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Hotels: Ryokan on the rise

29 June 2006

Until recently the combination of foreigner and Japanese traditional inns has been as rare as buttered sushi. Cultural and language barriers made it a hard sell to foreign visitors, while ownership remained firmly the hands of small, family-run businesses. Their traditional ways meant just that - doing things the old way - no English, sleeping on the floor and communal nude bathing. A bit much for some foreign guests, especially when a night's stay can match prices of top London hotels.

Nor did foreigner investors and Japan's oldest industry make a connection. A shaky economy, and infuriating different rules for foreign buyers and investors made the hard slog of investing in an unpredictable market unappealing. What's more, Japanese inns, or ryokan, are such a venerable institution that foreign involvement was unthinkable. But with the industry in decline and the nation as a whole being prised open to eager foreign investors and visitors alike, Japan is relenting. Americans, Europeans and fellow Asians are emerging as important customers, investors, agents and even owners of ryokan.

It was Japan's difficulty that created the opportunity for outsiders. Visits had been way down in the 1,000-year-old ryokan industry, due mainly to the country's economic downturn of the last 15 years, and many ryokan operators had been going out of business. Between 1991 and 2003, the market shrank by 50% from more than 100,000 typical, family-run enterprises to about 45,000 today. Occupancy rates hovered about the 40% mark.

But now the Japanese economy is back on track, interest rates are at an all-time low, and property prices have seen the first rise since 1990, foreign investors are getting excited about buying in Japan as never before. Other outsiders, swayed by the sheer sublimity and uniqueness of some of these hotels which more often than not come with a natural hot spring spa, or onsen, are involving themselves on an entrepreneurial level or occasionally marrying into the business.

And as tourist levels rise thanks to an aggressive new government-led marketing campaign, their custom is helping to lift many a traditional inn out of its economic hole. Discerning overseas visitors have long known that Japan is not all about neon and temples and that the golden getaway is the traditional ryokan, where the strains of modern living are exchanged for a simple cotton kimono, an unmistakable
Japanese aesthetic, exquisite Japanese food and the most stunning natural spas.

"A Japanese traditional ryokan is the epitome of customer service," says Jeanie Fuji, an American who married into the ryokan business 15 years ago and who runs the 350-year-old Fujiya ryokan amidst the splendour of the Yamagata mountains. "I've stayed in five-star hotels in the States and the service offered there is not even close to that of a five-star or even a three-star ryokan."

Because of this focus on old-fashioned hospitality, labour costs are high, says Fuji. Upkeep of the ancient and delicate wood and paper buildings is also high. A recent building upgrade forced their rate to 40,000 yen (£189) per person per night. "We're probably at the bottom of the upper price range for high-grade ryokan - 35,000-80,000 yen [£165-£377] or more. An average range would be between 15,000 and 25,000 yen [£71-£118]," she says.

Cultural barriers However, whether cheap or expensive, until recently most of these icons of Japanese pleasure had been out of bounds to foreign visitors, or at least difficult to secure because of language and other cultural barriers. But not any more. One bright American entrepreneur - or rather his partner's Japanese wife - saw a demand from foreign visitors and residents for these tantalising Japanese retreats and is satisfying it elegantly with an all-English online service (http://japaneseguesthouses.com). The web-based service promises to smooth any onsen aficionado's way to an unforgettable stay at more than 100 crack ryokan.

This should have been done long ago by the Japanese Tourist Organisation (JNTO), say critics. Unfortunately, knowing what might attract non-Japanese to Japan has never been this organisation's strong point. Ironically, it took some "gaijin" (alien) sensibilities to help turn that around. Now a night in one of these cultural treasure houses is only a few clicks or a phone call away, says JapaneseGuestHouses founder Jeff Aasgaard. "We represent over 700 ryokan all over Japan and are adding them daily. The business is growing at about 120% a year and showing no signs of slowing."

Japanese, too, are surprised by foreign interest in their inns, as many are a cultural challenge and by Western hotel standards are very expensive. A typical night in a rural ryokan with a superior room will cost about £150 per person. The room will be beautifully fitted in the Japanese traditional style with dark wood beams and shoji screens, but within a sparse, cramped space and without the luxuries of a similarly priced room in a Western-style hotel. Rooms rarely have an en suite bathroom - guests bathe naked in the communal onsen bath, and sleep on futons. But dinner and breakfast are included in the price as well as the unforgettable experience of sampling the lavish hospitality and architecture of a bygone age. And if prices seem high - they can reach 300,000 yen (£1,415) per person per night in exclusive retreats - this is countered by the fact that many ryokan serve some the finest Japanese food.

Local operators hearing of this "gaijin gold" are trying also to attract foreigners as more and more domestic visitors are seduced by holidays abroad with cheaper, more flexible Western-style hotels. An English website presence is the key again, but some ryokan become an overseas hit by word of mouth. One traditional onsen hotel in Western Japan, the Kagaya in Ishikawa Prefecture, has tapped into its fame as a favourite of Taiwan's ex president Teng-hui Lee. Fellow Taiwanese - a million of whom visit Japan every year and prefer to stay at ryokan - are now flocking there. In response, the ryokan has changed a few of its traditions to make the new guests feel more at home. Hot, spicy food is served instead of the more delicate kaiseki Japanese meals, and other small adjustments are made to make them feel at home. Taiwanese, Korean, and Chinese, with onsen cultures of their own, are so keen to sample the delights of their close neighbours' stylish offerings that ryokan are recording record numbers of Asian visitors to their doors this year.

"Five to 10 years ago there was a general movement to attract foreign visitors, beginning with the ryokan. The biggest effort is made to bring in guests from Taiwan, Hong Kong, and Korea. And they are coming," says Fuji.

Global financial giants such as Goldman Sachs and Morgan Stanley are pouring money into Japan, buying up real estate assets and boosting investor confidence in the property sector and the country as a whole, and ryokan have been added to the mix. Goldman Sachs surprised everyone two years ago by its co-investment in a Japanese fund run by hotel/onsen operator Hoshino Resort, and by announcing a scheme to rebuild an entire onsen village, Komaki Hot Springs, to the tune of 220b yen (£1.04b).

Personal service It was a brave move, says Fuji, as these large, high-end ryokan are the kind that have had trouble attracting customers. "Large, hotel-style ryokan were the thing about 25 years ago," she says. "Because of their popularity a lot of small ryokan expanded their premises but now they're having trouble filling beds. Japanese customers are tired of large-scale ryokan, so the pendulum has swung the opposite way and small, out-of- the-way ryokan that offer very personal service are currently popular."

But Goldman Sachs bankers aren't discouraged by the trend. They're aiming at the 150,000 yen (£708) per person per night market, which is growing again thanks to a resurgent economy. "Breaking new ground in a traditional sector of Japan takes time and patience," Shigeki Kiritani, managing director at Goldman's in Tokyo, told the Wall Street Journal recently. Over the next few years, the bank hopes to acquire some 50 inns throughout Japan that will also be managed by Hoshino. Goldman Sachs says it will be keeping the outward, traditional aspects of the ryokan while reworking their management.

Foreign investors are betting that a bit of modern management and marketing can make the business competitive again. With a huge surge of interest in ethnic Japan at home and abroad and the money to pursue it, this is looking increasingly like a safe bet.

The ryokan
Compared by some to a European castle, ryokan offer immersion in a style of living almost forgotten in Japan - including sleeping on futons on a tatami-matted floor, communal unisex bathing, and dining in cotton kimonos.

These customs go back centuries, as does the style of hospitality which started in the 17th century to accommodate feudal lords who were required to travel to the capital to pay respects to the shogun.

The lavish hospitality was extended to commoners when they started travelling in numbers in the 18th century. The cosseting and astonishing interiors remain today.

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