The Ibis Budget of China – Home Inns

The Ibis budget hotel chain, owned by the Accor Group, consists of over 380 basic-service hotels across Europe, Indonesia and Israel. There is a Chinese competitor with a similar model that is beginning to look at overseas markets.

Basic Comforts

Enter Home Inns Group, both the largest hotel chain in China and the first budget chain within China. Founded in 2001 by Ji Qi, this hotel chain managed from Shanghai has swiftly grown to operate 1,682 hotels across 243 cities in China. Much like Ibis Budget, they focus on providing the basics – comfortable beds, free in-room wifi, air conditioning, hot water, and modern bathrooms. The company initially garnered investment from several private equity funds before financing their aggressive expansion through an IPO on the USA’s NASDAQ stock exchange in October 2006. Over the past 12 years, Home Inns have consolidated their hegemony over the domestic budget hotel market by acquiring other major budget hotel chains, including Top Star in 2007 and Motel 168 in October 2011. Home Inns Group have also ventured into the middle and upscale hotel market by launching Yitel brand of hotels in November 2010. Their strategic plan over the next five years is to continue expanding within China to ensure they are domestic tourists’ number one choice as well as selectively expanding into overseas markets.

Hoome Inns' extensive network

Not only is the company itself a good investment, it makes sense to invest within China’s travel industry. China’s hotel market is demand-polarized; this means that consumers are more interested in either the bottom (so-called Starless) market or the top luxury hotel market. There are now around 10,000 starless hotels in China, 9,000 1 & 2 & 3 star hotels, and 2,200 4 & 5 star hotels. Even more stark is the relative growth between these segments over the past 8 years: starless hotels have risen from 200 hotels to 10,000 hotels, the 1 & 2 & 3 star hotel segments have lost roughly 2,500 hotels since 2005, and the 4 & 5 star hotel segments have added around 500 new hotels over the last 8 years. This growth in starless hotels is the result of a variety of factors:

·         More hotels opting out of the China National Tourist Association stars system;

·         Construction of new properties, spurred by rising Chinese domestic income and a greater propensity for travel domestically; and

·         Chinese demand for value for money

Home Inn, Nanjing

These economy hotels roughly correspond to a 2 or 3 star hotel in quality, but have opted not to be classified as they have stripped away many of the hotel extras in order to focus on cleanliness, safety, convenience and value for money. These starless hotels tend to favour a model where they lease property or adopt a franchise model, which lowers their costs and enables them to expand their chains more rapidly.

Home Inn - Wuyi Mountain Resort

Last year starless hotels filled 80% of their rooms, compared to an occupancy ratio of 60% for star-rated hotels. Within the starless hotels segment, Home Inns is the market leader in China with 22% of the number of rooms, followed by 7 Days with 14%, Han Ting with 12%, and Jin Jiang with 8.5%. Moreover, there is still room for growth as nearly 50% of China’s cities have only one hotel and there are only 0.6 hotel rooms for every 1,000 Chinese people compared to 2.5 hotel rooms for every 1,000 American people. With the additional prospect of 221 cities with over a million residents by 2025, buy into Home Inns Group’s shares now and hold for the long-term. Their shares are at US$40.72 currently and have had a stellar performance since January when its shares were around US$24. So buy into Home Inn so that your home can be wherever you are.