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Rein: When Chinese Tourists Are Not Welcome

Shaun Rein, CNBC Contributor|Founder HKSCKPVIamp; Managing Director, China Market Research Group
Monday, 20 Feb 2012 | 1:11 AM ET

One of Thailand's big hoteliers told me recently that in the past three years he had seen a huge increase in guests from mainland China and Russia - from just 5 percent of occupancy in his prime luxury hotel in Phuket to 70 percent currently.

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Facing spending cutbacks from his main European customer base, he was talking to me about how to attract more Chinese tourists to his existing properties or perhaps open a new property targeting Chinese specifically when he suddenly said, "I’m not sure I want to cater more to mainland Chinese at my current hotels."

His response took me aback slightly. Why would he not want to attract Chinese tourists, a fast-growing group that was helping him offset weak spending from Europe?

After all, the World Luxury Association reported that 62 percent of luxury goods soldin Europe in 2011 was bought by mainland tourists. That number will rise as my firm estimates over 60 million mainlanders will travel abroad in 2012. What travel and leisure business would not want to tap into such a growing market?

I pressed the hotelier for his reasons. He scratched the back of his head and said, "The problem with Chinese tourists is that their wants are so different from Europeans."

The Chinese, he said, want lively, louder environments where they can shop for Louis Vuitton and Gucci bags and eat in large groups, while European visitors prefer a more tranquil, quiet, back-to-nature kind of experience. "When too many Chinese, Indians, and Russians come and we cater to them by opening shopping centers or set up large group tables, we see a clash with what the Europeans want. The Europeans leave and look for other quieter hotels, or different locations altogether. For instance, we have seen more Europeans leaving Phuket and going to Khao Lak and Krabi and other more peaceful areas.”

In other words, he was worried that he would lose his original core customer base by expanding it because the wants and expectations of Chinese are so different from other groups. Sharp differences in consumer wants and needs is a dilemma that everyone in the travel and leisure sector will have to handle – Chinese, Indians, and Russians are becoming the high-spenders, but how will that affect your current customer base?

Will wealthy European women want to buy Louis Vuitton handbags if they see so many middle class Chinese tourists carrying them? Can a hotel be both lively and peaceful? Can you cater to all groups and, and if so how, or is it better to focus on one group? The complexity of managing such an environment will be taxing.

The Intercontinental Group gives clues on how to react to this shift. It has signed 12 contracts for mainland hotels under a new China brand (as yet unnamed) to open late 2012 or 2013.

It plans to expand the concept to other locations in key destinations in Asia and later worldwide to accommodate Chinese travelers as their numbers and spending power continue to rise. The 12 new hotels are planned for Beijing, Shanghai, as well as other second- and third-tier mainland cities that target the Chinese consumer first.

They will put out breakfast spreads featuring dishes Chinese visitors prefer, like congee and tea makers in the room. They will have more private dining rooms and cut bar space to cater to Chinese dining in groups.

Yet, the hotel chain is also continuing to open more hotels under its global Intercontinental and Holiday Inn brands. In other words, they are not choosing one target market but going after all by creating more niches.

LVMH similarly has been buying more brands like Bulgari to offer more price points and brands to different consumers. As Louis Vuitton is increasingly seen as “mass” luxury popular with middle class Chinese, the ultra-rich from China and around the world are turning towards more exclusive brands to set themselves apart.

As I said goodbye to the hotelier, it was clear that he had a choice he needed to make: He could either target his offerings to both Chinese and European customers, which would mean opening a second property to cater to each group’s needs better, or continue trying to be all things to all people and potentially lose both groups to hotels that are more targeted.

Either way, he cannot ignore his Chinese guests’ needs and will need to take them into account more in order to survive in a changing landscape.

Shaun Rein is the founder and managing director of the China Market Research Group (www.cmrconsulting.com.cn) a strategic market intelligence firm, and is based in Shanghai.

He is the author ofthe upcoming book “The End of Cheap China: Economic and Cultural Trends that will Disrupt the World”published by John Wiley & Sons in the U.S. He does not own shares in any company mentioned. Follow him on Twitter at @shaunrein.

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