Thailand’s hotel industry is firmly in expansion mode abroad despite having a lucrative domestic market, as major players have grown comfortable with the idea of taking risks outside Thailand.
Three chains in particular – Minor International Plc, Dusit International and Centara Hotels & Resorts – have seen their bets pay off in recent years with a significant amount of their profits now coming from more diverse portfolios overseas.
The increased focus on markets outside Thailand is all the more noteworthy given the exponential growth of tourism in the home market in recent years. Foreign arrivals to Thailand last year reached 27 million, a rise of 20% year-on-year, led by Chinese travellers flocking to the country in the millions.
Minor International (MINT), founded by US-born entrepreneur William Heinecke, who is now a Thai citizen and one of the country’s wealthiest people, has been the most successful hotel group abroad. With operations across Asia and also in Africa and Australia, it plans within five years to double the number of hotels under its management.
“I see that the growth is very strong in Asia. Therefore, this is the place for us to expand and leverage our hotel portfolio,” says Dillip Rajakarier, the CEO of Minor Hotel Group, part of Minor International.
Minor International operates 108 hotels in 14 countries under brands including Anantara, Avani, Per Aquum and St Regis. It can serve a broad range of customers with properties that range from deluxe to three-star.
Last year it acquired the Life Heritage Resort Hoi An in Vietnam and Sothea Boutique Resort in Cambodia which have now become the Anantara Hoi An and Anantara Angkor.
Dusit International also sees potential growth in Asia, especially given the rise in wealth across the region, which strongly supports the travel and hotel markets.
Dusit embarked on major expansion abroad three years ago when it saw that organic growth wasn’t enough anymore, said Rustom Vickers, group director of development. One of the highlights was the formation last year of a joint-venture company in China, Dusit Fudu Hotel Management (Shanghai) Co Ltd.
Today the group manages 22 hotels, 10 of them outside Thailand, and is one of the few hotel groups that have ventured into the Middle East through management contracts. It also has 20 properties under contract that are either in the process of being opened or under construction.
Centara Hotels & Resorts, meanwhile, is focusing on Asia as the region yields a higher return on investment (ROI) than other international markets.
“We see huge opportunities in this region,” said CEO Thirayuth Chirathivat. “There was massive growth in the tourism market in Thailand last year. But our business exceeded the growth of the market, resulting in a 65% increase in our hotel profit in 2013.”
Suparat Chirathivat, vice-president of business development with Centara, said the Asean Economic Community (AEC) would spur even more demand for hotels as well as residences such as serviced apartments.
Centara is also tapping into growth in the lower end of the market, as millions of new middle-class consumers are finding travel affordable for the first time. Its new Cosi brand is aimed squarely at these travellers who are exploring the region using low-cost airlines.
“Many people perceive Cosi as a budget hotel but we position it as an affordable lifestyle,” said Mr Suparat. “The competition is very intense in the low-end segment since it requires a lower investment. We have to be prepared and make sure that our newly launched products are superior.”
PEOPLE FIRST
The hospitality industry’s success depends on the quality of services provided along with the quality of the hotel, and that boils down to human resources.
Mr Rajakarier said Minor International staff were motivated to provide a guest experience beyond expectations. MINT has 45,000 “associates” working within the group, whose recruitment and training strategy emphasises sustainable career development. It also operates a training centre.
“We take the best graduates, train them and offer them a suitable position. We are actually growing a base from the beginning and supporting them throughout their careers,” he said.
Dusit takes the best elements of Thai hospitality as its unique selling point. It has also leveraged its success in hospitality to offer courses for would-be employees of its own hotel and even others at its schools such as Le Cordon Bleu Dusit Culinary School and Dusit Thani College.
“In a way we look at doing 1+1=3, so having a hotel school plus a hotel combined, produces a huge benefit and huge value to our company” says Mr Vickers. “Spas are also part of our DNA, and one of our core strengths as well.”
Even so, when it comes to pricing, “the brand sometimes doesn’t drive the price, the market does. It’s really what the market dictates”, he added.
Chris Bailey, senior vice-president for sales and marketing at Centara, defines its formula as looking for “white space” or untapped markets for new product lines.
“We’re trying to find the ‘white space’ for Cosi,” he said. “We’re observing where the market will move in that available space so that we can deliver something that stands out. Then, we reengineer at that level so it will be something that a customer will not expect at that level, at that price.”
INVESTMENT STRATEGY
MINT has proved fairly resilient in adapting, as it pursues an investment strategy that starts with location, then the brand that matches the location and investment criteria.
Mr Rajakarier explains the company’s approach this way: “When we go into other countries, we always go with a strong joint-venture partner. We also seek to get comfortable with the laws and regulations and infrastructure of the countries, then we start to explore investments.”
Dusit has also undertaken many joint-venture and co-equity projects; however, it usually manages the hotels itself because it believes the brand DNA cannot be jeopardised.
“Developing a hotel is a very complicated process” said Mr Vickers. “There are challenges in terms of infrastructure which requires local know-how and expertise that will really help us tap into those markets.”
Centara’s investment strategy focuses on three factors: return on investment (ROI), location and sustainability. Mr Suparat emphasises that the highest ROI alone is not essential if scale can be achieved in other ways.
DEALING WITH COMPETITORS
MINT differentiates its properties by embracing the local culture. A variety of hotel themes and designs is essential, says Mr Rajakarier. “If you’re going to our hotel in the Maldives, it’s the Maldivian experience you would get. If you’re going to the Middle East, it’s different.”
Mr Vickers sees the hotel competition as one big market, which now includes the fast-rising homestay segment and bed & breakfast accommodation.
“It is shaking up the market somewhat but at the same time I don’t think it directly impacts what we are doing,” he said, noting that Dusit is clearly defined as upscale.
However, it still has to compete against the likes of Hilton, InterContinental or Conrad, and it does this by emphasising its core strength: genuine Thai hospitality.
Centara also believes that the international brands are not serious competitors as people who come to Asia are looking for a more homegrown experience.
“If you look at some Thai brands, they are extremely Thai and some international brands are extremely ‘cookie-cutter’ in terms of their position,” said Mr Bailey. “So, we position ourselves in the middle, not leaning one way or the other.”
FUTURE EXPANSION
While Minor International wants to double its 108 hotels over the next five years, others are aiming at similar growth. Dusit plans to double its portfolio in two to three years, helped in large part by a new venture that its executives are not able to disclose yet.
“We are actually working on a new economy brand but it’s top secret” said Mr Vickers. “We position it above the guesthouse but below the dusitD2 brand since we are very mindful not to compete with the homestay segment.
“We have an eye on Japan as a very good opportunity. … We opened a luxury property in the Maldives and it’s been a phenomenal success where all the soft touches are Thai.”
Dusit derives half its revenue from international markets now and expects the figure to reach 70% in five years. Minor is aiming for a 54% share from international operations, up from 51% currently.
Meanwhile, Centara’s strategy covers the key gateway cities in Asia. Mr Suparat believes that the style of doing business in Asia is similar in terms of the customer base and can be transferred around the region.