Positive Comments: Behind the Exit of Economy Hotels Lies the Structural Upgrade and Efficiency Optimization of the Hotel Industry
Beneath the surface of the large – scale exit of economy hotels, there is actually a profound adjustment in the process of chain – building and quality improvement of the Chinese hotel industry. This trend holds significant positive implications in terms of business logic and industry development.
Firstly, the increase in the chain – building rate has propelled the industry from “extensive expansion” to “intensive operation”. As mentioned in the news, the domestic hotel chain – building rate increased by 13.6% from 2015 to 2019. During the pandemic from 2020 to 2022, a large number of single – unit economy hotels with weak risk – resistance capabilities exited the market, while the three giants, Jinjiang, BTG Hotels, and Huazhu, expanded against the trend by nearly 13,000 stores, and the chain – building rate exceeded 40%. The core advantage of chain operation lies in stabilizing the basic occupancy rate and dynamically adjusting room rates through the membership system, corporate clients, and the central revenue management system. For example, Huazhu’s members contribute nearly 70% of its revenue. This “certainty” business model significantly reduces the vulnerability of single – unit hotels that rely on individual travelers. After the industry concentration increases, leading enterprises reduce marginal costs through resource integration (such as unified procurement and standardized management) and cover different customer groups through brand stratification (economy, mid – end, and high – end), thus forming a more efficient market division of labor.
Secondly, the transformation to the mid – and high – end market promotes service upgrading and differentiated competition, which is in line with the changing consumer demand. The core problem of economy hotels is the homogeneous competition under the “limited service” model, offering only “a bed + a breakfast” with little added value. In contrast, mid – and high – end hotels expand “accommodation” into a “lifestyle experience” through services such as supporting catering, fitness facilities, and theme design (e.g., Atour selling pillows), successfully increasing the premium space. Data shows that Atour’s revenue in 2023 was 4.67 billion yuan, a year – on – year increase of 106%, and its net profit increased by 6.7 times, which is evidence of the profitability of mid – and high – end hotels. More importantly, the occupancy rate of mid – and high – end hotels has surpassed that of economy hotels (for example, Jinjiang’s mid – and high – end occupancy rate exceeded that of economy hotels in 2018), indicating that consumers’ willingness to pay for quality has increased. The industry has shifted from “low – price involution” to “value competition”, which is in line with the long – term trend of consumption upgrading.
Finally, the “collusion” between the supply and demand sides is driving the industry towards a healthier structure. On the supply side, by increasing the proportion of mid – and high – end hotels (the proportion of mid – and high – end hotels of the three giants exceeds 50%), hotel chains can increase their revenue through franchise fees (linked to room rates) and avoid internal brand competition through differentiated services. On the demand side, with the recovery of business travel and tourism consumption, there is a greater preference for quality experiences. The diversified revenue sources (such as catering and event hosting) of mid – and high – end hotels reduce their dependence on occupancy rates and make them more risk – resistant. This positive cycle of “supply optimization – demand matching” is reshaping the profit model of the hotel industry and laying the foundation for its long – term stable development.
Negative Comments: Hidden Concerns of the Exit of Economy Hotels – Market Discontinuity, Loss of Diversity, and Potential Risks
Although the exit of economy hotels is an inevitable result of industry upgrading, this process also exposes problems such as market structure imbalance and the neglect of people’s livelihood needs. We need to be vigilant about the potential risks brought about by “over – mid – and high – endization”.
Firstly, the exit of economy hotels exacerbates the contradiction of “accommodation stratification”, squeezing the accommodation options of some groups. As mentioned in the news, although economy rooms still accounted for 54% at the end of 2024, economy hotels only accounted for 17.6% of the new hotels opened by hotel chains, and a large number of single – unit economy hotels closed. This means that the accommodation choices for price – sensitive groups (such as students, migrant workers, and short – distance travelers) are being compressed. For example, the special – price rooms of a Budge Hotel near Shanghai’s Tianzifang cost less than 200 yuan, while the average price of a nearby All Seasons Hotel is over 600 yuan, a three – fold difference. However, mid – and high – end hotels are unable to meet the “intermediate demand” in the range of 200 – 600 yuan. If the supply of economy hotels continues to decrease, it may lead to a market discontinuity of “being unable to afford the high – end and not satisfied with the low – end”, affecting people’s livelihood and some economic activities (such as low – budget business travel).
Secondly, the concentrated expansion of mid – and high – end hotels may lead to local oversupply. Although the occupancy rate of mid – and high – end hotels is currently high, the “tacit” expansion of hotel chains (the mid – and high – end proportion of the three giants exceeds 50%) implies risks. For example, in non – core cities or during the off – season of tourism, if the demand growth of mid – and high – end hotels fails to meet expectations, they may face homogeneous competition similar to that of economy hotels in the past. When all brands focus on “design sense + supporting services”, the differentiated advantages will be diluted, and the profit margin may be compressed again. The news mentioned that “the supply of economy hotels still seems to be too large”. If mid – and high – end hotels repeat the same mistakes in the future, the industry may enter a new adjustment cycle.
Thirdly, the exit of single – unit hotels weakens market diversity and suppresses innovation vitality. Nearly 150,000 single – unit economy hotels closed during the pandemic (data from Economic Observer). After the market is dominated by chain brands, the number of personalized and local accommodation options (such as community hotels and themed homestays) has significantly decreased. The advantage of single – unit hotels lies in their ability to flexibly meet segmented needs (such as “aging – friendly hotels” for elderly tourists and “pet – friendly hotels” for pet owners), while chain brands tend to focus on standardized replication, which may result in a “thousand – store – one – face” market. In the long run, the loss of diversity will reduce the industry’s flexibility in responding to demand changes and hinder innovation.
Fourthly, the cost pressure under the franchise model may be passed on to consumers. Hotel chains increase their revenue through mid – and high – end franchising (franchise fees are linked to room rates), but franchisees need to bear higher decoration and operation costs (such as mid – and high – end hotels need to invest more in design and facilities). If the occupancy rate fails to meet expectations, franchisees may pass on the costs through price increases, and ultimately, consumers will bear the burden. For example, the news mentioned that the average room rates of the three giants have been “rising steadily” in recent years, which is “out of tune” with the “slightly depressing” economic situation. This deviation between price and consumer purchasing power may overdraw market trust.
Advice for Entrepreneurs: Seek “Differentiated Survival” Opportunities in the Structural Adjustment
In the industry transformation of the exit of economy hotels and the rise of mid – and high – end hotels, entrepreneurs need to break free from the “either – or” thinking and seize opportunities in segmented demand, cost optimization, and model innovation to achieve “differentiated survival”.
Accurately Position in the Segmented Market and Avoid the Homogeneous Red Ocean
The dilemma of economy hotels stems from “undifferentiated low prices”. Entrepreneurs can focus on the “upgraded cost – performance” or “characteristic economy” segments. For example, they can launch “learning – oriented hotels” (providing study rooms and shared printers) for students and “convenient hotels” (near industrial areas and providing commuter shuttles) for migrant workers. By providing additional services, they can increase the premium (e.g., pricing at 200 – 300 yuan, 50 yuan higher than traditional economy hotels but with more targeted services). At the same time, pay attention to the sinking market (cities at the third – and fourth – tier levels and counties), where there is still a demand for economy hotels, but the services need to be adjusted according to the local consumption capacity (such as emphasizing “cleanliness and hygiene + stable Wi – Fi” instead of blind upgrading).Strengthen Cost Control and Explore Flexible Operation Models
Learn from the dynamic pricing system of chain hotels and use big – data analysis to understand the demand during peak and off – peak seasons (such as during concerts and holidays) to avoid over – booking during the peak season (reserve some rooms for dynamic price adjustment). Optimize fixed costs: adopt short – term property leases (to reduce rent pressure) and shared employees (cooperate with surrounding restaurants/retailers to share human resources); improve operational efficiency: introduce self – check – in machines and intelligent guest control systems (to reduce the need for front – desk staff) to lower the per – room operating cost. In addition, try the “asset – light” model, cooperate with property owners to share profits (instead of paying fixed rent) to reduce the pre – investment risk.Create “Small but Beautiful” Differentiated Experiences to Enhance User Stickiness
The core advantage of small and medium – sized entrepreneurs is “flexibility”. They can create unique labels through theme design (such as Chinese fashion, technology, and local culture) or characteristic services (local food experiences, handicraft courses). For example, launch “intangible cultural heritage – themed hotels” (display local intangible cultural heritage handicrafts and offer experience courses) in tourist cities and “shared meeting – room hotels” (provide temporary office space for small teams) in business cities. At the same time, use private – domain traffic operation (WeChat mini – program membership systems, community interaction) to retain users, reduce dependence on OTA platforms (to lower commission costs), and increase the repurchase rate through the linkage of “accommodation + local life” (such as cooperation with surrounding scenic spots and restaurants).Pay Attention to Policies and Industry Trends to Avoid Potential Risks
Closely follow the policy orientation of the hotel industry’s chain – building and quality improvement (such as the regulations on accommodation service standards issued by the Ministry of Culture and Tourism) to avoid blindly replicating the traditional economy hotel model. At the same time, be vigilant about the local overheating of the mid – and high – end market. Before expansion, conduct research on the supply – demand balance in the target area (such as the number of mid – and high – end hotels within a 3 – kilometer radius and the main customer groups). For entrepreneurs who plan to franchise a chain brand, carefully calculate the costs (decoration fees, franchise fees, management fees) and expected revenues (refer to the occupancy rate and average price of stores of the same brand in the same area) to avoid overestimating the profit margin due to the “brand premium”.
The large – scale exit of economy hotels is both an inevitable result of industry iteration and a consequence of market selection. Entrepreneurs need to focus on “demand insight” and find a balance between quality and price, standardization and personalization to seize new opportunities in the structural adjustment.
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