Bloomberg News

China Turns to German to Make Mao Hotel World Class

August 01, 2012

Shanghai Peace Hotel

A file photo shows a hotel employee in the Jasmine lounge of the Peace Hotel in Shanghai from Sept. 2010. Photographer: Kevin Lee/Bloomberg

Four decades after Richard Nixon and Zhou Enlai established a new era in U.S.-China relations with the Shanghai Communique, the hotel that hosted their meeting is tapping German management to turn a communist-era icon into a luxury brand that can compete globally.

Bernold Schroeder, who helped build Banyan Tree into one of Asia’s top upscale resort chains, was headhunted by state-owned Shanghai Jin Jiang International Hotels Group Co. (2006) to create a hotel brand in the ilk of Germany’s Kempinski and Hong Kong- based Shangri-La. Its Shanghai properties include Jin Jiang Hotel, which became a favorite of Nixon’s, and the iconic Peace Hotel, a haven over the decades for celebrities visiting the city, including Charlie Chaplin and playwright Noel Coward.

“The risk is a 50-50 chance of success,” 45-year-old Schroeder, chief executive officer of the unit that manages the group’s luxury properties, said in an interview. “That’s why I need a lot of passion. People believe we are still the best and powerful because Hillary Clinton visited our hotel. That’s very dangerous.”

Schroeder, who has been in the role for a year, has some challenges to overcome: his employer is effectively the Communist Party and business decisions need to be handled with sensitivity, while commitment to service is more lax in China than in other parts of the world. At the same time, China has the second-lowest occupancy rates in Asia, and global chains, including Hilton Worldwide Inc., are expanding in the world’s third-largest tourism destination.

Shedding Image

“The company wanted to get rid of a lot of state-owned- enterprise image,” said Schroeder in the interview at the Jin Jiang Hotel, which once hosted late Chinese leader Mao Zedong and is located in the city’s former French Concession district. “In the hospitality industry you don’t depend on hardware -- it’s about people, it’s about perfect service. The number-one thing that has to change is the people and that’s the most difficult. That’s why I always said we need eight to 10 years.”

Jin Jiang has more than 123,000 rooms across 40 cities in China, making it the country’s biggest hotel company, according to Macquarie Group Ltd. and broker CBRE Group Inc.

The company reopened the 83-year-old Peace Hotel on Shanghai’s Bund promenade, overlooking the Huangpu River, in 2010 after a three-year renovation. The hotel, whose famous Jazz Bar hosted former U.S. Presidents Jimmy Carter and Ronald Reagan, was renamed Fairmont Peace Hotel when the management contract went to Toronto-based Fairmont Hotels & Resorts Inc., which runs the Savoy in London.

Cathay Hotel

The hotel was first opened as the Cathay Hotel, owned by a Jewish businessman who made his fortune trading opium and weapons, according to its website. Coward wrote the play “Private Lives” while convalescing from influenza there in 1929.

Nixon signed the document that paved the way for normalizing relations between the two nations in the Jin Jiang Hotel’s Grand Hall in 1972. The U.S. delegation stayed there and Nixon developed a fondness for the establishment.

Jin Jiang plans to open its first hotel outside China by 2014 in one of the world’s capital cities, targeting a mixture of Chinese and international travelers, Schroeder said, declining to disclose the location. The company has a 50 percent stake in the U.S. hotel chain Interstate Hotels & Resorts Inc.

Schroeder spent 14 years with Singapore-based Banyan Tree Holdings Ltd., where he was senior vice president and managing director of hotel operations, before he joined Jin Jiang. As he did at Banyan Tree, he sticks a pin on a map of the world in his office every time the company opens a new hotel.

Comfort Zone

He concedes one of his biggest challenges as CEO of Jin Jiang International Hotel Management Co., the unit that manages the group’s luxury properties, is how to develop a global hotel brand that is quintessentially Chinese.

“When Chinese go international, they want to be in a certain comfort zone,” he said. “I want them to stay in a Jin Jiang hotel when they go to New York or Paris, which is already a very stressful journey.”

Schroeder, who attended executive programs at Cornell University, Singapore Management University and Kellogg School of Management at Northwestern University, also worked for Hyatt Hotels Corp. in New York and the Holiday Inn in Hong Kong.

Shanghai Tower

Jin Jiang, through a venture with Shanghai Tower Development Co., is developing the world’s highest hotel, which is set to open in 2015.

The 258-room Shanghai Tower J-Hotel will occupy the 84th to the 110th floors of the 121-story building, the group said in 2010. The 632-meter Shanghai Tower in the Pudong business hub is set to be the world’s second-tallest building when construction is completed in 2014. Dubai’s Burj Khalifa is the world’s tallest building, and the Ritz-Carlton in Hong Kong is currently the world’s highest hotel.

Schroeder’s vision for the J-Hotel brand is modeled on Munich-based Kempinski AG’s five-star Hotel Adlon Kempinski, which overlooks Berlin’s Brandenburg Gate and is frequented by dignitaries and pop stars, including the late Michael Jackson, who dangled his baby over the balcony there in 2002.

“It’s the showcase of Jin Jiang,” Schroeder said. “Our J should be like the Adlon because nobody knows that Adlon is actually a Kempinski hotel. Everybody knows Adlon, Brandenburg Gate. When we go international, we have to create something like Shangri-La in Paris, the hotel which has a strong Asian feel combined with a sense of class.”

Shangri-La Asia

Both Shangri-La Asia Ltd. (69) and Shanghai Jin Jiang International trade on the Hong Kong stock exchange. Jin Jiang shares fell 1 percent to HK$1.01 at the local close.

The number of China’s outbound travelers will reach 100 million by 2020, according to estimates from the United Nations World Tourism Organization.

Hotel occupancy rate in the world’s most populous nation stood at 61.9 percent in June, rising 0.7 percent from the same period a year earlier and the second lowest among 15 Asian markets after India, according to STR Global, a consulting and research group. This compares with 70.3 percent in the U.S. and 85.9 percent in Singapore in June.

Revenue per available room, or revpar, rose 5.7 percent to $93.26 in Asia in the first half, compared to an increase of 7.2 percent to $65.81 in the Americas, according to STR.

China Expansion

China overtook Spain in 2010 to become the world’s third- most-visited travel destination, trailing behind France and the U.S., based on United Nations World Tourism Organization data.

International operators such as Hilton and Marriott International Inc. have been expanding in China. Marriott plans to double the number of hotels in China by 2014 to meet growing demand, Asia-Pacific Chief Operations Officer Craig Smith said in an April interview in Shanghai.

“You have a lot of great hotels in China, especially from foreign competitors, but they don’t have heart and soul in many of them,” said Schroeder. “If we cannot change people to a proper service culture, to put heart and soul into it like in the old days -- we called it inn-keeper, somebody who loved to serve -- then we cannot turn around the product.”

To contact Bloomberg News staff for this story: Bonnie Cao in Shanghai at bcao4@bloomberg.net; Shiyin Chen in Singapore at schen37@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net


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