Summary of Key Points
The German luxury hotel brand Kempinski is facing a "crisis of contraction" in the Chinese market: not only has it lost four important hotels to international competitors such as InterContinental, Accor, and Marriott within a year, but its "affiliated company" (Beijing Holdings Group), which is under the Beijing State-owned Assets Supervision and Administration Commission, has also decided not to renew the contract for the Kempinski Hotel at Yanqi Lake (which has been renamed the self-operated Rizhao Dongfang Hotel). Although Kempinski has announced a plan to open 200 new hotels in five years, the actual number of its hotels has remained stable at 21 over the past three years, with very few new projects in the works. This situation is due to multiple factors, including China's hotel industry entering an era of saturation, the rise of local brands, and property owners placing greater emphasis on investment returns. Non-leading international luxury brands that do not adjust their strategies will find it difficult to sustain their operations.
Detailed Analysis
1. Even Affiliated Companies Are Leaving: Is Kempinski No Longer Profitable?
The Kempinski Hotel at Yanqi Lake was once the "star hotel" for APEC meetings. Both the owner, Beijing Holdings Group, and the Kempinski's management company in Greater China (a joint venture with Shoulu Group), which are under the Beijing State-owned Assets Supervision and Administration Commission, could be considered "family businesses." However, even so, the owner chose to operate the hotel on its own after the contract expired—indicating that Kempinski may not have provided the expected returns.
Hotel owners ultimately aim to make money, either through room and food services or by enhancing the property's value through their brand. As a luxury brand, Kempinski incurs higher costs in management fees and system usage. If its brand image does not translate into higher occupancy rates or room prices, owners will be cautious with their investments. The fact that even affiliated companies are no longer interested suggests that Kempinski's profitability has diminished in the eyes of its owner.
2. Four Hotels Lost in One Year: Are International Competitors Poaching Customers?
In the past year, Kempinski has lost four significant projects: its Shanghai Jing'an hotel was replaced by InterContinental's "InterContinental Luxe Selection," its Dalian hotel by Accor's "Pullman," its Changsha hotel by Marriott's "Westin," and its Shenyang hotel by Accor's "Swissotel." These are important hotels located in key regions across China.
Why would owners choose other international brands? Leading international brands (such as Marriott and InterContinental) have more comprehensive membership programs (e.g., Marriott's SPG program, which can attract customers) and stronger global distribution networks, bringing in more guests. Kempinski's membership program and channels are not as effective, so owners naturally opt for brands that can generate more traffic and revenue.
3. Claiming Expansion While Contracting: Can Kempinski Keep Up with the Chinese Market?
Kempinski announced plans to open 200 new hotels in China over the next five years, but in reality, the number of its hotels has remained unchanged at 21 for three years, with only two new projects (in Yangzhou and Xiongan) in the works. This mismatch between Kempinski's slow expansion strategy and the fast-growing Chinese market is evident.
Kempinski follows a principle of not exceeding the number of hotels it has operated for its anniversary (e.g., no more than 120 hotels after 120 years of operation). This approach may work in Europe, but China's hotel industry is in an era of saturation, where owners need quick returns. Kempinski's slow pace and weak membership program make it difficult to meet these demands.
4. A Common Dilemma for Non-Leading Luxury Brands: Is Kempinski Just a Case Study?
Kempinski's situation is not unique; it reflects the common challenges faced by all non-leading international luxury brands:
- Rise of Local Brands: Local groups like Huazhu and Jinjiang have matured their luxury lines (e.g., Huazhu's Xiyue and Jinjiang's Lisheng), offering comparable services and experiences at lower costs.
- Owners Calculating Costs Closely: Owners no longer blindly pursue the reputation of international luxury brands; they are more concerned with management fees, system costs, and actual investment returns.
- Increasing Competition: New international luxury brands (e.g., Bulgari) are entering the Chinese market, providing owners with more options, reducing Kempinski's attractiveness.
- Saturation Competition: The Chinese hotel industry is shifting from expansion to renovation of existing properties, with leading brands (like InterContinental and Marriott) being better at acquiring such projects. Kempinski lacks the advantage in this area.
If these non-leading international luxury brands do not adapt to local conditions (e.g., by understanding Chinese customer needs and reducing operating costs), they may lose more projects in the future.
Conclusion
Kempinski's contraction reflects a broader shift in the Chinese hotel industry from focusing on brand prestige to focusing on actual financial returns. For international luxury brands, a mere "luxury" reputation is no longer enough; they must provide real value to owners and meet customer needs to survive in the Chinese market. This is not just Kempinski's issue but a reality that all non-leading international brands must confront.