Hilton signed an agreement on March 7 for a new five-star hotel in Suizhou, Hubei. The project is backed by China’s state-owned Suizhou Zengdu Development, reflecting the local government’s strong support for high-end hospitality development in lower-tier cities.
Why are premium international hotel brands targeting China's lower-tier cities?
Firstly, some global hotel giants have underperformed in the Greater China region, dragging down their overall performance for the past few quarters.
* Marriott International reported a 2.3% decline in RevPAR and a 3.7% drop in ADR in Greater China last year. A modest 1-percentage-point rise in occupancy failed to offset revenue losses.
* IHG’s Greater China RevPAR plummeted 4.8%, while its East Asia and Pacific region business grew by over 10%.
These figures highlight the need for new growth strategies, pushing brands to explore alternative markets within China.
Secondly, the robust performance of hotels in China's lower-tier markets has caught the attention of international players.
* During last year's National Day holiday, over 60 county-level cities under H World's portfolio reported occupancy rates exceeding 100%—notable cases include Litang County in Sichuan and Wanrong County in Shanxi.
* OTA data confirm the trend, with small cities and counties leading hotel booking growth, and high-end hotels in these areas seeing a 50% surge in bookings.
With rising tourism interest and increasing demand for quality accommodations, international brands see an opportunity to tap into an underdeveloped but promising market.
International hotel brands are positioning themselves as premium offerings in lower-tier cities, leveraging asset-light models to minimize expansion costs. However they face several key challenges:
1. Competition from domestic giants
Local powerhouses like H World and Jinjiang have already established strong footholds, benefiting from deep supply chain integration and extensive distribution networks in mid-range markets.
2.Operational hurdles
While labor costs in third- and fourth-tier cities are lower, a shortage of skilled hospitality talent makes it difficult to maintain high-end service standards.
3.Price sensitivity of consumers
Consumers in lower-tier markets tend to be highly price-conscious, testing the international brands’ premium pricing power.
Ultimately, international hotel groups see this expansion as a bet on China’s long-tail consumer effect. Success will depend not only on their ability to leverage brand prestige but also on how well they adapt to local market dynamics and navigate operational complexities.
