Shanghai firm banks on innovation to make strides in China's elderly care market

While most of the players in China's senior care and housing industry are still trying to figure out their way, one seems to have found it.

A pioneer of China's retirement community developers, Cherish Yearn finally managed to break even last year for the first time since its opening in 2008. It is now looking to copy its business model all over China as it starts outsourcing its management and investing in new projects.

"We have shown the market that there is room for sustainable development," says Xi Zhiyong, founder and chairman of the Shanghai-based Cherish Yearn.

The company clocked a robust income of 100 million yuan ($16.25 million; 12.39 million euros) from sales of membership cards last year, and raised about 20 million yuan in residents service fees, a 25 percent rise from the year before, covering its annual operating costs for the first time, Xi says.

The occupancy rate at Cherish Yearn reached 70 percent last year. The reputation it has built in the past few years has also allowed for higher service fees, from an average of 15,000 yuan per household to about 60,000 yuan a year.

Of its 800 apartments, nearly 700 have been signed up. It is expecting a 90 percent occupancy rate this year, which means a 20 percent profit from its service costs. Although the sum is moderate for a 600 million yuan real estate project, Xi expects it to multiply after it recently began outsourcing its management model to more than 10 real estate developers in China.

"We will be more of an operator in the future, but will continue investing as long as our cash flow allows. In China, for the foreseeable future, we expect our assets to appreciate. As for profits, we believe it is not prudent to focus only on services in the short term," Xi says.

The company is also investing in new projects. It started a new high-end project in Hainan last winter and saw full occupancy.

"We were trying to figure out exactly what the consumption power is for the clients in Shanghai," Xi says.

The answer was that most seniors are still cautious about spending on themselves, while their kids are not. Most of them proved to be happy to send their parents for a luxurious vacation. While the Shanghai branch of Cherish Yearn now charges 980,000 yuan for a residential membership, the Hainan project is likely to be sold at about 1.5 million yuan to 2 million yuan.

Cherish Yearn is also the first senior housing project in China to promote the membership system. The residents pay for a retrievable membership card that allows an infinite residence and an additional annual service fee that covers cleaning, medical service and various amenities.

The model was designed so that the company will be able to retrieve the development costs by selling memberships and the service costs by charging a service fee, Xi says.

The company outsourced most of its service to vendors. American company Aramark handles the security and cleaning while French company Sodexo used to take care of the catering.

Xi says this is an idea that he learned from US retailer Walmart.

"Imagine someday we will have tens of thousands of residents and how much they need to spend on their food and appliances. This would eventually be a huge platform for senior products producers and they would be fighting to get onto it. And all we need to do is to make our standards clear to them."

However, it is arguable whether this approach will always be viable, argues Benjamin Shobert, founder and managing director of Seattle-based consulting firm Rubicon Strategy Group.

"No one in the marketplace really knows how to deliver an all-around senior care solution themselves. So if I outsource all these services to different vendors, they really aren't sure how to do it either. If a company thinks this is an enormous opportunity, it will want to own this competency by itself," Shobert says.

As a nascent project, Cherish Yearn also goes for constant adjustments in its services, which Xi found Western operators are slow in catching up. Cherish Yearn has replaced service providers like Sodexo and Hong Kong firm Mage Fit with domestic operators.

"As a new product, we have to adjust our services from time to time and Chinese private enterprises are nimbler in this aspect."

With all the services outsourced, the core competencies of Cherish Yearn would lie in the secretary-style service and the managing software it has developed, Xi says.

There are three secretaries attached to each building in the community who respond to the daily needs of the residents and inform them of the activities they can attend each day. The software keeps track of everything about the residents in terms of health condition, personal interests and living conditions.

Every day, seniors are treated to various amenities including painting and calligraphy classes, dance parties and charity work.

"People can buy our software and management model, but they can't buy the happiness of our residents," Xi says.

Currently Cherish Yearn focuses on the more active group of seniors, but is preparing for the next step. The community is also equipped with a hospital that caters to seniors.

"Only if we make the healthy seniors happy will they continue to be our clients when they are ill."

Unlike many other entrepreneurs who are asking for more policy guidance from the government, Xi says that it is still too early and the existing regulations are more than enough.

"It is time to explore all possibilities. Some may fall over, some may die, but the industry will eventually take shape."

With more than a dozen new projects coming into the market this year, Xi says the movement will push the market forward as a whole. The notion of competition is far from his concerns at the moment.

"It was very hard for us to push the market single-handedly. With comparisons, it would be easier for people to distinguish and choose."

sunyuanqing@chinadaily.com.cn

(China Daily 05/10/2013 page6)