Executive summary Hotel Survey 2019 Vietnam Upscale Lodging Industry Introduction “Grant Thornton Vietnam’s Hotel Survey 2019 presents financial, operational and marketing information for the 2018 financial year from a range of Vietnamese upscale hotels and resorts.” Kenneth Atkinson Founder & Senior Board Adviser Grant Thornton Vietnam For simplicity, “Hotel” refers to both hotels and resorts, with our survey covering 4 and 5-Star rated hotels. Statistics are presented by Star Category (hotel rankings) and Hotel Region (location). Hotel regions are separated into the three main areas of Vietnam; the North, the Centre and Highlands and the South. In the North, the hotel participants are located in the capital Hanoi, Sapa and Quang Ninh City. In the Centre and Highlands region, the hotels are located in cities such as Danang, Hoi An, Hue, Nha Trang, Quang Binh, Phan Thiet, Daklak and Da Lat. Hotel participants from the South are mainly located in Ho Chi Minh City, Phu Quoc, Vung Tau and Mekong Delta. This report is prepared to provide readers with a general, as well as specific, view on hotel operations in Vietnam by presenting data covering different criteria for analysis such as hotel facilities, staffing, performance KPI’s such as average room rate, occupancy rate and RevPAR, financial statements and market data. For financial analysis, the data is shown up to net profit before interest, tax, depreciation and amortisation (“EBITDA”) for the purpose of relevant comparability. The unit of currency is the United States Dollar. As can be seen later in this report, most data is presented in percentage terms or as averages. For instance, with financial statements, Dollar figures are shown as a percentage of total revenues. In the market data analysis and other sections, statistics are in the form of averages of the respective items. For ease of comparison, the report presents the survey results of each specific category alongside key findings. In the Appendices, readers can also find tables showing the minimum, maximum and mean values of market data for the financial year 2018. This report, however, does not attempt to set operating results for the Vietnam hotel industry. The figures and ratios in this report should not be considered as standards for any type of property. The report users also need to note that not all changes from one year’s results to another are due to actual year-to-year differences. Sometimes, they may be a result of a different mix of survey participants. Readers should note that due to limits on analysing data based on specific sample sizes, the results should be regarded as indicative only. Grant Thornton Vietnam - Hotel Survey 2019 2 Newborns Vietnam Newborns Vietnam (NBV) is a United Kingdom (UK) registered charity licensed to operate as a non-governmental organisation (NGO) in Vietnam dedicated to reducing neonatal mortality in South East Asia, with a specific focus on Vietnam. Infant mortality in Vietnam has declined very significantly, but newborn deaths in the first month of life now account for 70% of all infant deaths. In Vietnam, the healthcare system and standards of care for preterm and sick babies trail those of more developed markets resulting in limited progress in reducing neonatal deaths. In four years our work with Da Nang Hospital for Women and Children achieved a 50% reduction in deaths in the first month of life This year, Newborns signed a five year agreement with the Ministry of Health, Hanoi Department of Health to develop the capacity of public hospitals in Hanoi and the northern provinces to improve the survival of newborn infants and their long-term health outcomes. Central to this is the continuation of our UK specialist post graduate training for doctors and nurses, and the development of a managed network system, a safe transport system and the establishment of a Vietnam National Resuscitation Council. Our vision is a world where there are no preventable deaths of newborn infants, where every birth is celebrated, and mothers and babies survive and realise their full potential. We are determined to do more to stop babies from dying the day they are born, or in days after their birth. Contact detail: UK Address: Newborns Vietnam, 75 Maygrove Road, London NW6 2EG T: 01392 770108 Vietnam Address: Newborns Vietnam Project Offices C/o 402 Le Van Hien, Khue My Ward, Ngu Hanh Son District, Da Nang, Vietnam Vietnam National Children’s Hospital 18/879 La Thanh Road, Dong Da District, Hanoi, Vietnam E info@newbornsvietnam.org T +84 90 506 2500 www.newbornsvietnam.org www.cycle-a-difference.com Grant Thornton Vietnam - Hotel Survey 2019 3 Key Trends Average room rate (USD) by Star Ranking 80.0% 83.4 79.1 91.8 93.3 100 80 75.2 73.4 USD USD 100 107.6 112.0 120 80 Average Occupancy Rate and RevPAR by Star Ranking 60 60 75.0% 71.8 54.0 50.2 52.0 70.0% 40 65.0% 20 60.0% 40 20 0 0 4-Star 5-Star 2017 1.6% in average room rates % of total sales 35.7% 2017 RevPAR 4-Star Occupancy Rate 4-Star 2018 34.8% GOP 37.7% GOP 37.2% 26.6% 28.0% 1.9% 2.1% 35.8% 35.2% 2017 2018 RevPAR 5-Star Occupancy Rate 5-Star 0.1% in occupancy rate 1.5% in RevPAR 2018 International Guests vs. Domestic Guests Expenses and Profit as Percentage of Revenue 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 55.0% 2016 Overall G O P 3 7 . 2 % Oceania 6.2% Vietnam 17.5% North America 7.7% Europe 20.4% 2018 Other 7.3% Asia (excluding Vietnam) 41.0% Departmental Expenses Undistributed Expenses Other income and expenses EBITDA 37.2% GOP of revenue for upscale hotels in 2018 0.5% compared to 2017 Asia is still the primary source of guests, with the dominant of Korean and Chinese guests Grant Thornton Vietnam - Hotel Survey 2019 4 Executive Summary Occupancy rate of 5-Star slightly increased by 0.5% while 4-Star’s dropped by 1.0%. From the regional view, while the Northern and Central region observed a drop in occupancy rate of 2.6% and 1.4% respectively, the Southern region’s occupancy rate, in contrast, continued to increase even though at a lower rate of 1.7%. Room Rates by Selected Category Average Room Rate by Star Ranking (2016- 2018) 112.0 2018 73.4 107.6 2017 75.2 103.2 RevPAR by Selected Category 74.6 0 50 100 USD 5-Star 150 Movement in hotel room RevPAR by Star Ranking (2017 – 2018) 4-Star In 2018, average room rate saw an increase of 1.6%, from USD91.8 in 2017 to USD93.3. While 5-Star ranking continued to see their room rates increased 4.1%, 4-Star’s room rates dropped by 2.3%. By region, both Northern and Southern regions saw an improvement in room rates, though at a slower growth than last year, with the Southern region achieving the highest growth of 2.7% and Northern at 1.7%. Central region, in contrast, observed a marginal drop of 1.0%. Occupancy rates by Selected Category Average hotel room occupancy rate by Star Ranking (2016 – 2018) 71.2% 75.2% 2017 72.2% 69.2% 67.4% 2016 60% 65% 5-Star Occupancy Rate 70% 75% 90 80 70 60 50 40 30 20 10 0 83.4 79.1 54.0 2017 4-Star RevPAR 52.0 2018 5-Star RevPAR RevPAR of 5-Star increased more significantly as the result of the rise in average room rate. 4Star’s RevPAR, in contrast, showed a decrease of 3.6% compared to the previous year. Southern region, this year, achieved the highest growth of 5.5%, mostly thanks to the rise in average room rate. Northern region dropped slightly, from USD77.7 in 2017 to USD77.3 in 2018. Central region came last with a fall of 2.7%. 75.6% 2018 USD 2016 80% 4-Star Occupancy rate Overall, KPIs of revenue generation slightly improved from last year. Grant Thornton Vietnam - Hotel Survey 2019 5 Executive Summary Revenue and Expenses Annual revenue breakdown (2017 - 2018) 2017 2018 Room Sales F&B Sales Other Operating Sales Miscellaneous Income 61.5% 31.7% 5.6% 1.1% 59.3% 31.7% 6.1% 2.9% Similar to the previous year, room sales continued to account for the highest portion of total revenue at 59.3% and showed a slight drop of 2.3% from 2017 to 2018. While F&B Sales showed roughly no change between the two years, Other Sales started to increase in proportion of Total sales, showing the shift in customers’ demand to other services rather than just only room service. % of departmental revenue Departmental Expenses and Gross Profit as Percentage of Departmental Revenue (2018) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 33.2% 78.2% 9.7% 37.1% 13.6% 31.7% 21.3% 12.1% 9.7% 25.4% 28.0% Room F&B Other Operating Department Gross departmental profit Other expenses Cost of sales Payroll expenses Year 2018 continued to show minor change in the cost structure compared to the previous year. While gross profit margin of room and other operating department did not show any major changes, F&B department’s dropped, mostly due to an increase in payroll expenses. %Payroll expenses/Total sales increased from 23.7% to 25.2% Grant Thornton Vietnam - Hotel Survey 2019 6 Executive Summary Undistributed Operating Expenses Breakdown (2017 – 2018) GOP and EBITDA as Percentage of Revenue (2018) 100% 2017 2018 Payroll Expenses Utilities Property Operation and Maintenance Sales and Marketing Information and Telecommunication Systems Administrative and General The three biggest components of undistributed expenses (Payroll, administrative and general expenses and Utilities) together accounted for 78.9% in 2017 and 79.3% in 2018. Payroll expenses saw the greatest increase in proportion of c.4%. This trend was in line with the increase in average expenses per employee. Expenses and Profit as Percentage of Revenue (2017 – 2018) 100% % of Revenue 80% 60% 35.8% 35.2% 1.8% 1.2% 1.9% 1.2% 26.6% 28.0% 35.7% 34.8% 2017 2018 40% 20% 0% 37.2% 35.2% 0% EBITDA 0% 20% 1.4% 0.3% 2.0% Fixed Charges 20.8% 1.2% Financial expenses 22.3% 28.0% 100.0% Non - operating Income 7.1% 11.0% 2.6% 40% FF&E Reserves 20% 7.5% 10.7% 2.9% GOP 40% 60% 18.6% 34.8% 80% Undistributed Operating Expenses 20.3% 100% Departmental Expenses 60% 39.9% Revenue 36.2% 80% GOP and EBITDA of the upscale hotel sector in 2018 showed a slight drop, of 0.5% and 0.6% respectively. This was mainly caused by higher undistributed expenses, which rose by 1.4% in 2018. By Star rankings, while 4-Star continued to show an increase in GOP of 1.1% to 37.8%, 5-Star, in contrast, dropped by 1.8% to 36.9%. Changes for both Star rankings were because of higher undistributed expenses. However, 4-Star reduced Departmental expenses which led to a small increase in GOP. Profitability expressed in terms of GOP and EBITDA drop slightly. By Star ranking, 4-Star’s GOP slightly increased while 5-Star’s dropped. EBITDA Fixed Charges Financial expenses Non - operating Income FF&E Reserves Undistributed Operating Expenses Departmental Expenses Grant Thornton Vietnam - Hotel Survey 2019 7 Executive Summary Employees by Selected Category Average Revenue and Average payroll expenses per employee (2017 - 2018) 35,000 30,000 Both average revenue and payroll expenses per employee continued to increase in 2018, but payroll expense per employee saw a higher growth, at 6.4% compared to 5.7% growth in 2017, while revenue per employee only grew at 3.3% compared to 6.7% in 2017. 29,648 28,702 USD 25,000 20,000 15,000 10,000 7,029 6,605 5,000 2017 2018 Payroll expense per employee saw a higher growth. The proportion of Domestic guest started shrinking again and it continued in 2018. Average Revenue per employee Average payroll expenses per employee Source of Guests by Selected Category Source of guests (2016 - 2018) After an increase of Domestic guests staying at upscale hotels for 3 years from 2014 – 2016, the proportion of Domestic guest started shrinking again and it continued in 2018. By star ranking, 4-Star hotels observed a higher contribution in International arrivals of 4.9% while 5-Star’s remained roughly the same as last year. 2018 2017 2016 19.2% 17.5% 20.8% 79.2% 80.8% 82.5% International guests Domestic guests Grant Thornton Vietnam - Hotel Survey 2019 8 Executive Summary Purpose of Stay by Selected Category Purpose of Stay (2018) Other guests 17.3% Channel of Reservation by Selected Category Channels of Reservation (2018) 7.3% FiT/ Leisure traveller 37.1% 18.2% 16.4% Tour groups 23.5% 23.4% Corporate & Business Travellers 15.3% 27.6% MICE 6.8% 7.1% Direct booking with hotel Online Travel Agencies (OTA) Wholesalers/ GDS Tour operator/ Travel Agency Corporate Sales via other channels Purpose of Stay by Star rankings (2018) 5-Star 40.2% 4-Star 34.2% 0% 20% 6.6%16.2% 7.1%14.5% 40% 18.3% 18.7% 28.3% 60% 80% 15.9% 100% FiT/ Leisure traveller MICE Corporate, Business Travellers Tour groups Other guests FIT/leisure travelers, tour groups and corporate/business travelers continued to be the three biggest components, together accounting for 78% in 2017 and 76% in 2018 of total guests. MICE (Meetings, Incentives, Conference and Exhibits) decreased from 7.6% last year to 6.8% this year. This is the third consecutive year that this section dropped, indicating either lack of efforts or inefficiency in the country’s attempt to attract MICE tourists. Reservations through Travel agencies and Tour operators (TA/TO), though they continued to be the biggest channel, fell a sharp 5.1% in 2018 (4Star had a heavy fall of 7.1% while 5-Star fell by 2.8%) and were replaced by the increase in Online Travel Agencies (OTA’s) and other channels. By Star rankings, the highest change in reservation channels was 2.3% in wholesalers/ GDS for 5-Star and 2.8% in OTA’s for 4-Stars. The corporate channel’s portion slightly increased from 16.1% in 2017 to 16.4% in 2018, mostly contributed by the rise in this channel of 4-Star hotels. Third consecutive year that MICE section dropped. Increase in Online Travel Agencies (OTA’s) booking channel. Grant Thornton Vietnam - Hotel Survey 2019 9 Executive Summary Application of Digital Technologies Data mining and analysis Guests Personalization Mobile application 95.5% 77.8% 54.5% 34.6% Online checkin/ checkout Digital marketing (via social media such as Facebook, Instagram, Twitter..) 49.2% 100.0% 28.6% 96.3% 5 -Star 4-Star Technology is no longer a stranger to Vietnamese hotels, as internet access and smart devices become more widespread. Managing their digital image is now a crucial part of hotels’ operation. Overall, 5-Star hotels are shown to be embracing more digital advances than 4-Star did in all 4 questions asked. Digital marketing via social channels such as Facebook, Twitter and the like continues to be the priority, which results from the increase in guests’ usage of numerous social networks. Nearly 100% of participants shared that they used this effective channel to gain more awareness from social network users. Online check in/check out and guest personalisation via mobile application, however, received less attention, with less than 50% of hotels using them. Analysis using data obtained from operation is widely used by both Star rankings to assist their marketing strategies and decision making process. Overall, 5-Star hotels embraced more digital advances than 4-Star did in all 4 questions asked. Grant Thornton Vietnam - Hotel Survey 2019 10 Further Information Grant Thornton provides a wide range of services to the Hospitality sector, including: • • • • Audit and Assurance Tax advice Transaction advice (buying and selling properties) Diagnostic and performance reviews Nguyen Chi Trung CEO & Managing Partner T +84 24 3850 1686 E chitrung.nguyen@vn.gt.com • • • • Feasibility studies Valuations Internal audits and control reviews Business Process Solutions Head Office in Hanoi 18th Floor Hoa Binh International Office Building 106 Hoang Quoc Viet Street Cau Giay District, Hanoi Vietnam Audit and Assurance Services Nguy Quoc Tuan National Head of Audit T +84 28 3910 9100 E tuan.nguy@vn.gt.com T +84 24 3850 1686 F +84 24 3850 1688 Nguy Quoc Tuan Managing Partner of Ho Chi Minh Office T +84 28 3910 9180 E tuan.nguy@vn.gt.com Ho Chi Minh City Office 14th Floor Pearl Plaza 561A Dien Bien Phu Street Binh Thanh District T +84 28 3910 9100 F +84 28 3910 9101 Nguyen Thi Vinh Ha National Head of Advisory Services T +84 24 3850 1686 E vinhha.nguyen@vn.gt.com Travel, Tourism and Hospitality Industry Leader Kenneth Atkinson T +84 28 3910 9100 E ken.atkinson@vn.gt.com Tax Services Hoang Khoi National Head of Tax T +84 28 3850 1686 E hoang.khoi@vn.gt.com Advisory Services Nguyen Thi Vinh Ha National Head of Advisory T +84 24 3850 1686 E vinhha.nguyen@vn.gt.com Business Process Solutions Le Minh Thang National Head of BPS T +84 28 3910 9100 E minhthang.le@vn.gt.com Grant Thornton Vietnam - Hotel Survey 2019 11