Since the outbreak of the new crown epidemic, more than 140 million people have been infected worldwide, more than 3 million people have died, and the infection and mortality rate are about 2.2%. Judging from this data, the new crown virus does not seem so terrible, but it has had a huge negative impact on all walks of life, and the tourism industry bears the brunt.
When will the tourism industry return to its pre-epidemic state? The conclusion of most people is that it will take 2.5 to 4 years. This has little impact on the tourism industry and even the entire global economy.
This is the biggest global crisis that I have experienced since I started in business.
Since the COVID-19 pandemic, Huazhu’s stock has grown against the trend. Some people say that I have good leadership, while others say this is due to Huazhu’s successful strategic layout. In fact, it is not. Huazhu’s stocks are actually on the market, and they are not much higher than the index. After the outbreak of the epidemic, Huazhu’s stock price was higher and lower than the Nasdaq index, but the overall rise was basically in line with the Nasdaq index.
The steady upward trend of Huazhu’s stock price is definitely a good thing, because looking at the entire emerging market and the entire hotel industry, Huazhu is a star company. The growth of liquidity and the rise of the market will surely drive Huazhu’s stock to continue to rise. Good news for people of stocks and options. Huazhu’s share price has risen about 20 times since its listing, and the future growth rate may not be so large, but I think that from a long-term perspective, this will still be a continuous growth process.
The times have changed drastically
In the past ten years, Chinese power has risen rapidly. Where does China’s power come from? In my opinion, it is a huge population. The advantage of a large population will directly feed back two industries: manufacturing and service industries.
There have been many voices in the past: China’s stricter pollution control and rising costs will shift manufacturing to Southeast Asia, including South America and Africa. Judging from the current situation, the reality is not the case. The main theme of China’s future development will still be the superposition of the two major curves of manufacturing and service industries.
Both industries depend on the size of the population. Therefore, China has proposed an internal circulation strategy. By leveraging the market of 1.4 billion people to increase consumption, the consumption power of the three circles of 600, 1 and 1.4 billion people is amazing. China’s 1.4 billion people need to eat rice, oil, and salt; 1 billion people cannot do without mobile phones, and there is a strong demand for electronic products; 600 million people need to travel by plane, high-speed rail, and even buy cars. The formation of these circles ensures that China’s service industry must be a massive and high-growth market.
At the same time, manufacturing remains an important engine of China’s economy. The manufacturing industry has obvious advantages and strong momentum. The principle behind it is very simple: China’s regional economic development is uneven, and many regions hope to stimulate consumption in the region through high-consumption, high-labor-intensive manufacturing. China’s already formed supply chain, talent advantages and cross-border synergy are difficult to transfer to other regions in a large amount and systematically in a short time.
The boundaries of many concepts in life are becoming blurred: business and vacation are blurred, home and office are blurred, and video and meeting are blurred.
It is difficult to form such a huge chain. I believe that many people have been to Vietnam, but it is not enough; the development of neighboring Cambodia and Myanmar is restricted by the political situation; Malaysia, the Philippines, and Indonesia have a large population, but lack it. Efficient government leadership; India also has a population advantage, but due to institutional problems, the development of infrastructure and manufacturing may not be as convenient and efficient as China.
The changes of the times, the development of information, and the changes in the pattern of countries after the Second World War have all caused tremendous changes in people’s lifestyles. To cite an example, the demise of the nobility and the rise of the middle class are the most significant demographic changes in the 20th and 21st centuries.
In addition, thanks to the development of information technology, people are now more inclined to use video conversations instead of meeting when they are on vacation, business, home or office. In the past, the demand for business trips has also been reduced due to the popularity of video conferencing. , People can set aside more time to spend time with their families and children.
The boundaries of many concepts in life are becoming blurred: business and vacation are blurred, home and office are blurred, and video and meeting are blurred.
With the development of the Internet and the development of technology, the new crown has strengthened this phenomenon because of changes in communication methods and changes in information. For example, the functions and positioning of business and resort hotels are no longer as distinct as they used to be.
For a long time, hotels are usually divided into resort type, business type and conference type, but now this boundary has gradually blurred. At the same time, the boundary between home and office has begun to blur. Now you can start a video conference anytime and anywhere, at home or working in the company, it’s just a space change. This “fuzziness” will have an impact on the design of our hotel, on the hotel’s brand, and on the operation of the hotel.
Let’s look at overseas companies first. Airbnb went public against the trend of the global epidemic, and its current market value even exceeds the combined market value of the three major hotel groups Marriott, Hilton and Huazhu.
What kind of company is Airbnb? My conclusion is: Airbnb is an OTA platform. It is a traffic model. It does not rely on hotel management fees, does not involve brand authorization, but makes money through traffic. It is like the Facebook of the hotel industry. It is a social, Platform OTA company.
Looking back at the domestic market: Jinjiang and BTG have experienced coaching changes in the past one or two years; Dongcheng has gone through financing, and Meituan has invested about 20% of its shares; Atour also intends to be listed in the United States; Kaiyuan intends to privatize… these domestic counterparts We, including many state-owned enterprises, are also seeking reforms and exploring new directions. In the face of the epidemic, colleagues in the entire tourism industry are actively responding, or changing, or financing, or adjusting.
Four types of “moats”
Let’s talk about Huazhu again, starting with “Buffett’s moat”.
Buffett firmly believes that buying stocks is buying companies, and the process of buying stocks is to find companies with a “moat” effect. I want to analyze the four types of “moats” defined by Huazhu and Buffett-namely intangible assets, switching costs, network effects, and cost advantages.
Regarding intangible assets. Huazhu has two major intangible assets: one is brand. Huazhu is first of all a brand company, not a hotel company. We have a brand, so we can sell the brand, use the brand for management, and charge management fees. This is the way for China Lodging and most hotel groups in the world to survive and make profits.
It usually takes at least three to five years or even longer to build a brand, and the higher the brand value, the longer it takes. We have created, acquired and merged so many brands in 15 years. It is a very interesting thing. Few companies can match ours.
Regarding intangible assets. Namely products and services. They seem to be tangible, but in fact they are intangible. This is one point I want to correct. Behind the invisible is the empowerment of design. The same brick, wood, floor, wire, and shower room are presented in different ways, materials, and colors. This is the crystallization of the designer’s wisdom.
The earliest full season was called Hanting Full Season. Later, we designed the first full season, incorporating the intangible asset of design, and constantly adjusting according to market conditions, to create the current full season—it has developed into China. The best choice for the mid-range market, this is also an unfinished beauty. When franchisees want to make money steadily, and set their sights on mid-range brands, the whole season is their first choice.
Regarding conversion costs. The members of Huazhu need to spend money to purchase, and the conversion cost is high. Our goal is to make the conversion cost of members higher, increase the gold content of members, and encourage members to continue to upgrade.
The membership system is the foundation of Huazhu’s future sustainable development. If franchisees do not cooperate, they must do their best to do their work. If they do not cooperate, they can only move them out of the system.
About network effects. The value of the network depends on the interaction between the connection points. If the interaction is one-to-one and not interactive, then the interactive relationship is a multiplier-level interactive relationship, which is only A×B; but if everyone can achieve one-to-many interaction, the interactive relationship is exponential, and the index is N of X Power, the more interactions, the higher the steep rise rate of the curve.
Although the number of nodes in Huazhu is not the best, it is also very good. Overall, Huazhu’s nodes are mainly large in volume. We have 6,000 stores, and we will have 10,000 stores in the future. Some people say that 10,000 stores are already very good, and they can compete with Marriott. I don’t think so today, because I don’t just have Marriott in my eyes, 10,000 stores are not the end of Huazhu’s development. In the future, the hotel industry needs to be big, it is to form a huge network effect, to achieve this effect, there must be tens of thousands of nodes.
About cost advantage. Cost is related to scale. The hotel industry is a very small industry with an overall market volume of less than one trillion. The most lucrative industry is commodity retailing, with Alibaba and JD.com as representative companies. Followed by the real estate and automotive industries, such as Sunac, NIO, Ideal and Xiaomi.
The first company has integrated the design of intangible assets throughout the season, and has been continuously adjusted according to the market, before it has developed into the best choice for my country’s mid-range hotel market.
But the large market size is also a cost advantage. In particular, I think the cost advantage is that the smaller the market size, the safer it is for the company to make the head in it-to be a big fish in a small pond, not a big pond. Big fish. Once we have established a head advantage in the hotel industry, our head advantage will be more stable and reliable, and it will be very difficult for our opponents to subvert us.
Build a “new three-dimensional”
In the future, what Huazhu will do is three-dimensional, and the added dimension is traffic. In the past, hotel branding was one-dimensional, based on the brand—X-axis, while the second dimension is technology—Y-axis. Now it needs to be increased. A Z axis called flow.
We must take the brand, technology and traffic, the three X, Y, and Z axes as the future trend and direction of Huazhu. The X, Y, and Z axes will build Huazhu’s “ecological cube”.
The value and significance of today’s enterprises lies in connection. The denser the connection, the more interaction and the greater the value. Huazhu is already connecting through brand and management, but it is not enough. We hope to have more connections, such as IT connections and supply chain connections. You may not be the Huazhu brand, but you can use my supply chain; you may not be the Huazhu brand, but you can use the Huazhu IT system or even participate in our training.
Regarding traffic, I have talked about slow traffic many times. Huazhu’s desire to establish an ultra-large-scale growth model based on qualified stores seems to be contradictory, but is essentially unified. First of all, let’s talk about qualified stores. Qualified stores are to make franchisees make money, satisfy customers, and satisfy employees. Any store must follow the “three-dimensional integration” strategy, supported by the three corners of “product power, return power, and innovation power”. It will not be good if one corner is missing.
Secondly, the super-large-scale growth model here means that in the Internet era and the era of digital intelligence, it is necessary to rely on large traffic and big data to break through the traditional brand and management and achieve super-large scale.
Fully developed information makes big data and large traffic particularly important. If an enterprise does not have massive data and cannot drive huge traffic, it is difficult to become an industry leader.
