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What hope is there for luxury business hotels in Vietnam?

by Anh H. Nguyen

For people in the tourism sector of Vietnam, 2020 is certainly a time to forget.

An important component of the country's economy, tourism in Vietnam has enjoyed a winning streak for many years. The hotel sector alone had a 16% annual growth and pulled in almost US$500 million in 2019. Although the country still struggles to figure out a strongly defined tourism identity, the boom is well-deserved and long overdue. Vietnam is an attractive destination for both domestic and international travelers, and for good reasons, too. Whether you are a history buff, a beach lover, a culture geek, or a nature explorer, Vietnam has something to offer. The climate is diverse but mild and almost invariably pleasant, the cuisine mouthwatering, the people easygoing, the landscape breathtakingly beautiful.

Top places to see in Vietnam: Mui Ne sand dunes, Ha Long Bay, Sapa terraced rice fields, Hoi An Old Town, Van Mieu Pagoda, Phu Quoc beach, just to name a few.

For an increasingly large chunk of the population, long gone were the days when the norm was to go on vacation only once a year, often in the summer and to a handful of locations across the country. As GDP and living standards both rise, the middle class are spending more of their disposable incomes on traveling, both inside and outside Vietnam. Traveling, and the enjoyment of experience in general, are quickly becoming an indispensable part of the modern lifestyle. Vietnamese folks travel not only as a means to unwind and have fun, but also to enrich their lives, to connect, and to create meaningful memories.

As for foreign globetrotters, Vietnam is well on the way of cementing its new status as one of the most desirable places to visit. Its pristine beaches and untouched terrains rival even Thailand in the leisure segment, while the abundant business opportunities draw in entrepreneurs, industrialists, and manufacturers. In 2019, there were 18 million foreign arrivals in Vietnam. A fun fact? It took Thailand 15 years to get from 6 million to 15 million arrivals. It only took Vietnam 7 years.

Foreign tourists sightseeing by cyclo - an unique mode of transportation in Vietnam, akin to a three-wheel hybrid of a bicycle and a taxi

As a result, air travel has gotten more affordable, and an extensive network of hotels and has emerged to accommodate the surging demand of both domestic and foreign markets, ranging from the swankiest 5-star hotels and luxe eco resorts to budget-friendly homestays and backpackers' havens. It has even been dubbed "the hotel craze", since as of 2019, there were 781 hotels in operation with another 124 in the pipeline. To the casual observer, it seemed like a new hotel chain was breaking ground every other week. There were massive developments all over the country that promised a 42 increase in room supply, and still that was not enough.

It all came to an abrupt halt in 2020. Almost overnight, the hospitality industry was hit and hit hard. Bad news came after bad news, and the number of tourist went down steeply until foreign travel was completely stopped. Any vague hope that planes full of international tourists would come back during this year was quickly dashed after several Covid-19 scares in March, July, and most recently December. In all likelihood, tourism in Vietnam will be one of the last sectors to fully recover, if at all. The number of hotels on sale reached a record high, while hotel rates were in a free fall. The wave of panic started in Hanoi and Ho Chi Minh city, then spread to seaside towns like Nha Trang, Da Nang, Phu Quoc, and Quy Nhon.

The table below from the Ministry of Culture, Sport & Tourism shows the numbers of international visitors from 1999 to March 2019. Interestingly, the only other two times inbound travel to Vietnam experienced decline corresponded with negative events affecting the whole region: in 2003, it was SARS, and in 2009, it was political unrest in Thailand. But this was worse, and people know it: the government had never outright banned foreign travelers before. Ironically, because of Vietnam's successful containment of Covid-19, it may rank even more highly on the list of most coveted places to be right now.

Vietnam's hoteliers are not going down without a fight, though. While some small hotels are seeking to liquidate their assets, the majority hold down their forts. In general, hotels in retreat destinations have had a much easier time compared to their counterparts in the two major hubs, Hanoi and Ho Chi Minh city. As Vietnamese people successfully withstood the waves of Covid-19 and gained more confidence in the government's ability to contain it, some started longing for the sandy beaches and turquoise water along the coastline, while others opted for the frosty mountains and misty highlands of cooler climate. And since overseas travel has become practically off-limits, people who would rather go abroad have no options but to re-discover their own backyard, so to speak. During the summer and major holidays, people traveled with such frequency that roads were jammed, hotels were packed, and cities become "under siege", but of course in a positive way. The alternative is too depressing to envision.

Da Lat, once a sleepy, tranquil city in the Central Highlands, has undergone significant transformations in the last decade. This picture was taken in the town center after lockdown officially ended in April.

More people than beach: once people got over the fear of Covid-19, Vung Tau was swarmed with hordes of beachgoers.

This phenomenon extends even to the highest echelon of premium resorts. (Disclaimer: this is anecdotal evidence only.) In June 2020, I visited Amanoi, widely considered to be one of the best and most exclusive resort hotels in Vietnam. The rates were astronomical compared to other chains, not marked down a single smidgen, and yet the property was almost too crowded. Aman hotels are supposed to have a much lower occupancy rate than the industry average (40% to 70%), but that was not the case during our stay. I even saw an entourage of 38 people, which required the resort to fetch a bus to convey them around instead of the usual buggy.

The manager confided in me that ever since lockdown was lifted, people had been flocking to the hotel in much larger number than before and villas were always fully booked during the weekend. Other top-end "getaway" hotels like the two Six Senses properties, JW Marriott Phu Quoc, Intercontinental Da Nang, or Anantara Quy Nhon seemed to enjoy a similar bonanza. There may be two explanations. First, as people became plagued by stress and uncertainty, they seek relief by adopting a "carpe diem" mindset and no longer hesitate to splurge on premium accommodations. And secondly, the people who usually allocate a certain amount of fund to abroad travel simply choose to channel it locally.

Boasting a magnificent view of Vinh Hy Bay, Amanoi provides top-notch services with prices to match

That is not to say it has been a walk in the park for beach and mountain resorts. However, there is no denying that city hotels are in much more dire straits. Contrary to beach and mountain resorts, they rely almost solely on foreign travelers, who go to Vietnam for either business or pleasure. This lifeline has been all but cut off - since April, there has been almost outsiders arriving in the country save for a very few special instances, all of whom had to go through a mandatory 2-week quarantine in government-controlled facilities. The numbers of native businessmen and travelers are simply too abysmal to count on. At the same time, staff entitlements and maintenance expenses still factor a large part in hotels' budget. For examples, rooms still need to be regularly cleaned and air-conditioned lest them become moldy and uninhabitable in the long run. The bigger and more upscale the hotels, the higher the cost.

In the city centers of Ha Noi and Ho Chi Minh city, especially around the Old Quarter District and Ben Thanh market, there are a good deal of small to medium-sized boutique hotels most suitable to big groups of tourists. Since that is no longer on the table, some have tried to pivot to housing quarantined guests. That is a sweet arrangement if they can get it, but exceedingly competitive, since there are too few guests to go around.

More prestigious hotels that belong to the big chains are going a different route to keep the cash flow pumping. When selling rooms becomes less feasible, hotels need to look for profit elsewhere. Fortunately, those hotels tend to carry extra bells and whistles, such as high-end restaurants and cafes on site, luxurious spas, and grand ballrooms. Almost all of them are using them to their advantage by striving to cater to a locally-based clientele. Many have been selling plush staycation packages with extra perks at a discount: to-and-fro limo transfers, complimentary dining and wellness vouchers, creative gifts, e.g. a real, miniature pine tree for the guests to take home as a memento of their Christmas stay, pillowcases embroidered with His and Her initials, etc., Some come up with tempting promotion for weddings, birthdays, or company's team building meetings. Some host events like galas, brand parties, or concerts. Others push their F&B options hard: every single 5-star hotels in Ho Chi Minh city has been advertising a comprehensive festive program with Christmas-themed buffets, afternoon teas, and brunches since the beginning of December. The gusto, or some may call it desperation, is palpable.

A glimpse of Intercontinental Saigon's 2020 festive brochure

The majority of 5-star hotels in Saigon truly went the extra mile this year. Though most of them had some forms of Christmas-related promotions in the past, Covid-19 pushed them to make a concerted effort to drive more sales. It is likely that these hotels are banking on New Year and the Lunar Spring Festival next. But is all that enough?

Here is a thought: 5-star business hotels in metropolitan cities of Vietnam should emulate retailers. Especially now that guest occupancy no longer makes up a major part of their revenue, perhaps it is not a bad idea to be more aggressive in their sales. They are selling services instead of goods, but their minds are not yet fully in the game. Many still act as if serving cocktails to city patrons is simply a side gig and foreign travelers are knocking on their doors tomorrow. Hint: they are not. To evolve and adapt to an almost traveler-less existence, hoteliers in Vietnam need a new mentality.

First of all, if business hotels start thinking of themselves as giant, interactive stores that specialize in sophisticated experience, they will have a better shot surviving.

Secondly, they need to base their business decisions on real facts, since there are almost no precedents they could draw from.

Successful retailers in Vietnam succeed by relentlessly pursuing the optimization of all processes to drive more sales and perfect customer services. Many are experimenting with technology, teaming up with AI companies, using data-powered solutions, and adopting a data-driven approach to doing business. A clear example: the data has shown time and time again that in retail, staff interaction has a strong correlation with sales. But hotel staff still acts like their yesteryear selves - they are not consciously seeking to assist, serve, and sell to guests. They have no incentive to, because the management does not deem it important enough.

Once business hotels consider driving more sales through F&B businesses and other services their most critical mission, clearer courses of action will follow suit. Cross-selling is always an enticing possibility. By using AI solutions, hoteliers could better tailor their marketing campaigns to promote more vacation packages, special dinners, or delectable tea parties. Staffing, a thorny issue at the best of times and downright grim in a pandemic, would also get smoothed out with the traffic daymap. And since 5-star business hotels usually have more similarities than differences, cultivating rapport with guests and turning them into loyal fans via softwares like Palexy's Store Optimizer would be their best bet to stand out among a sea of competitors. Once hotels start going in that direction, hotel staff will need to expand their realm of responsibilities as well. And what is a better way to define and monitor new performance metrics than using AI technology?

As players in the hospitality industry brace for another lean year, it is time they change their normal mode of operations in response to this new reality. The sooner they learn to make the most of their assets, both tangible and not, the better their prospects become. For a trusty companion to assist in these hard times, look no further:



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