Bottom line: Hard Rock’s new plan for China resorts and restaurants will do well due to its focus on young, wealthy hipsters, and could also auger a broader move by second-tier global hotel brands into the market.
China’s hotel sector has just crossed a sort of milestone, with word that Hard Rock, a well-known but decidedly second-tier western brand, is dipping its toe into the market. Hard Rock’s move comes more than a decade after most of the world’s top hotel operators entered China, and roughly coincides with a recent push by global names like Marriott (NYSE: MAR) and Accor (Paris: AC) into the middle- and lower ends of the market.
Hard Rock has announced plans to build 3 hotel resorts in the cities of Dalian, Shenzhen and Haikou, and additional plans to open Hard Rock restaurants that are more familiar to many consumers. (English article) Such a plan looks a bit late, but could actually be well-timed since most of these resorts won’t be complete for a few years after the market has absorbed a recent glut in new property building.
From a personal perspective, I also welcome this move by the real Hard Rock into China. For years a local entrepreneur operated a very low-end imitation Hard Rock Cafe near the university where I teach, though it recently changed its name. In hindsight, perhaps the real Hard Rock was conducting a broader campaign to close down similar imposters throughout China to pave the way for its own formal entry to the country.
All that said, let’s look at some of the details in the latest reports, which say Hard Rock’s first resort will be anchored by a 200-room oceanfront hotel set to open in 2018 in Dalian, a picturesque city in northeastern China. The hotel’s small size, combined with the relatively unusual choice of Dalian, seem to indicate Hard Rock will position the property as an exclusive getaway. The target audience would probably be affluent young hipsters, which are a mainstay at Hard Rock’s existing resorts and restaurants.
While Dalian looks like a somewhat unusual choice for a beach resort, the other 2 locations look squarely aimed at more traditional tourists in China’s fast-growing travel market. Shenzhen and Haikou are both in climates that are warm year-round, though neither is in a traditional beach resort area.
Haikou in particular looks like an interesting choice, as it’s the capital of Hainan Island, which is better known for its huge concentration of mega resorts in the city of Sanya 300 kilometers away. Thus the choice of this less developed city indicates that Hard Rock probably intends to build a small, exclusive hotel in the city, catering to wealthy young hipsters who like to avoid traditional vacation destinations.
In terms of its better-known restaurants, Hard Rock says it will open outlets in 3 unspecified Chinese cities later this year. The reports say the restaurants will be in some of China’s richest cities, meaning 2 will almost certainly be in Shanghai and Beijing, and perhaps the third will find a home in Shenzhen.
From a broader perspective, this move looks significant because it could represent the start of a “second wave” of investment in China’s hotel industry by smaller global players. Hard Rock certainly looks like a good candidate to pioneer this trend, as it enjoys some name recognition in China among the young urban hipsters that will be its main target customers here.
China’s bigger hotel market has become a bit overbuilt lately, as both big global names and local operators like Jin Jiang (HKEx: 2006; Shanghai: 600754) and China Lodging Group (Nasdaq: HTHT) expand rapidly in the market. But that building boom appears to be slowing recently, and Hard Rock’s focus on small exclusive properties aimed at young hipsters should help it to avoid the stiff competition for more mainstream travelers.
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