Midprice Hotels Move To Establish Japanese Presence

Long the realm of locally operated ryokan, minshuku and business hotels, Japan has never been receptive to opening its market to midprice range international hotel groups. Or maybe international hotel companies just weren't interested in establishing a presence in what traditionally has been a closed and very expensive market. But the country's hospitality scene is changing. With the entry of Choice Hotels International, Accor and Best Western, moderately priced and budget international chain hotel rooms soon will be an option for business travelers—and the timing is excellent.

"The majority of internationally branded hotels are in the four- and five-star sectors, but the greatest potential increase in demand is in the economy sector," said Peter Hook, spokesman for Accor Asia/Pacific. "As in most countries, the two- and three-star sector is dominated by local groups with products that generally are unreliable in standard. While there are some excellent products, they can vary dramatically."

The international chains are expected to bring uniformity to the middle and lower end of Japan's travel market. As a first effort in this direction, Choice Hotels International has signed an agreement with Japan's Greens Company Ltd. to develop Quality, Comfort and Clarion properties under a joint venture known as KK Nippon Choice Ltd. The Greens Company owns, leases or operates 20 midmarket hotels, some of which have been or will be rebranded as Comfort Inns.

Choice had been looking for opportunities in Asia in general and Japan in particular for quite awhile.

"It's a market ready for midmarket hotel development," said Mark Pearce, the company's vice president of international marketing and sales, based at Choice headquarters in Silver Spring, Md. "But it's also been a hard market for people to enter into. Unless you have a partner on the ground, it's very difficult to make it in the Japanese market. Greens is a strong partner."

So far, the partnership seems to be working. The company plans to establish 40 branded hotels in Japan by the end of 2003, with roughly 20 Comfort, 15 Quality and three Clarion properties. It has opened Comfort Inns in Oita and Kyoto and is developing that brand in Suzuka, Tsutsushi and Nagoya. Pearce said that Clarion is targeted for the central business districts of major cities, Quality for the central business districts and surrounding areas and Comfort Inn for the smaller towns and urban outreaches. Many of the city properties will have railway station affiliation, an important factor in Japan where a high percentage of domestic travel is by train.

In addition, Choice has established a separate agreement with the Vessel Group of Japan to develop its Sleep brand. All Sleep hotels will be newly built properties, and the company plans to have nine of them by the end of 2005. Choice now is hiring a Japanese rep to handle franchise services and development for both the Greens and Vessel joint ventures.

Meanwhile, Accor will enter the Japanese market with its Formule 1 brand, which now includes some 550 hotels throughout Australia, Europe and South America. The company has begun construction on its first Japanese Formule 1 in Isesaki, an industrial and commercial center northwest of Tokyo. The 88-room property is scheduled to open in December, with rates of approximately Y5,500 (US$46) per room per night. Other hotels of its type in Japan charge up to Y12,000 (US$120).

"This hotel will be the prototype for the proposed countrywide expansion of the brand. Once travelers experience this Formule 1, we expect that there will be great demand elsewhere for us to introduce the product. We are delighted to be adding to the truly world-class development by Beisia Group, which will play an important part in identifying new sites for Accor in other key areas in Japan," said David Baffsky, Accor Asia/Pacific chairman, on the announcement of the first Formule 1 project this spring.

Accor established its presence in Japan more than a decade ago when it set up a sales office in Tokyo. Its first Japanese hotel, the Sofitel Tokyo, opened in 1999 on a site opposite the city's Ueno Park. Although the company's first venture in Japan was a five-star property, it intends to concentrate efforts on midmarket and budget accommodations. In addition to Formule 1, which it will build in secondary destinations, Accor hopes to establish a network of Ibis hotels in Japan's major cities.

"We would like to introduce both Ibis and Novotel into the market, but we will only do this if the financials stack up. The cost of land is so prohibitive that it makes it difficult to build new sites, but we are looking at partnerships and joint ventures to expand in Japan," Hook said.

Meanwhile, Choice and Accor are not the only midmarket hotel companies focusing on making inroads into the Japanese market. Best Western intends to increase its presence beyond the Best Western Takayama, its single property in Japan.

"Japan is very much a part of Best Western's international development strategy," said Suzi MacDonald, the company's Dublin, Ire.-based vice president of international operations. "In April of 2000, Best Western established an international development office in Bangkok, Thailand, to step up our expansion activity throughout Asia.

"In a little more than a year, Best Western has opened hotels in Hong Kong and Wuhan, China, and Seoul, Korea, and has plans to open 20 more hotels throughout Asia," MacDonald added. The company has identified both hotels and developers to increase its representation in Japan, and we expect to announce hotels that are under development or in contract during the next six months."