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Retell the dialogue in details.
PE: How does GreenTree Inns position itself in China’s budget hotel market? D.Hu: We target business travelers looking for an economic hotel option. About 80 % of our guests are business travelers. We provide free wireless Inter- net in the lobby and a free broadband connection in all rooms. There is also a small meeting room for guests. We try to add some “extras” for the guests such as larger lobbies than you will find in many other budget hotels, car- pets in all hallways and rooms and better-quality furniture. The rooms are almost three-star quality and parking is free. GreenTree Inns also has better locations than many other budget hotels. PE: What does a three star hotel room cost in Shanghai? Is GreenTree Inns more expensive than other budget hotels? D.Hu: A three star hotel room will cost more than 400 Yuan in Shanghai. GreenTree Inn charges 219 Yuan to 249 Yuan per room in Shanghai. We are priced about 20 Yuan higher than Home Inns. We also have a membership program with 100, 000 members; 40 percent of customers are members. D.Hu: Before 2007 we had 24 hotels – 14 in Shanghai and up to 40 hotels in China. By the end of 2007, GreenTree had 70 hotels in China. D.Hu: We have more than 100 employees working at the company headquarters and a total of almost 2, 000 employees. For budget hotels, you normally need about 30 employees for every 100 rooms, while for five star hotels, you need 150 employees for every 100 rooms. PE: Who are GreenTree’s investors? D.Hu: GreenTree Inns chairman and general manager, Alex Xu, has studied and worked in the US for twenty years. Xu set up a real estate company called American Pacific Homes (APH) in the US, then returned to China in 2004 and founded GreenTree Inns. APH, along with several US companies including George Realty, COX and Castle & Nicholson, provided the fund- ing for and set GreenTree Inn. APH is the largest shareholder. GreenTree’s initial registered capital was US$20 million. The next injection of capital is US$120 million over two rounds; the first round of US$50 million has already been used and we recently received the remaining US$70 million. PE: Does GreenTree own the property for its hotels? D.Hu: No. The majority of hotel buildings are leased or franchised; GreenTree owns very few hotel buildings. PE: Does GreenTree use the franchise model? D.Hu: We do direct operation and franchising. For both models, the minimum contract is for 15 to 20 years. GreenTree Inns authorizes franchise hotels to use the GreenTree Inn brand, trademark and operating systems. We charge franchisees a one-time up-front fee of 300, 000 Yuan plus 1, 000 Yuan per room. We also take 3.5 percent to six percent of gross income (depending on occupancy; paid monthly). GreenTree Inns appoints the general manager for franchise hotels; the general manager will set room rates. In some cities, the rooms are only 149 Yuan. Currently, 70 percent of our hotels are direct- ly operated and 30 percent are franchise hotels. We will consider increasing the percentage of franchise hotels in the future. PE: How much does it cost to set up a hotel? D.Hu: It costs from five million Yuan to 10 million Yuan; the average is eight million Yuan for each hotel, or about 40, 000 Yuan per room. This does not include the cost to lease the property; this is just remodeling costs. By com- parison, a new three star hotel with 100 rooms would cost 100 million Yuan to build. PE: How long does it take to open a new franchise hotel from the start of negotia- tions? for the remodeling. PE: How long does it take to recoup your investment on a new hotel? D.Hu: It takes three to five years. However, this is just a forecast based on our current data because the first GreenTree Inn hotel has been opened for less than three years. However, in the future, it will take longer to recover your investment since there are more and more companies entering the market. D.Hu: Yes, the occupancy rate is already falling and there will soon be a price war in the industry. PE: What is GeenTree’s occupancy rate? D.Hu: GreenTree Inn’s overall occupancy rate is above 80 percent. Some hotels are at 60 to 70 percent and some are at 100 percent. The occupancy rate for GreenTree’s hotel near Shanghai’s Jing An Temple is at least 98 percent. D.Hu: It is not a bubble now. If occupancy rates drop to 70 percent, then I would be worried about a bubble. PE: What are the major challenges facing the budget hotel industry? D.Hu: I think there are three major problems: first, real estate costs are rising. Rents are increasing because there are many budget hotels competing for the best and most affordable locations and also because prices in China’s real estate market as a whole are rising. Second, there is a human resource shortage. GreenTree Inns is opening 50 new hotels a year; therefore, we will need 50 general managers and 200 other managers. Third, only a limited number of players will survive. As more and more players enter the market, the slice of the overall pie for each player drops. I believe we will start to see some consolidation in the industry in two to three years. Only five to six big chains will survive in the end. The industry’s occupancy rate and room rates will rebound after the market restructures. PE: What is the status of the market in second and third-tier cities? How do you compete with the many local budget hotels (that may only have a few locations) in the smaller cities? D.Hu: The big players do not have much of a competitive edge in smaller cities. First of all, the local hotels have their own networks and can get cheaper and better locations. Second, hotel rates in smaller cities are already relati- vely cheap, so budget hotels do not have the same price advantage that they have in big cities. GreenTree Inn’s rates are half the rates for three star hotels in Shanghai. However, some three star hotels in smaller cities only charge 150 Yuan; we cannot drop our prices to 80 Yuan. D.Hu: We will focus on the Yangtze River Delta and southern China first, then on to provincial capitals, such as Wuhan, Chongqing and Chengdu. We will then expand to second-tier cities where conditions are favorable. (original interview see: https://www.jlmpacificepoch.com/pecontent? id=96049_0_3_0_M) XXI. 1) Review the words and word-combinations you’ve learnt while
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