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Seeking the perfect hotel franchise

Building a loyal clientele is the name of the game, but it's becoming ever more challenging in an industry jam-packed with brands.

Few industries are as stratified as the hotel business. Brands upon brands vie for perfect positioning to fill as many beds as many nights of the week as possible. That's the name of the game. But for any developer researching potential franchising opportunities, selecting the ideal brand and market position is far from an exact science.

Some developers are opting to invest in upscale properties in downtown locations, jousting with daunting obstacles ranging from barriers to entry to strict zoning and exorbitant real estate prices. Others are diving into the economy end of the market, building hotels in secondary markets for less than $30,000 a key. However, the main thrust of new development continues to be in the middle of the market. But where exactly is the middle?

Finding the center of the middle The middle is fat. The middle is murky. In the middle, developers and brand marketers alike are sorting out the differences between business and leisure, extended stay and limited service.

One of the biggest mid-market companies with more than 4,300 franchise properties worldwide, Choice Hotels International, Silver Springs, Md., used to market its eight franchised brands (Comfort Inns, Comfort Suites, Quality Inns, EconoLodge, Clarion Hotels, Sleep Inns, MainStay Suites and Roadway Inn) under one big Choice umbrella. Most television viewers remember Choice's commercials with famous personalities popping out of suitcases. However, it's debatable how many of those viewers could distinguish between Choice's Comfort Inns brand and its Quality Inns brand. Since then, the company's niche marketing has become increasingly sophisticated.

"We try to create positioning plans for brands that give them their own platforms and not let them compete with one another," explains Steven Schultz, executive vice president of franchising operations for Choice. "For example, Sleep Inn and Comfort Inns are very close to each other in terms of their average rate for their system, but Sleep Inn is a very stylized room. Every room has the same kind of furniture in the same place. Since every inch is designed for economy, there is less square footage than in higher-end hotels, he says.

"But you get a more efficient layout for the whole hotel, so we're targeting those properties to couples and single business travelers, whereas Comfort Inns has a more leisure-oriented profile," says Schultz. "A greater percentage of its guests will be on the leisure side."

Each brand, adds Schultz, is targeted for a different customer and price range to create attributes that give each hotel a separate identity. Even though most of its brands are in the middle segment, there are noteworthy differences. Sleep Inn, for example, is an all new construction franchise, while Quality Inn is an older brand with many conversion properties in its fold. The profiles of the brands are very different even though the price points may be similar.

Limited service is hot As far as market positioning goes, the middle - in particular the limited-service sector - is experiencing the most new development. "If you had asked me two years ago, I would have told you that there were more extended-stay hotels that were going to be built in the United States than anything else," says Bruce Ford, director of sales and marketing for Portsmouth, Mass.-based Lodge Econometrics, a hospitality research company strictly focused on the development of new hotel real estate. "Today, I would tell you there will be more mid-market, limited-service hotels built than anything else," he says. Beverly Hills, Calif.-based Hilton Hotels Corp.'s Hampton Inn; Atlanta-based Bass Hotels & Resorts' Holiday Inn Express; and Washington, D.C.-based Marriott International's Fairfield Inn mid-market brands all are expanding faster than other hotel types, he notes.

By contrast, extended-stay developments have slowed considerably from the peak development years of 1997 and 1998. Now there are more developers interested in building limited-service hotels than developing extended-stay hotels, he says.

"A large portion of extended-stay hotels were generally company-owned," explains Ford. "Some of these companies have gotten into franchising now, but it's not coming out of the ground nearly at the pace it was." Ford believes the mid-market, limited-service niche is the most desirable position in the market today and best positioned to benefit from any crossover from the business to leisure markets.

A key advantage to a mid-market hotel is it can be built anywhere. Although it wouldn't be shrewd to build a mid-market, limited-service hotel at a downtown location because land and acquisition costs are prohibitive, such brands will work well pretty much anywhere else.

"They are very strong business traveler hotels in addition to being very strong leisure-demand hotels," explains Ford. "They fit on a highway that gets 20,000 cars passing on it a day. They fit great in a suburban office park. They have brand loyalty." He notes there are approximately 1,000 Hampton Inn locations across the United States, while Comfort Inns and Holiday Inn Express are closing in fast.

Extending the extended stay brand Extended-stay companies use a variety of strategies to attract guests. The philosophy of Candlewood Suites, an extended-stay brand of Wichita, Kan.-based Candlewood Hotel Co., has been to focus its value on the rooms rather than the lobbies. "It's really a value concept all through the hotel," says Becky Gordon, a franchise sales specialist for Candlewood. "Instead of having a large lobby, we've put the money into the rooms. So you'll see a high-quality FFE (furniture, fixtures and equipment) package in the room."

While extended-stay guests won't find a restaurant or swimming pool at a Candlewood Suite, they will be able to shop at a Candlewood Cupboard mini-mart, make free local calls, wash their clothes in washers and dryers for free, and workout in a fitness room.

The majority of Candlewood's 71 properties are corporately owned, but the franchised properties are growing in number. Currently, 14 properties are franchised under the Candlewood Suites brand, with another six under construction and 15 signed agreements for future developments.

Hawthorn Suites, a brand of Atlanta-based U.S. Franchise Systems Inc. (USFS), has combined extended stay with the transient travel niche. "It's more of a mid- to upper-end brand that initially attracted mainly business travelers who stay for kind of a home away from home," says Barbara Wiener, vice president of corporate communications for USFS. "Now Hawthorn also is attracting families that want long weekends with spacious rooms. But it was initially intended for the business traveler."

Hawthorn amenities include a hot buffet breakfast and cocktail receptions. Soon every room will have a computer and wireless Internet access. There are 150 Hawthorne Suites opened or under construction.

Building a budget brand For those developers wishing to avoid all the congestion in the middle, building a new budget hotel can be a quick way to establish a niche. Microtel Inns and Suites, another USFS brand, has achieved critical mass in the market in the five years it has owned the rights to the brand. USFS recently celebrated the opening of its 200th Microtel hotel.

One of the keys to Microtel's rapid growth has been the uniformity in architectural design, explains Wiener. "The fact that it's all new construction sets it apart from others in its field," she adds. "It's a consistent product. The architecture and standards for Microtels around the country are all basically the same. Guests know what they're getting."

According to Wiener, Microtel's niche market includes business and leisure customers. Many of its properties now are located near airports, giving the brand strategic locations to attract a large crosssection of the market.

Suites from the ground up The AmeriSuites brand has taken the same all-new-construction approach, but in a slightly higher-end market. "We have spent $1 billion on the AmeriSuites brand over the past six years," says Terry O'Leary, senior vice president of franchise sales and development for Fairfield, N.J.-based Prime Hospitality Corp. "We've built 100 hotels from the ground up, so we have an all new, consistent product to offer." He says there were four converted properties early on, but everything since then has been new construction.

The rules might change slightly for the AmeriSuites brand in the coming months as it merges the newly acquired Sumner Suites brand (acquired from Hendersonville, Tenn.-based ShoLodge Inc.) into the fold. Although these properties will be converted, only minor renovations will be required because Sumner Suites was built from the same prototype plans as AmeriSuites properties, says O'Leary.

The reason for the uniformity and shared blueprints can be traced to AmeriSuites' original joint venture with ShoLodge. The acquisition of the Sumner Suites properties will give AmeriSuites a total of 129 locations nationally.

"We'll continue to build in very select marketplaces, and we'll probably build about 10 projects a year," predicts O'Leary. "By select markets, I mean cities like Los Angeles and Seattle and other areas where we're not in today." The strategy is to open hotels in markets with high barriers to entry so AmeriSuites can establish a presence in prestigious markets.

In business for business Parsippany, N.J.-based Wingate Inn Hotels is another brand that has built its reputation by catering to the business traveler. It has positioned itself in the upper-end of the limited-service market, says Wingate president and CEO Keith Pierce.

"From a competitive standpoint, we align with Courtyard By Marriott, Hilton Gardens and AmeriSuites," says Pierce. We're in the built-for-business, designed-for-business niche."

Wingate's amenities for business travelers include in-room, high-speed Internet access; oversized work counters; and two phones, including one cordless and one speaker phone. "The brand has an all-inclusive pricing philosophy in positioning," says Pierce. There are more than 100 Wingate Inns either open or under construction with another 250 signed agreements. Wingate is completely franchised, and like many of its competitors is strictly a ground-up, new-construction brand. The Wingate brand is on course to open approximately 40 new construction hotels per year over the course of the next few years.

Joy Littleton is about to open two hotels simultaneously. By October, if all goes as planned, her current Holiday Inn Express hotel will become a Super 8 franchise, and she will open another Holiday Inn Express franchise a couple hundred yards down the road without a hitch. But much sheet rock, plumbing, electrical work and general interior decorating needs to be completed before the first guest can be checked into the new hotel.

"I'm anticipating a smooth turnover," says Littleton. Located in Loudon, Tenn., just off Interstate 75, Littleton's hotels are perhaps in an atypical secondary market. Interstates 40 and 75 fork 15 miles northeast of the location. It's a half hour commute to Knoxville, Tenn., an hour to Chattanooga, Tenn., and two hours away from Nashville, Tenn. While Loudon does have two lakes, eight golf courses and a growing commercial and retail base, in many ways it remains a rural outpost. However, for 19 years, Littleton's hotel has thrived, first as an independent hotel, then as a Holiday Inn Express franchise.

Littleton first became involved in the hotel business after graduating from the University of Tennessee, when she partnered with her brother in an independent hotel property. As a graduation present, Littleton's father offered to give her enough money to own 15% or to buy a new car.

"Well, I really didn't need a new car. The car I had was fine" recalls Littleton. "So I decided to go into the hotel business with my brother."

In 1992, they converted their independent hotel into a Holiday Inn Express. Back then, Holiday Inn Express was positioned as limited-service, leisure brand, and has since added amenities to attract business travelers.

"The market has dictated us to address needs like fitness centers, meeting rooms, indoor swimming pools, and small business centers," says Littleton.

The shift from leisure to a combination of business and leisure positioning left Littleton with one of two choices: Either do a major renovation of the existing property or start from scratch. She decided to build.

Holiday Inn Express, a franchise of Atlanta-based Bass Hotels & Resorts, provided a new prototype plan, but Littleton modified that plan to meet specific regional market needs. "We incorporated many architectural features that identified us with the brand, but we hired an independent architectural firm do ours rather than use the prototype," says Littleton. "Bass still had to sign off on our plans. We've had some conference calls with the people in design and development at Bass to make any changes."

While Bass Hotels also offers a room decor packages, Littleton has opted to select her own interior decorations. However, she has taken advantage of the preferred vendor program for such items as toilets, televisions and long distance telephone service.

Staffing two hotels presents additional challenges. Littleton is in the process of hiring 18 new people bringing her total staff for both hotels up to 35 to provide service for 124 rooms (52 for Super 8 and 72 for Holiday Inn Express).

"We've been really blessed through the years because the majority of my employees have been with me anywhere from four to 18 years," says Littleton. "As the job market's gotten tighter and tighter, that's made it more challenging to keep employees, because as a small business we can't offer a lot of benefits."

Littleton gained new brand awareness as well as insights into the Bass Hotels corporate philosophy by serving as an Express brand board member in the International Association of Holiday Inn (IAHI), which is comprised of corporate and franchisee representatives.

As a board member, she has sat across the table and had conversations with Bass chairman and CEO Thomas Oliver and other corporate executives. She recalls the meetings as very positive and the executives to be very personable.

"Most of those people (corporate) realize they are working for the franchisees and Bass," observes Littleton. "The board works together to make the brand better and resolve any issues that concern the franchisees." As an IAHI board member, Littleton has a voice in brand policy issues. "I'm one fish in very large pond. But that's what the IAHI is for - To represent every single individual franchisee."

Competition is fierce in the mid-market limited service franchise arena. Littleton believes Holiday Inn's central reservation system continues to give all of its brands a competitive advantage.

Come October, Littleton hopes to capture a broad clientele when the Super 8 and Holiday Inn Express open side-by-side. Being located on an interstate corridor will help attract a diverse customer base. However, the rural location presents marketing challenges.

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