High cost of running boutique hotels

"It is one of those destinations that instantly enthralls the visitor, especially in the early morning when sitting in the courtyard of a tea plantation house, hearing the monks greeting the day in nearby temples on top of the hills. Their mantras cover the valley like a warm duvet. On such a morning one can hear the country breathe in and out - very gently, very calmly."

That purple prose came from a review left at a boutique hotel in Hangzhou. Unlike the traditional standardized hotel, a boutique hotel - also known as a lifestyle hotel or designer hotel - contains luxury facilities of varying degrees in unique or intimate settings with the opportunity to explore the local atmosphere.

They have boomed in China's first-tier cities such as Beijing and Shanghai and blossomed in scenic destinations, attracting customers, including 22-year-old Ye Ying, who look for something special and different.

"The hotel pays attention to detail," the young woman said effervescently when talking about her experience with her boyfriend at a boutique resort close to the West Lake in Hangzhou last summer.

"Its dcor is very detailed - such as the balcony and curtains. The entire sense of taste is exquisite," she said. More importantly, the hotel creates a feeling of home and is close to nature, which differentiates it from branded hotels, she added.

Ye and others like her represent a new trend - a young group seeking properties that are noticeably different in look and feel from branded hotels - when planning trips.

As such, the concept of boutique hotels, mainly popular in North America and the UK, has now moved beyond the usual design capitals of the world and is entering new markets including China.

Hangzhou is one of China's most renowned and prosperous cities, famed for its natural beauty. Luxury brands including Amanresorts and local hoteliers have all staked their claims, establishing well-hidden facilities at remote lakeside spots or in the mountains.

In January 2010, Amanresorts launched Amanfayun, its 24th property worldwide and second in China, offering guests a unique rural retreat on the outskirts of the city.

Local providers of boutique hotels are also in on the trend. In one year, a local boutique resort brand called West Lake Reclusive Life expanded to nine outlets at scenic spots in Guangzhou. Another local group, Fulinlehui Resort, which opened last year at the city's Xixi National Wetland Park, is planning to create more rooms.

The hotel is designed to provide travelers with a home from home to relax in, said He Jin, Fulinlehui's owner. "I am an outdoor hiking fan and was inspired by boutique hotels in Southeast Asia," he added.

Boutique hotels took off in China at a time when high-ranking branded hotels began to expand frenziedly despite a stagnant occupancy rate.

Official figures show that the number of five-star hotels stood at 651 in China at the beginning of this year, with 500 more scheduled to open.

According to Shenzhen-based consulting firm Hotelsolution, the occupancy rate at high-ranking star hotels was a little more than 60 percent for the last quarter of 2011. A hotel barely breaks even if the rate is lower than 60 percent.

Challenge

But boutique hotels bring certain benefits in terms of operations and profitability, professionals said. Besides strong customer demand, the economics are favorable for operators. For example, boutique owners do not have to pay a franchise fee to become part of a larger chain. The hotel can survive and succeed without such costly amenities as restaurants, ballrooms and meeting spaces. However, these amenities, when styled in a boutique manner, can bring significant additional profitability to the hotel's revenues.

Bringing a fresh concept and venturing into a new market comes with its challenges. These include nurturing the demand, defining a clear marketing approach as well as manpower constraints.

Boutique hotels generally target customers in their early 20s to mid-50s enjoying mid- to upper-incomes, hoteliers said. A key issue in marketing a boutique hotel or resort involves sending the right message to these target customers.

"We mainly target those who own private cars and prefer driving themselves as well as those on vacation with family members," said He Jin of Fulinlehui Resort.

Official statistics show that the number of motor vehicles in Hangzhou's urban areas - 870,000 at the end of February - is expected to surge to 1 million at the end of this year. The growth rate of those traveling in their own cars also outpaced that of ordinary tourists.

But the occupancy rate at He's hotel is stunningly low: only about 4 percent since its opening one year ago. To survive the resort has long been relying on revenue from the catering service offered at the hotel, which brought in about 9 million yuan ($1.4 million) in the past year.

Its owner attributed its stagnant sales to the clear division between Hangzhou's boom and slack seasons and the hotel's insufficient publicity efforts.

"We are fully booked during high season," He said. "But when the low season descends, we could be totally empty."

Regarding its low profile, the owner said he declined to cooperate with travel agencies for fear of them bringing in group tourists, which can lower the hotel's prices and service.

Marketing an independent boutique hotel can also be difficult because of financial restrictions and other resource limitations. As such He planned to add 30 more rooms when further developing the current facility.

Lu Jiangwen, general manager of Hangzhou's Tea Boutique Hotel, said that a boutique resort has to resist the temptation to be too general in the hope of getting a larger slice of the market and should focus precisely on the target group.

In a costly move to attract the target customers, the hotel slashed the number of guestrooms and used the limited space to erect an authentic Thai-style spa and a French bar.

"To be honest, the salary paid to the therapists from Thailand accounts for a handsome share of our entire expenditure," Lu said. "But the Tea Boutique Hotel only cares about one thing and that is providing the target customers with a genuine Thai spa and our best service."

The French-style cocktail bar is designed with the same purpose in mind, the manager said. The costly drinks deter unwanted customers who happened to have booked into the hotel but win applause from high-end customers.

The high-profile reception, which includes presenting guests with free bottles of water collected from the local Tiger Spring, known for its premium water quality, is designed to improve satisfaction levels among the right group, he added.

The considerate service, as well as the close connection that hotel guests experience with members of staff, is what distinguishes boutique hotels from their standardized cousins. At the former, staff are instructed to remember guests' names, something difficult to achieve in large-scale hotels.

Some boutique hoteliers struggle to find qualified service staff in an industry with a high turnover rate.

One of the problems facing the development of boutique hotels is that the most talented people have been lured by five-star hotels run by big international brands, according to Lu.

The personnel wanted by his hotel must have work experience at international brands while at the same time accepting the core values of boutique hotels. "Neither can be dispensed with," Lu said.

Boutique resorts also differ from regular hotels in terms of team management, the manager added. Because of their small size, a role played by up to a dozen staff at starred hotels only requires two or three at boutique hotels, greatly reducing the flexibility in deployment of manpower.

"Workers' loyalty and their mentality are more important at boutique hotels. The human resources staff have a lot to do regarding issues involving workers' motivation, evaluation and loyalty," Lu said.