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Hotel franchising: let's play the name game!

Hilton Garden Inns, Fairfield Suites, Four Points, Club Hotels by Doubletree, Hampton Inn & Suites, MainStay - the list of new lodging choices for the lap-top-lugging, carry-on-bag-toting businessperson - to say nothing of the relocating executive or the individual spending several weeks in a different spot - grows lengthier every day.

"It's kind of a hotel brand de jour," says Tim Aho, senior vice president/development for Prime Hospitality, a Fairfield, N. J.-based firm that is an active player with its rapidly expanding AmeriSuites.

Well-established, well-recognized firms such as Choice, Marriott, Hilton, Radisson and Sheraton and others have entered the branding fray - as have new players like Sunshine State entrepreneur Wayne Huizenga, with his Extended Stay America, and perennial concept creator Jack P. DeBoer, who gave birth to Residence Inns a decade ago and is still playing midwife.

"It's kind of startling with so many different brands coming on line," says Curtis Nelson, executive vice president and COO of Minneapolis-based Carlson Hospitality Worldwide, a global hospitality services organization that includes Radisson Hotels and Country Inns & Suites By Carlson. "Unfortunately, some of the new brands aren't going to make it."

Meeting market needs

Don't tell that to executives at the more than 20 new brands created over the past several years. They say they are carefully marketing their product to a specified niche, one that hasn't been well-served until now. "Extended stay" remains the current industry buzzword, although mid-market and limited-service/economy concepts continue to be popular.

"There has always been a lot of debate about why franchise companies come out with new brands," says Robert Mandelbaum, director of research in the San Francisco office of PKF Consulting. "Is it a true attempt to meet demand, or is there a need to have more product out there to franchise, hopefully by having different brands and various niches?"

Those in the hospitality industry would definitely answer that they are simply meeting unfulfilled needs. New market segments are being developed as the industry sorts out the travel patterns, and pocketbook concerns, of business executives, the desires of the leisure travelers and the increasing needs of roaming Americans who have rarely ventured from their home but now may spend a month in one place. It is this long-term guest - where a visit is measured in weeks rather than days - that continues to grab the attention of owners and franchisor's around the country.

"Extended stay is the new baby on the street," says William B. Weatherford, senior vice president/development of Choice Hotels International in Charlotte, N.C. "There has been a lot of attention from developers who think the market is ripe. We think the market is underserved in $55 to $60 a night average rate. We think there is an unfilled opportunity for the mid-priced segment, aimed at corporate relocation."

There may be even more players in the extended-stay market. Debra Semanf, vice president of strategic planning and new product development at Holiday Inn Worldwide, a subsidiary of Bass PLC, says her company is taking a hard look at the extended-stay market and will "have an announcement by the end of the year." Semanf notes there have been a flurry of announcements about new extended-stay products, but that is not a consideration for Holiday Inn.

"Our analysis shows that, even if some companies do as much as they say they'll do, there will still be demand in the marketplace for extended stay," she says. Semanf says the challenge is not developing new brands but marketing them correctly. "Everyone is in the process of educating consumers so they can choose the right product for the right travel occasion," Semanf says. "Companies will be using more technology to educate consumers."

Marriott International Inc. is also a major player in the extended-stay field, not only with the grand-daddy of extended-stay products, Residence Inn by Marriott, but also with the introduction of its new, less expensive, extended-stay brand, TownePlace Suites by Marriott.

Marriott announced TownePlace Suites in February and broke ground for the first one in Newport News, Va., earlier this summer. That property is scheduled to open later this year. While a Residence Inn typically provides accommodations in the $69 to $109 per night range, TownePlace Suites will be aimed at the less expensive $45 to $60 a night market. Marriott officials say they can achieve this room rate by building fewer rooms per hotel (thereby reducing the need for large staffs) and by eliminating the continental breakfasts and happy hours that are offered at Residence Inn.

Marketing the extended-stay product

How do you market a product such as MainStay? Locally, Weatherford says. "The difference with extended stay is that you draw a radius of 'X' miles around the product to find out where the room-night generators are," Weatherford says. "There is a strong emphasis on local marketing. We're opening our first MainStay in Plano, Texas. We'd rather spend marketing dollars in local efforts."

Choice provides marketing personnel to franchisees, who will go to a property and help develop a marketing strategy. "We send someone to help them develop a plan of attack, to show them how to get their business from the community," he says.

Local marketing is also the key to marketing at Candlewood Management of Wichita, Kan., says Jack P. DeBoer, president and CEO of the firm. If the name rings a bell, it's probably because DeBoer not only designed and built the first Residence Inn in Wichita before selling out to Marriott, but he co-founded Summerfield Hotel Corp., a second-generation upscale extended-stay hotel chain.

When yet another extended-stay opportunity presented itself DeBoer says, "I was kind of like the horse at the fire station. The bell rang, and I was out the door." Candlewood is after a different segment of the extended-stay market and is being positioned as a business extended-stay product. "Our differentiation is a higher quality room, and we're aimed strictly at the business traveler," he says. "The guys below us are taking a lot of their business out of the apartment industry and roadside motel. We're at the next tier."

Candlewood "is just busy as beavers, pursuing and capturing franchises for our Candlewood projects. Our first Candlewood opened in Wichita," DeBoer says. "We have three more under construction and have already signed development agreements for some sections of the country. We have given a development agreement to Studio West Group for Northern California, Oregon and Washington and contracted to build 22 hotels over 36 months."

The extended-stay segment is already seeing hybrids. Atlanta-based US Franchise Systems (USFS), which has the exclusive franchise rights to Microtel Inn, Microtel Suites and Microtel Inn and Suites, recently announced Hawthorn Suites Ltd., a mid-priced product that will feature a mix of smaller extended-stay suites and studio suites suitable for business travelers and families.

Mike Leven, president and CEO of USFS, says the concept gives the hotel owner the ability to draw business from both segments of the market. "Some markets just don't have the volume of corporate business to fill a completely extended-stay hotel," he says. "Rather than have fully appointed suites rented on a night-to-night basis, the owner of a Hawthorn Suites Ltd. can create the right mix for the market."

What's in a name?

Extended stay is not the only new brand on the brandwagon, analysts say. Other full-service hotel companies are also offering new products for specific niches. Hilton Hotels Corp., for example, is rolling out Hilton Garden Inns, which it describes as "four-star lodging at a three-star price."

James Abrahamson, senior vice president of franchising for Beverly Hills, Calif.-based Hilton, says that in the current new brand frenzy, name is everything, which is why the company wanted to use "Hilton" in its new mid-priced product.

"There are a lot of new brands out there, and we wanted to go with the well-known Hilton name," he says. "In 1989, we tried to launch the brand as CrestHil by Hilton, but decided it just wouldn't work. The Hilton name is extremely effective."

Guests not only want the Hilton name but also Hilton benefits, such as an international reservation system and a lucrative frequent traveler program.

"We'll have many services at Hilton Garden Inns, but not some of the amenities offered at our full-service properties like valet parking and ballrooms," Abrahamson says.

About 80% of the new Hilton Garden Inns will be new construction, with the remaining portion conversions of existing properties. Abrahamson says Hilton Garden Inns are using a tried-and-true formula for development: following others into different markets. "When Courtyard first started out, they looked at where Holiday Inns were, and the Fairfield people looked at Red Roof," he says. "It doesn't take a genius to see who's successful, develop in strong markets and affiliate with the best group of franchisees, owners and operators."

Another lodging icon, Sheraton, is also entering the new brand fray with its Four Points Hotels, a full-service, mid-priced hotel brand. "We're one of the 15 new brands launched over the last 20 months, and we already have 41 hotels open and operating," says S. Kirk Kinsell, president/franchise, ITT Sheraton Corp. "We're focusing on the full-service, middle market. Four Points is one of the few brands where guests can have three main meals in a restaurant, room service, laundry facilities, meeting facilities, a workout room and more. Four Points is a value-oriented accommodation."

The positioning of Four Points is purposeful, Kinsell adds, because many new products have abandoned offering services that are important to business travelers, particularly female ones. "We define the Four Points service and facilities, not just by a bell tower or a cutesy courtyard, but by a whole array of services and needs. Our affiliation with Sheraton, and the presence of Four Points on the Sheraton reservation system, is also a major plus. So is participation in Sheraton Club International, where guests can acquire points and use those points throughout the world."

Focusing on business needs

Club Hotels by Doubletree is hoping to score points with guests a different way: by taking a trio of well-known monikers and branding them together under the Doubletree roof, says President Thomas W. Storey, who is also executive vice president, sales and marketing/Doubletree Hotels Corp. of Phoenix.

Club Hotels by Doubletree will feature a Kinko's self-service business area, offer Au Bon Pain for food services and use Steelcase for office furnishings. "We've created exclusive programs with each of the three providers, and they'll be in each Club," says Storey.

The product is designed for today's technology-oriented mid-market traveler. "Doubletree did research that pointed out that there are 6,000 hotels that are selling rooms between $55 and $85, with a great majority of those hotels, 80%, more than 15 years old. A lot are even 20 to 25 years old," Storey says. "These mid-market hotels are a poor price-value relationship for the business traveler, because the facilities are especially out of date. And, owners aren't getting the yields they could be getting."

Doubletree's research showed that the typical traveler wants to work in an environment where he or she can conduct business as well as have access to business services and refreshments.

The centerpiece of Club Hotels by Doubletree will be an airline-club-like facility (with much more ambiance) measuring between 5,000 and 6,000 sq. ft. that combines small work spaces and activity tables and allows guests to work and have access to food and beverages between 6 a.m. and 11 p.m. "We think the Club concept will be unique. Our exclusive relationship with Kinko's, Au Bon Pain and Steelcase will create a competitive advantage that no one will be able to copy," Storey says.

Doubletree hopes to open one Club Hotels by Doubletree a month, with the majority of the products initially targeted at airport locations. "Our marketing will focus on the primary source markets," Storey says. "The majority of hotels coming into our system are at airport hotels, and we're going to tie them together with an airport marketing strategy, since the people using them travel to multiple locations."

Construction as a marketing tool

Rapid construction of, or conversion to, new brands is important, say those in the industry. Many of the new brands feel rapid expansion is one way to market their product. USFS' Microtel plans to open some 100 units by next year. To date, construction has come at about $30,000 per room - the reason so many Microtels can be built in such a short amount of time, says Levin.

"We want brand awareness," he says. "You can create brand awareness by distribution or by massive amounts of advertising. If you don't have hundreds of millions of dollars for advertising, the only way you're going to create brand awareness is if you bring enough of them to market in key locations. It's a question of how fast and how many you can get built."

PKF Consulting's Mandelbaum agrees: "You have to have critical mass in order to become an effective national franchise. Otherwise, you will be a regional one. Not every hotel company will build all the hotels they promise."

One company that is off to a fast start is Hospitality Franchise Systems' Wingate Inns. A new mid-price chain, Wingate is using a two-prong approach: construction and advertising. Wingates are sprouting up at a rapid clip, including two in less than a week, in Sevierville, Tenn., and Alpharetta, Ga.

"We gave birth to twins," says president and COO Fred Mosser, "and we've got a third on the way, in Madison, Wis. The big point of difference with Wingate Inns is that they are all new construction. Every building is built from the ground up."

Mosser says some 300 Wingate Inns are planned. "We are growing at a tremendous rate; our franchise sales are well beyond initial expectations," he says. "We have 130 signed franchise agreements after only 15 months. Our projections at the end of 1995 were to have 30 franchise agreements, and we ended up at 69. We've got an awful lot in the pipeline and a lot of people intrigued."

Wingates have larger desks, dataports, fax machines, coffee makers and free cellular phones that can be checked out for use anywhere in the hotel.

"We're aiming for the mid-price to Upper-end of the market," Mosser says. "Our positioning with the consumer is as a business-oriented hotel for frequent business travelers, with a lot of amenities and services designed to be what they value and want, to make them more productive." To get that message out to consumers, Wingate Inns has budgeted some $100,000 per property for marketing. "We want to make sure Wingate gets off to a fast start," Mosser adds. "We have a marketing budget of $5 million, and we'll have 50 hotels - 60 to 10 by the end of 1997. In contrast, Ramada Hotels has 900 properties, and their annual marketing budget is $9 million. We're going to have a substantial push."

So many new brands will bring increased competition, say industry veterans, particularly as the new players try to elbow their way into the hospitality market. "No one knows the extent of the competitiveness," says Aho of Prime Hospitality, "but as soon as you have bedrooms to rent, you're competitive. The crunch will come in the pricing tiers - at what point will one budget property compete with a mid-price property, especially on weekends?"

Prime Hospitality builds and operates its own properties and is focusing on the expansion of AmeriSuites, a mid-priced, all-suite product catering to the extended-stay market.

Prime is creating its brand awareness by building product. The company has 25 AmeriSuites now open, with 20 under construction and another 20 under contract. "Once you hit critical mass and are being seen by more and more people, it creates brand awareness," Aho says. "Our first one opened in 1990, and we've had a major push for growth over the last two years. We're a little bit ahead of the curve, especially when you consider we build out of internal funds. We just raised $150 million through stock offers, and we've got a revolving line of credit."

Helping to spur the proliferation of new brands are excited investors. "My primary job is to sell franchises, and we have 40 nationally," says Weatherford of Choice Hotels. "We're finding some new sources we think are particularly interested in the MainStay brand: multifamily owners and developers. Our product is a hybrid between an apartment and a ho tel. Our apartment developers understand the nature of long-term stay as opposed to renting rooms all day long. They are more comfortable with the concept. The difference is the return on investment, it's more significant on extended stay. The 10% to 12% return on apartments will pale to what the return on investment will be on extended stay."

Even so, many new owners are concerned about the future, says Abrahamson, and they want to stay with an established brand. "People are attracted to the Hilton brand name, they're not interested in building new brands. Whether all these new brands are gang to make it is an interesting question. If you've invested several million in a project, and everything that could go wrong with the economy does, what do you do? You've invested your life savings in a new product and, at the end of the day, you have a hotel with a brand that has no name recognition."

Kinsell agrees that the Sheraton image, brand identification and revenue generation ability are major selling considerations for Four Points. "Sheraton Inns that have converted to Four Points are performing better. A conversion in Florida has seen RevPAR improved by 13%. In the Toronto area, another conversion from a Ramada has resulted in RevPAR going up by 6%."

So what does the future hold for the ever-changing hospitality industry?

"Not all of the new brands will make it," says Kinsell. "Many of them will probably run out of fuel and gas or will be unable to get their hotels open. Some of the other ones will get consumed, bought, merged or consolidated. The difference is who can market their product effectively."

Talk to an owner of an economy-minded hotel today and chances are, if he is of Asian American ancestry, his name might be "Patel." Patel is a name frequently heard in the hotel industry nowadays. According to the Asian American Hotel Owners Association ; (AAHOA), some 600 years ago, a hard working people known as the Kurmis developed land in India. To maintain a record of the annual crops on each Pat (parcel of land), the ruler appointed a record keeper known as the Patlik, a name shortened to Patel.

The best farmers were promised ownership of the land if they would increase production and the Patidars (pati=land, Dar=processor) were very successful. Soon many of the Patels became Patidars, hiring workers to cultivate the fields.

Today, the Patels around the world are known for their hard work - and their hotels.

They were called "Curry Palaces." Their owners and operator were rumored to bepartof a conspiracy to burn down hotels and collect the insurance. Based on unsubstantiated hearsay, they were denied insurance by some companies.

"They" were thousands of Asian Americans entering the U.S. hospitality industry in the 1980s, a time when many Americans feared "foreign" investment.

"When I came into the franchise business, I was warned about 'curry palaces,' the endearing term for hotels run by people from Southeast Asia, particularly India and Pakistan," recalls Mike Leven, currently president and CEO of US Franchise Systems, who was then president of Days Inns of America Inc. "It was all malicious rumors. I found the vast majority of individuals were doing a great job and were being maligned by a few who weren't doing a great job. I was in awe of what they had accomplished."

Leven spearheaded efforts to form the Asian American Hotel Owners Association (AAHOA), an organization whose membership now numbers 4,000 and which has grown to include the off spring of many of the owners Leven dealt with a decade before.

"I used to work with Bharat Shah, and now I am dealing with his son, Mit," says Leven. "The same is true with a former president of the organization, ). K. Patel of Aiken, S. C. I work with his children now."

Leven says that the forerunner of AAHOA was The Indo American Hospitality Association, which was formed in the 1980s and created the Midsouth Indemnity Association in Tennessee to allow members to gain affordable coverage for owners who had been maligned. The Association merged with AAHOA two years ago.

Today, AAHOA's members:

* have more than 12,000 franchised and independent hotels,

* boast some 700,000 employees,

* own properties with a market value of $31 billion and

* have some of the top franchised brands, including Days Inn (18.7%) Quality Inn (15.7%) and Comfort Inn (12.2%).

That is a long way from the scattered "curry palaces" of only a decade ago.

Think global.

That's the advice Curtis Nelson, executive vice president and COO of Carlson Hospitality Worldwide, has for hotel companies with new brands that are seeking rapid growth.

"These are tremendous opportunities on a global sale for new brands," says Nelson, adding that Carlson has experienced tremendous success with its new three-star product, Country Inns & Suites By Carlson. "In the U.S. the hotel business and each segment is cyclical. Industry leaders are now talking about full-service being the next wave, with limited service seeing a plateau of development."

However, says Nelson, there are opportunities around the world. For instance, there is a lot of five-star hotel development in Asia. But, as the region's middle class continues to grow, inter-regional travel, as well as travel within these countries, is expected to surge, and there will be a greater need for two- and three-star products. "On a worldwide basis, there are lots of opportunities," he says.

"Carlson Hospitality Worldwide has more than 1,000 hotels, resorts and restaurants and cruise ships around the world," says Nelson. "We want to double that number by the end of the year 2000."

Carlson isn't the only company with a global vision. Kinsell of ITT Sheraton says his company's Four Points offering will continue to grow nationally and internationally, so that "by the year 2000, by our guesstimate, we could have 500 hotels, with a majority of the hotels international."

Sheraton is a worldwide chain, and sometimes its strength is better known outside the United States, he says. "We're taking our expansion on a worldwide basis with projects in Colombia, South America and other places. We're converting four hotels in Israel, launching a program in Australia, creating enthusiasm in Europe. In India, Welcomgroup has been our partner for 20 years, and we expect to continue the relationship, and hopefully introduce Four Points through Welcomgroup throughout India."

Even so, such expansion must be carefully thought out. "Travelers know a brand represents something, so the loyal relationships they can create with customers is going to be an important part of future marketing," he says. "But the brand must be consistent, so that guests are not disappointed."

What's new on the hotel franchising horizon?

Timeshares, say some in the industry.

Over the past year, hospitality franchising has experienced an expansion into the world of timesharing. Several major national and international hospitality chains have recently entered the vacation ownership arena though alliances with timeshare developers.

Traditionally, analysts say, hotel companies exploring vacation ownership opportunities would either develop timeshare resorts themselves - as in the case of Marriott Hotels and its affiliate, Marriott Ownership Resorts Inc. - or they would enter into joint ventures with timeshare companies as actual development partners, creating a new entity to develop the resorts, as in the case of Hilton Grand Vacations. "Now, however, we are seeing situations where a hotel enters into a joint venture or alliance with an experienced timeshare development company as franchiser only," saysArthur O. Spaulding Jr., managing partner of the Orange County, Calif., office of Cox, Castle & Nicholson, a well-known law firm involved in the business. "A case in point is the recent coupling of Embassy Suites and The Argosy/KOAR Group, where the hotel will license the use of its name and manage the timeshare resort without participating in the development process."

Spaulding notes that timeshare developers are getting into the franchise act themselves. For example, All Seasons Resorts of Sedona, Ariz., recently announced its intention to franchise All Seasons' timeshare services and the use of its name to other timeshare resort developments, beginning as early as next year. All Seasons currently plans to offer services on a price-specific basis and to offer franchisees the opportunity to participate in an integrated system of resorts for cross-use purposes.

"The hybrid business of franchising and timesharing appears to be driving the creation of yet another new product for the hospitality marketplace," he says.

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