China Lodging Adds Brand With Starway 汉庭旗下新增星程品牌

By newsdoug on June 4, 2012

China Lodging Group adds Starway brand An interesting trend is happening in China’s fledgling hotel space, where operators are diversifying their offerings by acquiring new brands in a bid to keep growing and appeal to a wider range of customers. China Lodging Group (Nasdaq: HTHT) has become the latest operator to make a move in that direction, announcing it has increased its stake in the Starway hotel chain to become the brand’s majority shareholder. (company announcement) At the same time, China Lodging Group, most known for its Hanting brand, announced plans to directly manage some new hotels under the Starway name, broadening its currently franchising model. The announcement doesn’t say much more, but it looks like China Lodging has big plans for expanding the Starway brand, which now has about 100 hotels and is known as a relatively reputable mid-range chain. The addition of Starway means China Lodging now has 4 major brands, Hanting, Season, Hi Inn and now Starway. Its growing stable of brands mirrors moves by the industry’s other 2 major US-listed players, Home Inns (Nasdaq: HMIN), which last year purchased the Motel 168 chain for $500 million; and 7 Days (NYSE: SVN), which purchased the smaller Huating chain for a more modest $21 million (previous post) Even industry veteran Jin Jiang (HKEx: 2006) is getting in on the act, pairing with a US company to form a joint venture that will manage hotels under other companies’ brand names. (previous post) In many ways, this kind of consolidation looks a lot like what happened in the US in the 1980s and 1990s, when the industry consolidated around 3 or 4 main players, including Marriott (NYSE: MAR) and Starwood (NYSE: HOT), which each now own a wide range of brands catering to everyone from budget travels to people who like to stay at posh and trendy hotels. This kind of consolidation is smart because it allows a single company to offer many products to different market segments, and allows them to aggressively expand the more popular brands to maintain their growth. It will be interesting to see how the situation plays out in the next few years, as the Chinese players are clearly focused on the budget and middle segments of the market, while the high end is still dominated by the big foreign brands. I wouldn’t be surprised to see at least one of the big Chinese brands acquired by a big international operator, which could use such an purchase not only to expand its presence at the low end of the China market, but could also potentially use it as a platform for expansion into other developing markets. Meantime, it’s also possible we could see a tie-up between one of the Chinese names and a regional higher-end regional brand like Shangri La (HKEx: 69) or Mandrarin Oriental. If that happens, I could easily see the world’s next major hotel operator emerging in China in the next decade, providing some interesting competition for the major Western names.

Bottom line: China Lodging Group’s addition of the Starway brand marks the latest consolidation move in China’s hotel business, which could eventually produce the world’s next major operator.

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