Leading hotel chains sold more than 12 million pillows in the first half of 2026 as the industry shifts revenue focus beyond room rates amid rising supply and softening room profitability in China’s hotel sector.
Atour’s Retail Revenue Grows Rapidly Through Pillow Sales
Atour reported pillows and quilts accounted for 40% of its total revenue in H1 2026, up from 11.22% in 2022. Retail sales soared from 254 million yuan in 2022 to 3.67 billion yuan in 2025. In Q2 2026 alone, retail revenue grew 63.2% year on year, prompting Atour to raise its full-year retail growth target to 40%. By mid-2026, cumulative sales of Atour’s Deep Sleep
Memory Pillow Pro series surpassed 12 million units. The Deep Sleep Temperature Control Quilt Pro 3.0 contributed to an over 80% annual increase in quilt category gross merchandise volume.
Atour’s Franchise Model and Rising Operational Costs
Atour operated 2,175 stores by Q2 2026, with 2,156 franchised locations. Franchisees must purchase pillows from Atour’s headquarters at 17% to 35% of retail prices and meet bedding sales KPIs. Atour’s retail business gross profit margin rose to 53.3% in Q2 2026, up from 37% in 2021. However, sales and marketing expenses rose 54% year on year to 606 million yuan in Q2 2026, and retail business costs grew by 70%,
increasing the sales expense ratio from 6.2% in 2022 to 13.5% in Q2 2026.
Competition Intensifies in Hotel Pillow Market
Competition has increased as Huazhu Group launched memory pillows M1 and M3, priced at 269 yuan and 369 yuan respectively, slightly undercutting Atour’s prices. Other hotel brands like All Seasons, Orange, and Kaiyuan Group’s Lanxu brand also entered the bedding product market.
Huazhu Expands Asset-Light Franchise Model Despite Occupancy Decline
Huazhu Group reported total revenue of 13.117 billion yuan in H1 2026, up 11.0% year on year, with net profit steady at 2.394 billion yuan. Its management, franchising, and licensing revenue rose 22.9% to 6.592 billion yuan, accounting for 50.4% of total revenue. The
self-operated business shrank, declining for eight consecutive quarters since Q2 2024. Huazhu had over 13,000 hotels globally by June 2026, with 93% operated under asset-light models and 7% self-operated. The group plans to close 600 to 700 stores this year, with 176 closures (157 franchise) in Q2 2026.
Declining Occupancy and Franchisee Cost Pressures at Huazhu
Huazhu’s hotel occupancy rate fell from 81.0% in Q2 2025 to 79.8% in Q2 2026, marking six consecutive quarters of year-on-year declines. The number of available rooms increased 12.7% year on year, but paying guests did not rise accordingly. Directly-operated stores outperformed franchises with 86 yuan higher room rates and 3.2% higher
occupancy in Q2 2026. Franchisees face high upgrade costs and pay estimated commissions above 12% on reservations made through Huazhu’s central system, amplifying operational difficulties amid store closures.
Hotel Industry Shifts Revenue Models Amid Excess Supply
The Chinese hotel industry faces excess room supply and weak room rates, prompting chains like Atour, Huazhu, and BTG Hotels to diversify revenues. Atour develops retail sales through pillow and bedding products, Huazhu expands its asset-light franchise business, and BTG targets the mid-to-high-end market.
