Chinese consumers’ growing appetite for luxury: What does it mean for hospitality?

China’s luxury goods market has been going through auspicious years over the last few years. In 2018, Chinese consumers spent USD$115 billion on luxury goods globally, making-up a third of the world’s spend, and their outlay is set to double by 2025. Moreover, between 2012 to 2018, Chinese consumers have delivered more than half of the global growth in luxury spending according to the 2019 McKinsey China Luxury Report.

The Chinese hospitality industry has followed similar growth patterns over the past decade: according to the United Nations World Tourism Organization, Chinese tourists spent $277.3 billion overseas in 2018, up from around $10 billion in the year 2000. China’s Ministry of Culture and Tourism announced that domestic travel within China had grown to 5.54 billion trips in 2018, a rise of 10.8 per cent from 2017.

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With the country’s growing appetite for luxury goods, the Chinese hospitality business has continued to experience optimistic expansions, driven by key trends such as the growth of purchasing power among Millennial Chinese consumers, the rise of digitalization and market repatriation.

The power of Millennial Chinese consumers and digitalization

There is no question that these consumers are changing the face of the luxury experience in China and globally, and that they also contribute greatly to the growing hospitality industry in China.

Unlike older generations, millennials are less influenced by product pricing, as they value lifestyle and product uniqueness more than discounts. In recent years, hoteliers have aimed to attract the Millennial market through a dilution of sales between online and offline channels, and strove to enhance their access to younger generation consumers through digital marketing.

One-third of global luxury sales come through Chinese consumers between 18 and 30 years old and China’s luxury goods market is estimated to increase by 6% over the next five years.

Digitalization covers both e-commerce and consumer engagement through digital platforms. Since 2015, the top 40 luxury brands in China have nearly doubled the portion of their marketing budget devoted to digital, spending between 40% and 70% of that on WeChat: a popular Chinese social media platform with more than 800 million users, which totals the number for Instagram and Twitter combined. WeChat enables not only simple social media functions, but also mobile payment, connections to popular Chinese OTAs and options to directly reserve and purchase flight tickets, hotel rooms, car rides, excursions, and more.

In fact, Asian hotel stays are dominated by Chinese mobile bookings and the Chinese hospitality industry is definitely shifting to accommodate Millennial engagement. Leading hotel brands are aiming to maintain digital social community through WeChat-friendly experiences in order to enhance visible brand presence.

For example, Hilton is adopting a strategic approach through its Hilton WeChat Mini Program which could be used on any WeChat account. The Mini Program provides guests with access to a series of online services, including their stay invoices, a property guide and travel information to help them explore the local destination. Moreover, Hilton’s rewards program – Hilton Honors – is hosted separately on a specially-launched Mandarin language Hilton Honors app, to reach out to more Chinese consumers. The company has also formed several partnerships with local providers of payment solutions, such as WeChat Pay or Alipay, to cater to the mobile consumption habits of Chinese travelers.

Market repatriation driving domestic growth

The Chinese government’s reduction on import duties and stricter controls over grey markets of luxury goods have led more Chinese consumers to make their luxury purchases domestically.

Chinese consumers made 27% luxury purchases in China during 2018, up from 23% in 2015, and this share is anticipated to increase to 50% by 2025. China’s Ministry of Culture and Tourism announced that China’s domestic travel boom in 2018 generated revenue of US$764 billion, a 12.3 per cent rise from 2017.

To fulfill such a growing domestic need for luxury spending, China’s homegrown luxury hotel brands are inspired to fill-in the gaps for domestic upper-mid-scale hospitality experience sought by this growing segment of Chinese consumers. These brands have also their sights set beyond the country’s border hoping to gain global recognition.

Beijing Tourism Group launched its luxury hotel chain, Nuo Hotel, in 2015 near Beijing’s Art Zone 798. The property consists of 439 guest rooms of modern design with a touch of traditional Chinese aesthetic from China’s Ming-dynasty philosophers who proclaimed the perfect bedroom ‘must balance harmony and simplicity’. A made-in-China concept is coherent within the property from its interior designs to its Chinese restaurants, complete with tea pavilions. Nuo Hotel Beijing was developed in conjunction with Kempinski Hotels, creating an East-West alliance. This nascent brand has already begun to shine in China and aims to bring its made-in-China concept to the world stage at London, Paris and beyond.

With the growing demand of luxury goods in China, many international hotel brands are fully motivated by the market opportunities in China and are expending their presence in the Mainland.

Hyatt Hotels, one of the world’s largest luxury hospitality companies, is aimed at tapping the growing appetite for domestic travel on the Mainland, which reached 5.54 billion trips last year. The hotel group plans to double its capacity in China and surrounding areas over the next four years. According to David Udell, president Asia-Pacific of Hyatt Hotels, as of May 2019, Hyatt has 74 hotels of 21,021 rooms in Greater China and over the next four years, the company aims for a planned expansion with a pipeline of 27,000 rooms, representing nearly a third of its global development pipeline. Hyatt said its luxury brands are the focus of the company’s expansion. In February 2019, Hyatt announced a joint venture with BTG Homeinns Hotel Group, a Chinese travel services provider and hotel operator, to develop a new hospitality brand to serve the upper-mid-scale segment of domestic Chinese travelers.

Hyatt is not alone in the expansion. In 2019, Hilton Hotels chose Chengdu to launch its new Canopy-by-Hilton brand in the Asia-Pacific, which aims to create a lifestyle hotel experience for guests wanting local flavor, while Intercontinental Hotels Group announced that it has opened 400 hotels in Greater China.

As the market for luxury goods expands, the same elements have positively stimulated the Chinese hospitality industry. China has continued to push its tourism businesses further domestically and internationally, despite already being the number one outbound tourism market worldwide. Such a growth is perfectly in line with the country’s growing appetite for luxury goods, both attracting international brands’ attention on the world stage and inspiring homegrown companies’ prosperity.

This article was first published in Hospitality Insights by EHL.

About the author

Jennifer Luo is a bachelor student at the Ecole hôtelière de Lausanne studying International Hospitality Management. She is a student ambassador of EHL and has taken leadership roles in multiple student-run committees such as Students Helping Students and EHLSmile Association.

In 2017, Jennifer has conducted an operational internship at Four Seasons Hotel Hong Kong for six months and gained insights into the hospitality industry.

 

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