Motel 168 opens door to overseas listing

The dynamic but understated owner of China''s trendy Motel 168 is considering a listing of his growing chain.

The first impression made by Shen Feiyu, the founder of Shanghai's first chain of trendy motels, is a kind of feline hyper-alertness, the type one associates with images of predatory big cats stalking the savannah.

Tall and lean, he also exhibits the almost dandyish attention to fashion characteristic of Shanghainese men, wearing a well-cut camel coloured leather coat over a jersey top, and sporting a swept-over, bouffant hair style.

Yet this aura of leadership and charisma is slightly misleading, since Shen is insistent on keeping the interview low profile, refusing to have his photo taken for this article, and stating that he normally refuses all interviews with the press, both foreign and Chinese.

"The only reason I agreed to the interview with FinanceAsia is because it's a highly specialized magazine and will not appear in Chinese," he says with a polite smile, although with an edge to his voice which show his determination not to give in to the blandishments of the FinanceAsia camera man.

Compared to those sleek products of US business schools, mainland returnees active in finance and technology, Shen has the whiff of the real Chinese entrepreneur about him. Not for him the technocratic abstractions of the internet; rather, he competes in the restaurant and hotel business, one of the most brutally competitive areas in the modern Chinese economy.

The restaurant business is cash rich with low entry barriers - factors which Shen says were important considerations in tempting him from his government post at the Shanghai municipality overseeing restaurant operations at Shanghai's giant exhibition centre. Despite having been selected to attend cadre school, often a stepping stone to high Party posts, Shen decided in 1994 that the time was ripe to implement the many ideas he had for improving on the state-run restaurant operations he had encountered.

With a time spent both in the army and government enterprises, Shen represents the common overlap between government and the private sector. Indeed, the numerous staff surrounding him at the lavish dinner he presides over during the interview were all members of state-owned enterprises before joining Shen.

Perhaps the ultimate symbol of this overlap is the fact that Shen is himself Party secretary of his organization as well as the CEO, a bizarre juxtaposition typical of China's transitional nature.

Shen is sensitive to questions seeking to uncover the degree of discrimination which he encounters in his incarnation as an entrepreneur.

"I believe my career path mirrors the progress of the government's approach to the private sector," he says.

That would imply a great deal of improvement, since Shen originally started out opening a single restaurant, only to find success so readily that he opened a chain of restaurants, followed by a couple of experimental hotels, which again became a chain on the basis of their rapid success.

Yet he cannot help a dig at his rivals at the giant Jinjiang Group, which runs hotels all over China, including a raft of budget hotels. He agrees the government does looks after its own and that regulations do favour government-backed incumbents. And he is only partly successful at hiding his contempt at the group's recent high-profile hiring of a Western CEO for Rmb 6 million per year.

"It's just to get publicity for the hotel. There's no way one man can change the system," he asserts.

In any case, Shen does not see the Jinjiang as his main competitive threat. For Shen, the sweet spot is to provide mass market, high quality, standardized services which are far superior to anything existing in China at present.

Thus despite the name of his motel chain 'Motel 168' - which refers to the price of the cheapest room - he says he actually competes with three to four star hotels.

Backing him up, the 300-room motel in which the interview is held, on Anyuan Road, a few blocks north of Shanghai's bustling Nanjing West Road, not only features a restaurant and a cafeteria, but is also well designed in a colourful and unusual manner - at least for China, where hotels are either very cheap and pretty horrible or rather expensive and high class.

Shen seems to be recreating the breakthroughs achieved by American entrepreneurs such as Ray Croc with McDonalds, or Ray Loewen, founder of one of America's largest 'death care' companies, imposing economies of scale and standardization over previously fragmented and disorganized operations.

Through centralizing purchasing operations, for example, Shen keeps costs down. The average wage throughout the company (including managers) is some Rmb 1500 per month. Other cost savings are made by leasing land and converting old factories discarded by insolvent state-owned enterprises, instead of buying land and building from scratch.

None of the buildings have centralized heating and cooling systems, which operate 24 hours a day. Instead, the rooms are kept unheated and un-cooled until the guest switches on his individual unit.

The design and the decoration are done in-house. In addition, the larger hotels are turning to gas heating instead of electricity. Electricity is in short supply in Shanghai, and companies need to apply to enlarge their quota, a lengthy and cumbersome business.

Above all, the hotels are popular, with occupancy hovering around 95% and each room showing profit margins of almost 100%. That led to a net profit of around Rmb 50-60 million last year, on turnover of Rmb 400 million to 500 million, according to Shen.

But who do the motels actually appeal to? Given the connotations of the word in US English, one would expect the hotel to be grey and dull, but with a decent complement of work-related facilities and full of Willy Loman-type traveling salesmen.

But a typical US motel would unlikely be putting up the army ballet team from Guangxi province, in town to demonstrate their version of Swan Lake.

The large vending machines in the lobby, featuring a large selection of cigarettes, condoms, snacks and feminine hygiene products also give a hint that the hotel is slightly more exciting than your average low quality bungalow by the side of a motorway.

Indeed, on closer inspection, on top of the basic rooms, which nevertheless feature instant access, broadband internet connections, one can also rent some rather exciting duplex rooms. These rooms, brightly coloured and well designed, feature a large TV with films on demand, which, the clerk whispers to me, include 'adult' movies.

This is a seminal moment. What we are witnessing, after all, is the birth of the Chinese Love Hotel. The next hotel, says one member of Shen's entourage with a perfectly straight face, will be completely automated, enabling the anonymous booking and payment of a room.

Given the wave of emancipated sexuality sweeping China's big cities, such a strategy makes perfect sense. The numerous young and not-so-young couples moving in and out of the lobby probably do not want to pay the high price of a luxury hotel, but nor do they want to spend the night at the cheap end of the scale, where you get exactly what you pay for. Motel 168 offers a clean, modern, convenient and good value alternative.

Shen diversified from his mid-level Chinese restaurant business, operating under the trade name of Merrylin, because it was getting increasingly difficult to keep up with the changes and requirement of Shanghai's restaurant scene. The Shanghai-Zhejiang fusion cuisine of the Merrylin chain is being increasingly overshadowed by exotic imports from all over the world in Shanghai, one of the best gastronomic centres in Greater China.

The restaurants originally provided him with quick cash, which was important for an entrepreneur cut off from Chinese and foreign bank funding - the former due to a traditional aversion to the private sector, and the latter because of regulatory restrictions.

There is a good story attached to how Shen raised his first million. He gambled all his saving on the Shanghai stock market in the early 1990s, and made enough to start the first restaurant in 1996. He says he has never played the stock market since, and can therefore boast of being one of the few people to have emerged in front from China's unofficial casinos.

Shen is a native of Shanghai, and all his senior staff are also. The air is peppered with asides in the sibilant local dialect - although only after checking the foreign journalist is restricted to Mandarin. But if that sounds a bit insular, it is worth noting that Shen prohibits having his family members in the company.

Given Shen's relentless energy, it is no surprise to hear that he wants to grow his fledgling empire through a public offering. Currently, he has seven Merrylin restaurants, three three-and-four star hotels, and nine motels, mostly dotted around Shanghai.

The three segments are separated into three separate companies, folded into a holding company. The motels, operated as a joint venture with Shanghai's largest taxi company, Dazhong (on 49%), provide the greatest revenue stream to the group, and Shen has plans to open more in Beijing, Dalian, Wuhan and other major cities. Senior staff are motivated by share issues, but Shen is the majority holder of the holding company.

With his mind set on growth, it is no surprise that Shen has just come from a meeting with Morgan Stanley and another global institutional investor. While it is welcome, Shen is not bowled over by the attention.

"They came looking for me," he says, "not vice versa." He laughs when one of his staff comments on the need for a long spoon when supping with the devil, but says that the company needs the international best practice of the sort a foreign listing, and/or foreign partner, could provide.

Abroad has recently taken Shen's fancy. His daughter studies in Australia and he recently bought a house there. That has led him to explore the idea of setting up a small real estate operation, and a printing business. He has traveled extensively, and his motel is the synthesis of the concepts of value, good design and fashion he encountered abroad.

Still, his main focus is China.

"It's a great market," he says with a wolfish grin, before slipping on his coat and sweeping out surrounded by his henchmen.

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