The Last Hope for Vietnam’s Declining Hotel Market

practicalities - Vietnam: May 7, 2015

Last month I wrote that Vietnam’s government should focus its entire marketing and products towards Asia’s new middle class travelers because a government’s mandate is to maximize employment, income per capita, and foreign direct investment. If you have any doubts about this strategy, take a look at the chart below.

The Last Hope for Vietnam’s Declining Hotel Market

Source: The Atlantic Monthly

Vietnam is geographically in the center of an area with the largest growth in disposable income in the history of the world. Each new middle class person is a potentially new international traveler. To spend the country’s resources chasing after mature markets is a waste of time and money. Creating a cumbersome and expensive visa process is a huge barrier for these new travelers.

That being said, if you own or manage a business dependent on tourists, it does not mean you have to chase these new Asian travelers. You just need to understand you are swimming upstream against a pretty strong current that will not change anytime soon.

Unless your business is in Danang, you are most likely in what I described last month as a 1st generation location. Below is a refresher of my generation terminology:

So a 1st generation location means infrastructure and controls have not caught up to the exploitation. It also means you can give your customer the best 3rd generation experience in the world, but as soon as they step out your door they are back to 1st generation. For example, Park Hyatt may have 5-star service, but trying to walk across the street during rush hour will dampen anyone’s enthusiasm. For the most part, visa hassles are not keeping the experienced 3rd generation traveler from visiting or returning, it is the other typical complaints about the country you see in the blogosphere. And it is not going to change anytime soon.

So what are your options? First, you can accept the fact that most of your business will come from 1st generation travelers (i.e. backpackers) for whom you’ll mostly compete based on price. Alternatively, if you happen to have 40 hectares on the beach near an international airport, you probably wait until the Chinese return. The third option is to try and carve out your own niche, understanding you are competing against businesses in other countries and your business is at a disadvantage. Is the third option possible?

Yes – several business examples exist.

The first thing to do is identify a market niche – a segment of the market that has very specific purchase considerations that your business can satisfy. Then do everything possible to make sure that customer’s experience is even better than they expect. Aman Resorts’ Amano’ iResort does exactly that. The rich and famous quietly come to Vietnam and spend days sequestered on Vietnam’s nicest coastline at a tune of up to thousands of dollars per night. Private butlers, chefs, and spa staff take care of their every need.

Next, try and minimize your guests’ exposure to the negative aspects of being in Vietnam. Victoria Hotel and Resorts used to do this by finding beautiful but relatively unknown locations for their resorts. They were among the first high-end resorts in Sapa, Phan Thiet, Hoi An and Siem Reap. With a colonial atmosphere in places without the typical tourist hassles, middle class travelers from Europe found the Indochine experience they expected.

Another way to reduce the negative impact of 1st generation locations is to extend the length of time you have influence over your guests’ experiences. For example, make sure to call only reliable taxis to pick up at your place. Pass on information about great service providers at their next stop. Nearly everyone who comes to Vietnam moves from place to place. Find other businesses that are targeting the same niche market segment as you and try to find ways to cooperate rather than compete.

So are there any potential 3rd generation locations left in Vietnam where the provincial government may support this type of tourism? One province is at least trying. Ninh Thuan hired outside consultants in 2010 and developed a plan around high-end tourism rather than mass tourism. Adequate infrastructure has recently been built before its discovery by international tourists. It has a long undeveloped coastline accessible for the first time because of a new extensive road project. Ninh Thuan also has one of Vietnam’s largest national parks (Nui Chua). The province even assigned a non-Vietnamese company to manage the park’s water sports to minimize chaotic development. Land allocation has generally been in the two to ten hectare amount which is best for smaller and medium sized resorts targeting smaller market segments, rather than the huge lots of land developers received in Cam Ranh and Danang. It is still early, though, and a lot could go wrong.

Most local businesses will continue competing on price and provide bad service and ruin the country’s reputation. Help won’t and shouldn’t come from the Vietnamese government; instead, the government should be focusing on how to lure the new Asian middle class to large, 2nd generation resorts.

Notwithstanding one or two locations, if Vietnam has any chance to compete against its neighbors for wealthier and more experienced travelers, exceptional services must come from the private business sector.