the developed tourism in counties. The "National County Tourism Development Research Report 2024" shows that in 2023, a total of 1,866 counties in the country received a total of 5.0827 million tourists, with a year-on-year growth of 35.18%.

The same is true this year. Data from Tongcheng Travel shows that during the May Day holiday, hotel booking orders in the county market increased by 68% year-on-year, and scenic spot ticket orders increased by 151% year-on-year, with a growth rate higher than the national average. During the National Day holiday, the hotel booking growth rate of major popular county destinations in China continued to exceed the national average, and there were nearly 100 counties and county-level cities with a booking heat increase of more than 50% year-on-year.

The performance of Hilton, Marriott, and InterContinental in Greater China has been unsatisfactory in the past two years. Seeing that many brands in the consumer market are rushing to the counties, they have also decided to take a chance.

"County Tourism Boom" Activating High-End Hotels?

For now, the basic entry point for the counties or small third and fourth-tier cities chosen by major hotel brands is the local prosperous tourism industry. In the current consumer market, tourism has become one of the few growth areas in the downgrade winter. This generation of young people, while shouting "As cattle and horses, with hearts towards the wilderness", has revitalized the entire tourism industry.

Data shows that during the National Day holiday last year, the daily per capita consumption in China remained at 114.02 yuan, while this year's National Day, the daily per capita consumption rose to 130.87 yuan. Even in 2019, when consumption was upgrading, this figure was only 118.69 yuan. And the upgrade of tourism consumption is particularly obvious in the sinking market.

Data from Qunar shows that in county hotels, high-star hotels are the first choice for consumers. During this year's National Day holiday, the booking increase of high-star hotels in counties and districts increased by 50% year-on-year. Meituan data shows that in the county market, service retail represented by leisure and entertainment has a compound growth rate of 41.9% in orders in the past five years. In the first three quarters of 2023, the per capita consumption amount of county consumers for leisure and entertainment increased by 10% compared to the same period in 2022.

But can the tourism of a county really support the "sinking dream" of high-end hotels?

First of all, nowadays, counties and even the entire sinking market are clearly a battleground for all consumer brands. Although the drama of high-star hotels moving out of the Fifth Ring Road has just begun, the intensity of the competition is already obvious. Up to now, a tourist county can count several international top hotel brands.

Take Yixian County in Anhui Province, which is backed by Mount Huangshan, as an example. After March 2024, Yixian County signed three high-end hotels at one go, including two InterContinentals. However, it is worth noting that Yixian County's GDP ranked last in Anhui Province in 2023, and the resident population is less than 100,000. Even with the tourism heat of Mount Huangshan to maintain, it is an puzzling question whether many high-end hotels can thrive here in the future.

And Yixian County has become a kind of realistic portrayal to some extent. Quanzhou, which has become famous for flower hairpins in the past two years, signed 16 high-end hotel projects at a previous investment promotion conference. By the end of 2023, Quanzhou had 48 star hotels, including 11 five-star hotels.

The dense concentration of many high-end hotels in a tourist city has already shown signs of the outcome. A typical example is Kunming. Since this year, Kunming has witnessed a wave of closures of high-end hotels, including New Era Hotel, Jinlong Hotel, Yunnan Hotel, Sakura Hotel, Bangke Hotel... A series of landmark buildings in Kunming have either been renovated or closed.

Newly opened projects have also been cancelled or postponed for various reasons, such as St. Regis Hotel, Courtyard by Marriott, Hotel Indigo, Hyatt Regency, Waldorf Astoria... As a long-standing popular tourist city in China, Kunming is unable to "support" so many high-end hotels, let alone places like Quanzhou and Yixian County.

Secondly, the tourism heat in small places always escapes the fate of being fleeting. Zibo barbecue, Guizhou Village Super League, Tianshui Malatang, Shanxi Wangpo... The consumer market can never guess where the next popular city will be, and the tourism consumption in counties cannot form a long-term ecosystem.

Data from Ctrip shows that during the May Day holiday this year, the most popular counties in order are Anji, Tonglu, Dujiangyan, Yangshuo, Mile, Yiwu, Wuyuan, Jinghong, Kunshan and Pingtan. However, during the National Day holiday, the most popular counties in order are Dali, Dujiangyan, Anji, Mile, Yangshuo, Wuyuan, Jiuzhaigou, Kashgar, Tonglu and Qingzhou.

In other words, in just five months, nearly half of the major tourist counties have disappeared from the list, and the average construction period of a high-end hotel is 8.3 months. More interestingly, when a large number of consumers yearn for the tranquility outside the Fifth Ring Road, small-town consumers are busy going out or even going abroad.

On the Qunar platform, during this year's National Day holiday, more than 600 residents in third-tier and below cities and counties purchased air tickets for the first time, with 11 more counties and county-level cities added compared to last National Day. The number of residents in third-tier and below cities and counties who purchased international air tickets for the first time increased by more than 70%, and they also outperformed big-city residents in the growth of outbound travel. The number of outbound travel orders increased nearly three times compared to last year, with an increase far exceeding other cities.

If a niche place quickly disappears from the bustling Internet and the local residents flock away, those newly built "Hiltons" are afraid to be covered with dust, waiting for a destination.

A Self-Entertaining Consumption Upgrade?

Gym, executive lounge, heated swimming pool, SPA center... After the sinking of high-end hotels, they once attracted waves of young people with their self-pleasing configurations. Spending a few relaxing days in a star hotel in the county has also become a major leisure way for contemporary young people.

Often in a county with a mediocre tourism heat, the traffic of a star hotel is higher than that of the surrounding attractions. First, the land in the Fifth Ring Road以外 is more cost-effective. The decoration and configuration of high-end hotels that take the high-end route are better than manors, and outdoor hot spring parks are also available. Second, the time young people spend in hotels during travel is increasing.

The "Annual Report on Domestic Tourism Development in China (2022 - 2023)" shows that "staying in hotels" has become a new highlight of domestic tourism. In 2024, Ctrip's survey found that this generation of young people largely regard hotels as a one-stop service platform for "eating, drinking, playing, living and entertainment". In the second half of 2024, the browsing volume of Ctrip's Food and Hotel List increased by 170% month-on-month.

On the surface, it seems that young people who are increasingly pursuing "enjoyment" and going to hotels for vacation are a manifestation of consumption upgrade, but upon closer examination, this may not be the case. Young people limiting all entertainment activities during travel to hotels is essentially not closely related to consumption upgrade, especially when staying in high-end hotels in counties.

For a long time, the prices of high-end hotels in counties are much lower than those in first and second-tier cities, and the average price in the off-season is even around two or three hundred yuan. The collective rush of young people into five-star hotels in counties is directly related to cost performance, which is also one of the reasons why major international hotels choose to sink.

In recent years, the price war in the hotel market has been in full swing, and Hilton, Marriott and other high-end camps that are not top luxury brands have been the first to bear the brunt. Since the second quarter of this year, in the Q2 and Q3 financial reports of InterContinental, Wyndham, Hilton, Marriott, etc., the average room rate and RevPAR in their Greater China (or Asia) regions have remained sluggish, and their performance is at the bottom among the major regions in the world.

Overall, as of September 2024, the cumulative RevPAR, ADR and OCC occupancy rate of hotels in mainland China decreased by 6%, 4% and 2% respectively year-on-year, and the average room rate has shown a year-on-year decline for three consecutive quarters. STR data shows that during the National Day holiday in 2024, the occupancy rates of high-end, ultra-high-end and luxury hotels were higher than the same period last year, but the average room rates all decreased by more than 10%.

During the three-day Mid-Autumn Festival holiday in 2024, the average revenue per available room (RevPAR) of domestic hotels was 107.3 yuan, which is far from 139.85 yuan last year and also lower than 123.26 yuan in 2019. Young people staying in hotels have not revitalized the entire hotel industry. On the contrary, their consumption method of seemingly upgrading but actually downgrading has made the hotel industry feel a bit of chill.

In addition, in addition to the low prices, young people go to high-end hotels with a "shopping mall" attitude. Searching for hotel deals on Xiaohongshu, consumers are targeting not only disposable consumables such as toothbrushes, slippers, and toothpaste, but some hotels have even become free dry cleaners in disguise.

A false consumption upgrade is taking place in the hotel industry. However, major hotel brands can only swallow all the hardships with a smile, because the days when no one patronizes are the most difficult.

"Hilton" Waiting for Transformation in Counties

A very obvious trend is that high-end hotel brands are gradually moving from the city center to places with a strong cultural atmosphere. As of August 2024, there are 142 national historical and cultural cities in China, and some of them are counties. The large-scale migration of hotel brands to counties is not only due to objective economic factors, but also an undeniable trend.

For now, high-end hotels going to counties have a common purpose: to upgrade the hotel accommodation experience by leveraging local cultural symbols, and thus find a new way out in the consumer winter. Last year, the first Ritz-Carlton Reserve hotel in China opened in Zhagou Valley, Jiuzhaigou, featuring the original Tibetan village experience.

Similarly, Aman landed in the ancient tea garden of Jingmai Mountain in Yunnan, integrating tea and hot spring elements. In 2024, the hotel industry continues this opening trend. Incomplete statistics show that more than 20 luxury hotels opened in China throughout the year, including Shanghai Snow World Zhizhou Luxury Collection Hotel (InterContinental Hotels) with the theme of ski resorts, Yangcheng Lake Banyan Tree and Yangcheng Lake Gelong Hotel (Banyan Tree Group) featuring Yangcheng Lake hairy crabs and Huzhou tea ceremony in-depth tours, and Conrad Hotel (Hilton Group) with the design concept of "Oriental Hanging City".

But on the other hand, high-end hotels originally located in the city center of first-tier cities are constantly being put up for sale. As of the end of October 2024, the total number of standalone hotel projects worth more than 100 million yuan in key cities across the country increased by 16.1% compared to the end of September, including Hilton Foshan, Crowne Plaza Beijing Airport, Hilton Tianjin Eco-City, Banyan Tree Chongqing Beibei and St. Regis Lijiang.

Behind the "abandoning the city and going to the sinking market", perhaps it is not a simple economic proposition. International hotels have entered China for many years, but they have always only had a luxurious brand atmosphere without forming a complete story tone, which is very unfavorable in the current consumption environment. Because although consumption is constantly downgrading, consumers' pursuit of experience has always had a huge gap.

Data shows that compared with physical luxury goods, consumers prefer luxury experiences, such as hotels, food and travel. According to the Hurun Research Institute, the scale of China's high-end consumer market reached 1.7 trillion yuan, recovering by 3% compared to the previous year. Among them, the decline in daily luxury goods is obvious, but tourism consumption continues to rise. In 2023, the market size of high-end service consumption (hotels, tourism and health services, etc.) reached 83 billion yuan, with a year-on-year growth of nearly 20%.

For this reason, the hotel industry has once experienced a "grading". InterContinental, Hilton, Marriott... These mass high-end brands that neither have a cost-performance advantage nor can provide top-level experiences are not pleasing to both ends and cannot enjoy the dividends of experience consumption. But those top luxury hotel brands are thriving.

Take Mandarin Oriental as an example. When Hilton and others have mediocre performances, the operating revenue of Mandarin Oriental Hotel Group in 2023 was 558 million US dollars (about 3.9 billion yuan), with a year-on-year growth of 23%, and the EBITDA (earnings before interest, taxes, depreciation and amortization) reached 180 million US dollars (about 1.3 billion yuan).

In the autumn of 2024, Mandarin Oriental opened in Qianmen Hutong in Beijing, with a price tag of 15,000 yuan per night. It has now become the top luxury hotel in China, benchmarking against Mandarin Oriental Hyde Park London and Mandarin Oriental Paris. It is reported that Mandarin Oriental also plans to open in Suzhou, Hangzhou, Nanjing and Chengdu. It is expected that by 2028, the number of hotels in China will expand to 13.

Hilton and others obviously want to join the luxury hotel camp, but behind a luxury brand, there is not only a high price, but more importantly, the brand must be able to provide emotional value and product stories to consumers. Entering the counties and integrating with the local culture may be the first step for high-end hotels to further upgrade the brand.

However, after the cost-performance battles of breakfast discounts, room night discounts, and free laundry in the hotel industry, a bloody storm has already been set off in the luxury circle. The compound annual growth rate of the number of luxury hotels in China from 2016 to 2023 is 8%, and it is expected to be 4% from 2023 to 2026. McKinsey data shows that 41% of luxury hotel rooms in global projects are in Asia, and 43% of them are in China.

It is destined to be a long and difficult process for Hilton and others to achieve self-style improvement in counties with a strong heritage.

This article is from the WeChat public account "Consumption Frontline" (ID: xiaofeizqx), author: Luo Yi, and 36Kr is authorized to publish it.