IGNITION Staff
KHAOSAN : The hostel group in Japan popular with foreign travellers
by Nobi Oda
Backpackers from across the globe have always struggled to find good, low-cost accommodation in Japan. However the KHAOSAN Group, with their line of wallet-friendly accommodation, is proving to be a popular solution amongst backpackers. By reforming and modifying existing buildings, the company is able to provide a cost-effective alternative for the budget-conscious traveler. One such example is the KHAOSAN WORLD ASAKUSA RYOKAN & HOSTEL, which originally started life as a love hotel (hot-pillow hotel). To get the full story, we spoke with Hiroshi Kozawa, CEO of Manryo Ltd (the parent company behind KHAOSAN).
Backpackers in Japan?!
The Khaosan Street in Bangkok, Thailand is lined with low-cost accommodation for the budget-conscious traveler. In fact, most major cities around the world have similar clusters of low-cost accommodation aimed at backpackers looking for a cost-friendly place to stay.
However, Tokyo, and indeed Japan in general, seems to be the exception to this. Whilst many Japanese travel the world, Japan itself doesn’t offer the same or even a similar level of backpacker-friendly services that one would find overseas. One possible explanation for this lies in Japan’s economic history. During the economic boom, land prices in Tokyo were amongst some of the highest in the world. Targeting budget-conscious travelers and/or backpackers at this time made little to no business sense.
In the meantime, Japan’s economic growth allowed more Japanese to travel overseas. Whilst the majority of Japanese people tend to travel in tour groups, there are an increasing number who choose to travel independently. Taking inspiration from their travels, a small number of them have even gone on to open restaurants and hotels aimed at budget-conscious travelers visiting Japan.
Tomio Ueda, founder of KHAOSAN Group, is one such example. He had previously been relocated to Thailand for work, but it wasn’t until the 2002 Korea-Japan World Cup that he took a serious interest in backpackers.
“He couldn’t believe it when he found out that so many backpackers from abroad were staying in Tokyo’s Sanya area” explains Kozawa, who took over as CEO 2 years ago. “The so-called ‘Tokyo slum’, it has lots of budget hotels and hostels there but they’re mainly aimed at pay-per-day laborers. Growing up near the iconic Asakusa area of Tokyo, Ueda always felt that Asakusa would be a much better place for budget tourists to stay. So in 2003 he renovated an old dormitory and turned it into a guest house: the flagship KHAOSAN hostel.”
Kozawa was previously a director of TV documentaries. “After that, I was involved in internet startups. During that time I found out about KHAOSAN when I was looking for a place to stay in Tokyo. Shortly after, I was contacted by the founder of KHAOSAN Group and became involved.”
Living up to its name
Like the street it’s named after, KHAOSAN’s flagship hostel proved an instant hit with backpackers, and was fully booked after just 6 months. Whilst their portfolio continues to grow, the company already boasts an impressive 6 locations in Tokyo, 2 in Kyoto, 2 in Fukuoka, 2 in Beppu (renowned for its Onsens) and 1 in Sapporo. Amongst these, the KHAOSAN TOKYO KABUKI has been voted number 1 in Asia and was awarded the Hostel Award by Hostelworld.com.
All of this is, of course, is the result of a careful business plan based on the following 3 points:
1.Bringing people in
Being able to attract travellers to a particular area was an important objective. Using the Khaosan Street in Bangkok as an example, guest houses/hostels benefit from being clustered together as most backpackers look for areas or regions with low-cost accommodation. Choosing a location with lots of places to eat was also an important factor as most budget accommodation doesn’t include meals. Fulfilling these two criteria not only helps local businesses but also helps rejuvenate the area as a whole.
Asakusa in particular is one of Ueda’s favorite places and was chosen for its visual impact.
“Nearly all guide books on Tokyo feature the giant lantern at Kaminarimon in Asakusa. It’s a favorite amongst tourists. Indeed, the growth of social media has made it more popular than it’s ever been, but let’s not forget that it’s been a sightseeing hotspot for around a thousand years.”
2. Target market and revenue
The second most important factor was considering the target market and revenue forecast. KHAOSAN didn’t buy or build new hotels. Instead they chose to rent existing buildings and modify them to suit their needs.
“We find that a lot of tourists from Indonesia and Malaysia like to stay together in groups of 4 or 5. But in Japan there aren’t many places with rooms large enough, and even the cheapest places start from around 3,000 yen per person. Also, some Muslims sometimes prefer not share water basins, showers, toilets and baths with people of other religious faiths. Being one of the few places to offer rooms which accommodate all these needs means we are often booked out.”
Kozawa went on to explain how he believes that there is a correlation between a country’s economic development and tourism trends; the trend often sees a transition from large group tours to individual travelers as an economy develops. A lot of the countries in South East Asia lie somewhere in the middle of this transition, creating the niche market that KHAOSAN is targeting.
“If a major hotel chain or franchise were to target this market, they would need to build additional hotels, which would require an exorbitant amount of capital. It would take an extremely long time to recoup their initial investment — 10 maybe 20 years. There’s also no way of telling what the market trends are going to be like in 20 years’ time. With all this in mind, major hotel chains and franchises stick to the safest options: the usual single and double bedrooms.”
3. Renovation
Making the most of a building is the third most important factor in their business plan. Most business hotels are built to a standard set of specifications at the most cost-effective prices. KHAOSAN, on the other hand, starts by finding an existing building, large enough for their purposes in the target area. From there, they rent the building and renovate it based on their target market and its needs. It goes without saying that each building is therefore unique, and different approaches are used to make the most out of each location.
Fun to be different
KHAOSAN hostels make it a point to be different. Each building is unique and rooms can differ greatly even within the same hostel.
In the case of KHAOSAN WORLD ASAKUSA RYOKAN & HOTEL, it was formerly the largest love hotel in the city, sporting a lavish interior.
“When I saw the interior for the first time, my initial thoughts were ‘interesting’. I had to somehow increase revenue whilst retaining the building’s distinctive features and characteristics. Each room was around 30 square m of which 10 square m was allocated for a bathroom. With that setup, I would need to charge about 15,000 yen per person. Changing the setup to a 10 person dorm would bring in the most revenue, but then the reservation and booking process would become far too complex. That’s when I looked at modifying it for tourists from South East Asia, who typically like to stay in groups of 4 or 5. It was definitely a challenging renovation as each room is different, but that’s also what made it fun.”
KHAOSAN WORLD ASAKUSA RYOKAN & HOTEL offers several other kinds of room (around 10 types in total). These include dorms (Western and Japanese styles), capsule hotel style rooms, double rooms and family rooms (2 adults, 2 children). Whilst the hotel doesn’t serve food, it does have a communal kitchen which the guests can use for cooking.
KHAOSAN plans to open another hostel in Asakusa this October.
“This one used to be a business hotel. We stripped the entire building down to its bare bones, including the walls, and renovated it from the ground up. Asakusa is home to a lot of post-Edo period crafts so we’re also planning on inviting a few craftsmen to hold workshops there too.”
Following the ‘create and replicate’ model of larger hotel chains would certainly yield the most revenue for KHAOSAN. However, this would turn KHAOSAN into yet another generic hotel chain, of which there are already plenty available to visitors to Japan. KHAOSAN’s unique approach may seem unorthodox, but they’re able to cater for the markets that larger hotel chains simply cannot.
“For us, opening a new hostel is much like the entertainment industry; our customers are always eager to see what’s next and this is one way for us to quench their excitement. Kind of like a ride at a theme park if you will.”
(photo: Daisuke Hayata translation: Atsushi Fujii)
Originally published at ignition.co.
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