As Shanghai enters the 12th day of what was originally billed as a 4 day lockdown, the impact on businesses is very visible. We have clients who are affected and looking at their struggles and financial reforecasts for the year gives us a sense of the pain that many industries will face in China this year.
Nowhere is this more marked than retail and hospitality – businesses that depend entirely on people being able to move about freely. For this piece, we’ll focus on the hospitality business, the impact of the latest round of lockdown in Shanghai and some thoughts on what to do going forward.
We went back and looked at some statistics from 2020 when the pandemic first hit and there was a round of closures / voluntary quarantine and so forth. Bear in mind that then, it was countrywide measures whereas now we’re looking at far stricter measures but only for key cities and affected areas.
What stood out was a sharp drop in room occupancy (71.4% in Beijing and 63.9% in Shanghai) that led to corresponding drops in REVPAR (75% and 69% respectively). Revenue for all star hotels in China in 2020 dropped from 671 billion RMB in 2019 to 461 billion, the first time since 2014 that the industry shrank. Back in 2020, 73% of all hotels in China closed for an average of 27 days during January / February 2020 – which was the peak CNY travel season.
All of which goes to show that lockdowns in 2022 will have similar, deep, painful impact on the hotel industry – even if it’s not nationwide this time around. Since 2020, domestic travel within China has slowed and international travel to China has slowed even more, with only citizens and work / residence visa holders allowed back, so the industry still hasn’t recovered from the blows of 2 years ago.
One interesting dynamic that came up as China worked out a quarantine policy around April 2020 was the creation of the “quarantine hotel” business model. Hotels from almost every star category feature in the list of approved quarantine hotels where incoming travelers have to stay for 14 days, paying for their own rooms and meals. By and large, room rates are similar to normal rates, meals are fairly basic and not provided by the hotel kitchen, and there is no housekeeping for the duration of your stay – so it seems like a good way for a hotel to keep revenue going during this time. On the downside, however, there are some very tangible cost issues around putting in more manpower to ensure contactless delivery of meals, disinfection, keeping track of each patient’s quarantine history and so forth. Staff are also reluctant to work in a quarantine hotel since there is some additional risk of being infected. Most important is the risk that being branded a “quarantine” hotel may adversely affect the brand in years to come, with people reluctant to visit it just after these measures end.
What can you do if you’re running a hotel and need to find ways to survive the next 12-24 months as China continues to pursue strict lockdowns and other restrictions to achieve zero-COVID? Clearly, travel is a fickle source of income since you could open up this week and be shut down again next month. How can you drive revenue up and costs down without diluting or losing your brand for the long term?
There is no one-size-fits-all type of answer here but the core of it lies in redefining a local market that you can serve which is not dependent on travel, is available in any time but a total lockdown of the city and is either light on resources or delivers consistent long-term revenue. Depending on your hotel positioning, location and the typical consumer profiles you serve there are a few different ways to approach this which we can help you think about.
At Searchlight, we work with domain-experts in various fields as and when needed. We have access to experts from the hospitality industry who work with us to help clients address their short-term business pressures without losing sight of their long-term brand health. Get in touch at enquiries@searchlightchina.com to find out more.