After hitting the milestone of 4,600 hotels, why has Green Hotel been slowing down its pace of opening new properties?

Recently, GreenTree Hospitality Group released its performance announcement for the first and second quarters of this year. The announcement shows that the group opened 43 new hotels in Q1 and 18 new hotels in Q2, with a sequential decline of more than 50%. In addition, monitoring data shows that GreenTree opened about 30 new stores in the third quarter of this year. Although it has rebounded from the low level in the second quarter, it still dropped by nearly 40% compared with the 41 stores in the same period last year. As a leading group that already owns 4,600 hotels, why is its expansion getting slower and slower now?

The expansion pace slows down: What exactly happened

In 2004, Xu Shuguang, who had an overseas background, returned to China and opened the first GreenTree Inn in Jing'an, Shanghai. The room rate was set between 180 yuan and 400 yuan, positioning it as an economy business hotel.

At that time, there was huge market demand at this price point, and GreenTree expanded extremely fast: it reached 100 stores in 2007, nearly 500 in 2010, more than 800 in 2011, 1600 in 2013, and 2400 in 2015. Within 11 years, it grew from 1 store to 2400 stores.

At this stage, what it did was very straightforward: it spread its brand signs next to administrative centers and transportation hubs across the country, so that business travelers could see its green storefront wherever they went.

It was an era where "the faster you expand, the more you win", and GreenTree was among the first echelons running at the front. In 2012, it launched GreenTree Eastern, making its first attempt to enter the mid-to-high-end market. In 2017, it launched three mid-to-high-end brands including Gemei, Geya and Gefei within one year, and acquired Da Niang Dumplings in the same year.

In 2018, GreenTree Hospitality Group was listed on the New York Stock Exchange, and the period before and after the listing was its most aggressive expansion stage. In the same year, it launched GreenTree Apartment and Wumian Hotel, and established strategic cooperation with Argyle Hotel Group and Urban Hotel Group in 2019, obtaining the operation rights of 13 brands under Argyle at one go, and launched GreenTree E-sports Hotel at the same time.

Its scale also reached the peak in these years. In 2020, GreenTree had 4,340 operating hotels covering 345 cities; one year later, in 2021, it had 4,659 operating hotels covering 367 cities with 337,153 guest rooms. That was its peak.

In the fourth quarter of 2021, GreenTree opened 138 new stores in a single quarter. The same financial report also included a segmented table: 33 luxury hotels, 519 mid-to-high-end hotels, 2,932 mid-range hotels, and 1,175 economy hotels.

Mid-range and economy hotels accounted for 88% of the total, and the single brand GreenTree Inn alone had 2,169 stores. It held a huge, mid-to-low-end and aging basic market.

If you only look at the total number of stores, GreenTree is still a hotel group with a huge network, but if you observe the changes in new stores, its growth rhythm is obviously different from the previous stage.

It had 4,425 stores at the end of 2024, 4,580 at the end of last year, and 4,615 at the end of June this year. It is indeed recovering, but after two and a half years of recovery, it still has not returned to the level in the winter of 2021.

The rhythm is more intuitive. How many stores did GreenTree open in the first three quarters of this year? 43 in the first quarter, 18 in the second quarter, and about 30 in the third quarter, while in the single fourth quarter of 2021, it opened 138 stores. The number of stores opened in one quarter at that time is almost equal to the total number of stores opened in a whole year now.

Then the question arises: Is this slowing rhythm the active brake pressed by GreenTree, or is it forced to slow down by the market?

Many people's first reaction is that GreenTree's investment promotion ability has declined, but few people notice that the first party that proposed "to slow down" is GreenTree itself.

In the performance announcement for the first quarter of this year, GreenTree directly attributed the slowdown in store opening to two reasons: the closure of inefficient stores brought about by strategic review, and the tightening of standardized processes. In other words: some stores were closed actively, and we have raised the access threshold for new stores.

This is not empty rhetoric. Earlier this year, GreenTree made an internal list of inefficient stores, mainly old stores located in non-core districts and counties of sinking markets, which have been open for many years and whose single-store revenue has been lower than the brand average for a long time. A total of 36 stores were directly included in the annual closure plan.

It should be noted that five years ago, closing any franchised store would require repeated consideration. At that time, scale meant everything, and the number of stores was the confidence of valuation.

At the same time, the threshold for joining has also been quietly raised. The public area decoration standards, guest room hardware configuration, and intelligent system requirements have all been updated this year, which are much stricter than before.

In the early years, in order to pursue the number of stores, some regional managers might help franchisees "find ways" to pass the review, but now all such practices have been stopped.

There is another easily overlooked factor: as the proportion of mid-to-high-end brands rises, the store opening cycle will naturally become longer.

Among the new stores opened in 2023, economy hotels still accounted for 70%. By the third quarter of this year, mid-to-high-end brands such as Gemei, Geya and GreenTree Eastern have accounted for more than half of the new stores.

It only takes a few months to complete the whole process from signing the contract to opening for economy hotels. The single-store scale of mid-to-high-end projects is twice as large, and site selection, design and decoration are more complex, so the preparation cycle is generally about one year.

The GreenTree Eastern hotel located at Yangpu Riverside in Shanghai has been prepared for more than a year, which is equivalent to the construction period of several economy hotels. The structure of new stores has changed, so the speed naturally slows down.

To sum up, Space Insider believes that at least half of this round of slowdown is the result of GreenTree's active choice.

When the industry transitions from the incremental era to the stock era, if enterprises still cling to the "scale first" principle, they will only end up with a large number of inefficient stores. The one that presses the brake first may turn around first.

What is the real problem GreenTree is facing

The slowdown in store opening is only a superficial phenomenon. If it is just a slight slowdown in speed, it can be recovered after adjustment. What is really worth noting is that the underlying logic supporting GreenTree's growth is gradually loosening.

GreenTree's foundation has always been GreenTree Inn. This economy brand accounts for more than half of its total stores and contributes more than 60% of its revenue, which is its real basic market.

But now, the competitiveness of this basic market is declining.

The most direct manifestation is the average room rate. According to the officially disclosed operating data, the overall ADR of the group's hotels in Q1 this year is 152 yuan, a year-on-year decrease of 3.4%, and RevPAR is 95 yuan, a year-on-year decrease of 5.7%.

Compared with the industry, the gap between different tiers is clearer. BTG Hotels clearly disclosed in its first quarterly report this year that the average room rate of its economy hotel sector is 183 yuan, a year-on-year increase of 1.8%.

Why can't GreenTree sell its rooms at a higher price? Some industry experts told Space Insider that there may be two reasons.

On the one hand, the products are aging. The last large-scale product iteration of GreenTree Inn was in 2022. Most of the stores have been open for more than five years, and the hardware is obviously old.

The economy brands of Huazhu and BTG basically update their products every three or four years, and the decoration and intelligent facilities are updated accordingly. Consumers are naturally willing to pay more for newer products.

On the other hand, the gap lies in the channel side. Up to this year, GreenTree has about 100 million members, while Huazhu has more than 300 million members, and Jinjiang also has 200 million members.

With fewer members, GreenTree can only rely on OTA to supplement traffic. The commission of platforms keeps rising, which directly takes away a lot of profits from the stores. More importantly, most of the guests coming from OTA are attracted by low prices, they care more about price than the brand, so it is difficult to precipitate them into stable customer groups of their own.

In addition, when a franchisee joins a brand, what they buy is not just a brand sign, but also the product standards, traffic support and operation tools from the headquarters.

When the value output by the headquarters gradually fails to keep up with the market competition rhythm, the stores have to make up for the gap by themselves. Over time, the cost-effectiveness of joining will decrease.

This is the most fundamental reason for the decline in the willingness to open stores: it is not that franchisees no longer trust the brand, but that the incremental value brought by joining is no longer so attractive.

It is precisely because the basic market is under pressure that GreenTree's move to the mid-to-high-end market has attracted special attention. The three brands of GreenTree Eastern, Gemei and Geya form a tiered layout, which looks very complete.

But after so many years of operation, none of them have really achieved outstanding performance. As of the second quarter of this year, the financial report shows that GreenTree has a total of about 596 mid-to-high-end stores, accounting for about 13% of the total.

Brands such as All Seasons and Atour have accumulated considerable store scale and market awareness in continuous expansion. In contrast, GreenTree's mid-to-high-end sector still has a certain gap in scale and brand penetration.

What's more troublesome is that the three mid-to-high-end brands of GreenTree have vague positioning. GreenTree Eastern is positioned as business-oriented, Gemei is also business-oriented, and Geya is light fashion-oriented, but consumers can hardly tell the difference between the three, and there is no clear mental label.

Nowadays, the mid-range hotel market is already severely oversupplied. Without differentiation, enterprises can only be trapped in price wars, and it is difficult to become a leading player.

The mid-to-high-end market can never be entered just by changing a brand sign and raising the room rate. It requires the support of a complete system including products, services, members and brand mental recognition, none of which can be missing.

GreenTree has products and scale now, but its brand mental recognition is still being built gradually.

Rapid expansion by tapping the sinking market is GreenTree's most core successful experience. But the success also comes from the sinking market, and the predicament also comes from the sinking market.

Now about 60% of GreenTree's stores are located in third-tier, fourth-tier and county-level markets, and the proportion of stores in first-tier cities is less than 8%. The difference in layout directly leads to the difference in revenue.

This is a very typical scale inertia: the faster you expand by tapping the sinking market in the early years, the heavier the burden of digesting the stock assets will be now.

These stores cannot be closed all at once, nor can they be moved to core cities all at once. They can only be digested gradually and upgraded steadily. This process is destined to not be easy.

Where will the growth come from after having 4600 hotels?

After the pace of store opening slows down, what will GreenTree rely on for growth?

Judging from its actions in the past year, the answer is very clear: it no longer pursues the rapid expansion of the number of stores, but focuses on the efficiency of existing stores, the optimization of brand structure and the revitalization of stock assets.

The energy freed up first goes to adjusting the brand structure. Last year, the number of GreenTree's mid-to-high-end stores increased from 553 to 585, with a net increase of 32, realizing steady blood replacement by subtracting some old stores while adding new ones.

On the subtraction side, it continues to clear out old GreenTree Inn stores and old leased operating stores whose revenue fails to meet the standards for a long time, so as to free up the resources and manpower deposited in inefficient assets.

The second priority is stock renovation, which is its main battlefield. The vast majority of the more than 4,000 stores are old stores, and any product iteration is a project covering thousands of stores.

GreenTree's solution is to control the renovation cost per room to an acceptable level for franchisees, adopt the lightweight renovation method, and at the same time sink the headquarters' marketing and pricing tools to the stores: global new media content templates, local traffic delivery, OTA store optimization, AI dynamic pricing, etc.

What is more noteworthy is that GreenTree is extending its capabilities accumulated over years of deep cultivation in the sinking market to the new track of revitalizing cultural tourism stock assets.

In recent years, many local cultural tourism projects have been unfinished, and many old resort hotels are poorly operated. GreenTree can take over these tough tasks that other enterprises cannot handle.

The Hollyston Hotel in Zilin Mountain, Guizhou was put into operation last year. It received 12,000 overseas tourists in the first year of opening, and more than 16,000 in the first half of this year, with foreign guests accounting for more than 30%.

The Hollyston Weishu Hotel in Xijiang Miao Village, which was originally a project with an investment of 850 million yuan and had been shut down for 8 years, completed the first phase of completion in less than 90 days after GreenTree took over, and opened in July this year, with the average room rate stably above 1000 yuan.

However, these are only the first steps. Whether it is stock store renovation or mid-to-high-end expansion, it will eventually return to the same question: can these actions bring sustainable operating returns? For GreenTree, after the slowdown in store opening speed, what really needs to be answered is no longer just how many more stores can be opened, but how much value the existing stores and new businesses can create.

The first is the accounting of stock stores. More than 4,000 hotels are not only the scale foundation of GreenTree, but also mean that for stores of different ages, located in different cities and with different operating conditions, a single solution can no longer solve all problems.

The headquarters needs to give more clear judgment criteria to decide which stores are worth renovating and which stores should stop loss in time.

Lightweight renovation can certainly reduce the investment threshold, but what really determines whether franchisees are willing to continue to invest is whether the room rate, occupancy rate and profit after renovation have improved.

The second is the accounting of brands. Brands such as GreenTree Eastern, Gemei and Geya have formed a certain scale. The next problem to be solved is not just how to increase the number of stores, but more importantly, how to form differences between brands and why consumers choose them.

There is no shortage of brands in the mid-to-high-end market. Simply increasing the number of stores cannot naturally be transformed into brand advantages. For GreenTree, it is more important to make the brand form clear market awareness and continuously deliver stable operating performance than simply pursuing the proportion of mid-to-high-end stores.

In the final analysis, after having 4600 hotels, what GreenTree needs to find is not a new path that completely replaces store expansion, but a way to make growth no longer only depend on the number of stores.

It is still too early to draw a conclusion on how GreenTree's store opening speed will change in the future, but what is certain is that when scale expansion is no longer the only answer to growth, store operation, brand value and asset operation need to take more responsibilities.

This article is from the WeChat official account "Space Insider", written by Li Jiaru, and authorized for release by 36Kr.