Great leap forward

Hong Kong-based hotel group Shangri-La is keen to tap in to the potential of the Chinese market, as Jenny Webster reports.

This week is Chinese New Year, a reminder of the ever-growing importance of the Chinese nation. For China these are exciting times, for three main reasons. First, the world's most populous nation is about to join the World Trade Organisation, a move that will open up its trading gates to the rest of the world and will render it the world's largest economy over the next two decades.

Second, the 2008 Olympic Games will be held in the capital, Beijing, guaranteeing China a position at centre stage for the next few years as well as bringing obvious business benefits. And third, and partly as a result of the first two factors, the very structure of Chinese life is changing: a middle class with money and a desire to travel and take advantage of an improved transport infrastructure is evolving and is increasingly a force to be reckoned with.

Hotel companies have been quick to pick up on these trends and the potential business they represent. Hilton, Starwood, Six Continents, Hyatt, Kempinski, Raffles International and Accor already have properties in China, and Ritz-Carlton, Four Seasons Hotels and Resorts and Marco Polo have openings planned soon.

Bidding for pole position at the luxury end of the market is Shangri-La Hotels and Resorts, a group with a mixture of management contracts and equity stakes. It currently numbers 38 hotels and 20,000 rooms but has ambitions for 50 properties with 30,000 rooms over the next 10 years. China will play a key role in this expansion bid. "Take into account that there are 1.2 billion people in China, and you soon start to see the potential," says group director of operations Symon Bridle, a Briton whose career has spanned hotels in South Africa, London and Bermuda.

Shangri-La is no stranger to the Chinese market. It already has 16 properties across the vast country, but is still hungry for more, either as part-equity projects or as management contracts. Bridle believes there is scope for more outlets in Olympic city Beijing, where there are already three Shangri-La hotels (two under the five-star Shangri-La brand and one under the Traders banner, its four-star equivalent).

But Bridle is keen to stress that although the Olympics will bring immediate benefits, hotels are long-term assets. A three-week sellout period is not enough to make a return on capital employed, as has been discovered in Olympic cities Atlanta, Barcelona and Sydney, where supply post-event has overtaken demand. "The Olympics are an opportunity but not an end game," says Bridle. "The long-term focus has to be on building up the network in Chinese corporate travel."

Building room rates in China is also a long-term challenge. According to the Arthur Andersen Asia Pacific Benchmarking Survey, the average achieved room rate in Beijing in 2001 was US$77.63 (£55), 8.5% up on the previous year. Yield was US$55.16 (£39) - low for a capital city, although this is likely to increase significantly during the Olympic year. At its end of the market, Shangri-La hopes to achieve a rate of $US100 (£70.88) in secondary cities and US$120-US$180 (£85.05-£127.59) in Beijing.

Finding the right partners is also an issue for hotel companies developing in China. Most new developments are joint ventures with entrepreneurs, who might run out of money partway through a project. Due diligence is not as transparent as in Europe, either, and critical details are more likely to be "overlooked".

It's not just Beijing that interests Shangri-La. Shanghai, where the company already has one property, is also on the expansion map. "Shanghai is the most developing city in terms of interest by Western companies," says Bridle. Secondary cities are also of interest. Zhenghou in the east and Zhongshan in the south-east will gain Shangri-La properties in March 2003 and July 2003 respectively. And the company is actively looking for opportunities in Xiamen and Chengdu in the west as well as in Guangzhou (Canton). Elsewhere in Asia, the company is on the hunt for suitable properties in Tokyo and Seoul as well as resorts in Bali, and Phuket in Thailand.

Outside Asia there are plans, too, with Dubai the first port of call. The first Shangri-La resort opens there this autumn followed by a Traders property the following year. A Shangri-La resort will also open in Oman in 2004. Doha, Qatar, Abu Dhabi and Cairo are also on the wish list for this area. Longer-term, Europe and the USA are on the cards, but Bridle says the company is not yet actively looking for properties there.

Shangri-La Hotels and Resorts

Hotels: 38
Brands: five-star Shangri-La and four-star Traders
Room sizes: Shangri-La 40-45sq m, Traders 30-35sq m
Staff-to-room ratio: 1.2:1.5
Group turnover 2001: just under US$1b (£0.7b)

Café Too

Seats: 225
Chefs: 42
Turnover since opening in October: US$750,000 (£530,867) per month
Gross profit: 35%
Average covers per day: 700
Open: 6.30pm to 1am
Prices: lunch HK$228 (£20.72); dinner HK$328 (£29.81)

Beijing Olympics

There are about 200 three-, four- and five-star hotels in Beijing and the number is expected to increase to about 300 by the opening of the games in 2008. The Beijing Olympic Committee estimates that the present 85,000 rooms in the city will grow to 130,000 by 2008.

Food and beverage developments

As well as plans for more hotels, there are big food and beverage plans afoot for Shangri-La. Compared with Europe or the USA, where it is difficult to persuade people to eat in hotels, operators in Asia have a relatively easy task persuading people into their hotel restaurants. Because space for housing is often tight, there is more of a culture of going out to eat, and hotels play a major role in this. Hotel restaurants in Hong Kong, for example, are generally full with diners both at lunchtime and in the evening, and booking is usually necessary.

But this leads to greater pressure to change the offering on a regular basis. Adrian Rudin, a Swiss national and food and beverage director of the Island Shangri-La, the company's flagship property in Hong Kong, is looking at the repositioning of food and beverage across the group. "There's a lot of pressure to make concept changes in Asia," he says. "We can't just do what we did 10 years ago. We have to come up with new and innovative ideas."

The latest idea is Café Too, which opened at the Island Shangri-La in October 2001 after an investment of US$3m (£2.12m) and three-and-a-half months spent ripping out an old-style café to put the new concept in. The result is a 225-seat state-of-the-art foodcourt-style operation open for breakfast, lunch and dinner, featuring steam, barbecue, saut‚ing, grilling, tandoori, stir-fry and induction styles of cooking. Diners pay a set price - HK$228 (£20.72) for lunch, HK$328 (£29.81) for dinner - and then eat as much as they want. Food types on offer include freshly made pasta; Chinese authentic fare; Asian specialities; a noodle bar; sushi; oysters and seafood; Thai-style salads; two different types of soup and an extensive dessert section where soufflés are made to order in a special soufflé machine. There is also an extensive wine list featuring 1,500 bottles, with 300 New World wines. Dishes are set out in seven stations and are refilled from behind. Chefs are on display, and the theatrical side of the operation is emphasised.

"When we decided on this new concept we looked at our existing workforce and singled out those who we thought would be good at cooking in a theatrical style," says Rudin. "We then trained them how to behave in front of the customers." There's a new attitude as well for waiting staff, who wear bowling shoes and baggy trousers with a waistcoat and have a choice of four different coloured shirts to go with them. They decide on their own colour combinations and, generally, most things go. "If waiting staff want to have a tattoo, then they can have one," says Rudin. "We've made a conscious decision not to have too many rules."

Interior art consists of food, including jars of pasta, bottles of brightly coloured vinaigrette, bottles of wine, and bread. "We used to hang paintings on the wall, but we want Café Too to be a complete food experience, so it is now the food that forms the decoration," Rudin concludes.

For Shangri-La, Caf‚ Too is just the beginning. The company is planning to open 12 new restaurants and bars across its portfolio in 2002 and aims to target these at the needs of the local market. International designers such as Adam Tihany of New York, Charles Robertson of Hong Kong-based Leese Robertson Freeman Designers, Bilkey Llinas of West Palm Beach, Florida, and Tokyo-based Super Potato have been hired to help develop the concepts. The move is part of a bigger investment programme that will set the company back some US$130m (£92.01m) over the next two years.