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Shanghai hotels face intense competition, high turnover

By Matthew Fulco: 0 Comment(s)Print E-mail China.org.cn, May 8, 2012

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Private dining room, Les Suites Orient Shanghai on the Bund. [China.org.cn]

Rising tourism and business travel – especially from within China – will buoy Shanghai's hotel sector in the next five years, despite present concerns over excess supply and a talent shortage, analysts say.

Shanghai expects to attract 240 million domestic tourists and 10 million international arrivals by 2015, according to the city's tourism bureau. The plan gives hoteliers a chance to increase occupancy rates and food and beverage consumption, but choppy waters lie ahead as competition for business intensifies.

Five new five-star properties opened in Shanghai last year adding an additional 2,000 rooms. Occupancy rates have hovered at about 60 percent as the market has yet to absorb the new supply.

Dominated by mid-range properties in the early 2000s, Shanghai's hotel market has shifted markedly towards the high end, with five-star rooms accounting for nearly one-third of the overall room supply by the end of last year, according to the property consultancy Savills.

Yet top international brands show no signs of slowing their expansion in China's largest city, snapping up prime downtown locations despite record costs per square meter.

The 720-room Marriott City Center - the American brand's largest Shanghai hotel - opened in January on Xizang Road close to the commercial and transportation hub of People's Square. In December, Sofitel and its Chinese partner Huamin will launch a 500-room property on West Beijing Road in the heart of the bustling Jing'an District. The 600-room Shangri-La Jing'an and 400-room Four Seasons Pudong are slated to launch in 2013.

International hoteliers also plan to build on the former World Expo site, with Hyatt opening a 600 to 650-room property and Hilton Hotels and Resorts opening a 300-room Conrad by mid-2015. Two boutique hotels, which have not yet been named, are also expected to open on the site.

New measures to retain top talent

Facing high turnover rates, Shanghai hotels are struggling to retain their best staff, with star performers often opting to take a position in a second or third-tier city to be closer to their families, explained Russell Cool, general manager of the Langham Shanghai Yangtze Boutique Hotel. Explosive growth in those markets ensures attractive compensation packages and plentiful opportunities for promotion.

"We are facing a shortage of skilled labor right now," Cool said. The veteran hotelier and Australian native, who previously headed the Hong Kong-based firm's five-star Xintiandi property, is taking the Langham Yangtze's recruitment drive on the road.

"We travel around the country to find the best people and offer them a position here in Shanghai," he said. "Recently, we visited universities in Ningbo, Dalian, Qingdao and Xi'an."

Training, financial incentives and regular promotion opportunities for staff will be crucial for Shanghai hotels to maintain high standards of service, he added.

Joseph Pi, chief operating officer of the Taiwanese-owned Les Suites Orient on the Bund, says increasing internal promotions is a way to retain outstanding staff.

"Promoting from within builds loyalty and controls costs," he said. "It is especially critical for smaller hotels to retain their top staff, since we lack the manpower of a big five-star brand. You do not want to lose half of a two-person team when it takes six months to find a replacement."

Expansion brings long-term potential

Yet even with occupancy rates far from optimal and staff turnover high, Shanghai hoteliers see greener pastures ahead.

"Even if the market is crowded now, it is clear that we are building for the future," Cool said.

While the crowded market may squeeze hotel profit margins in the short term, resilient demand and healthy economic growth will eventually absorb excess supply, wrote HVS Global Hospitality Services in its quarterly report.

At the same time, while oversupply may exist from the hotelier perspective, event planners and their clients stand to gain from the huge selection of venues, said David Ong, managing director of the event management company Offsite Connections.

"Event planners are spoiled for choice," he said. "With greater flexibility, we have more room to impress clients."

Ong also suggests the city create a convention bureau as its competitors Hong Kong and Singapore have done to raise the caliber of MICE (meetings, incentives, conferences and events) business in Shanghai.

"A convention bureau run by a city government goes a long way in bringing credibility to an event," he said.

Meanwhile, a more competitive business visa policy could boost Shanghai's international MICE business, Cool said.

"Many international businesspeople can travel to competing destinations like Hong Kong and Singapore visa-free," he said.

However, Shanghai's MICE fundamentals are strong, said Frankie Gao, managing director of MCI Association Management and Consulting.

"Shanghai is a huge market with tremendous business opportunities for association conferences and corporate meetings," he explained. "Finance, logistics – especially shipping – high tech and pharmaceuticals are very strong here."

More multinationals have their China headquarters in Shanghai than anywhere else in the country, he added.

The future redevelopment of the former World Expo site and launch of Shanghai Disneyland are expected to drive MICE business and deliver ongoing benefits to Shanghai's hotel sector.

In October, the Expo China pavilion will reopen to the public as the China Art Palace to host the Shanghai Biennale.

The same month, on the former Puxi Expo site, the Expo Urban Future pavilion will reopen as the Shanghai Museum of Contemporary Art.

Disney plans to launch the Shanghai outpost of its celebrated Disneyland theme park by late 2015.

Matthew Fulco is a freelance writer based in Shanghai.