Hospitality Franchises: Big Investments, Big Returns - Part 1
The hospitality business is becoming more specialized with many hotel chains filling different niches. With the cost of land and construction at an all-time high, hotel franchises need to find new ways to attract guests and keep rooms booked. In this issue we take a look at the hottest segment in the hospitality industry: extended stay. We speak with Gina-Lynne Scharoun from Value Place and Robert Radomski from Staybridge Suites to get their views on this growing trend.

Extended stay chain offers the lowest cost per night
Value Place is an extended stay hotel chain serving the economy market. It is the brainchild of Jack DeBoer, a man credited with inventing the extended stay hotel concept. Back in the 1970s, DeBoer was the second largest apartment developer in the U.S. with more than 16,000 apartments. He applied his apartment experience to the hotel industry when he started Residence Inn, one of the most successful hotel brands in the industry. Three years ago he conceived the idea for Value Place, his first economy concept. Value Place President, Gina-Lynne Scharoun says, "We took the best of the apartment business and the best of the hotel business to create a true apartment/hotel hybrid."

Value Place guests are primarily blue collar contractors and white collar professionals. "They are mostly small business owners and contractors to the Fortune 500 companies who travel by car," says Scharoun. "We also get referrals from realtors with house-hunting customers in need of lodging for at least a week. It's a great mix that speaks to the demand that exists. It's also good for us because it's always smarter to have multiple sources or customers. If one particular segment falls out, there are several others to rely on."

The blueprint for profit
With rates starting at only $149 a week, Scharoun admits that guests are often very skeptical at first because of the low price. "And they should be," says Scharoun, "but when they come and take a look they are surprised by what they see. All Value Place properties are new and impeccably clean. Each unit has a full kitchen with a full size refrigerator, microwave, and kitchen cabinetry. The stovetop is a 2-burner and the sink is oversized. We also designed the room with space saving features such as storage under the beds for suitcases and laundry basket (supplied by the hotel)."

There are laundry facilities on-site that cost about the same as any laundromat. Other amenities include the usual TV, phone, and optional high speed Internet access for $10 a week. So far, it sounds like a typical hotel except you won't find a restaurant, bar, or swimming pool. But what's noticeably missing is daily maid service. "We clean rooms every other week, which seems to be just fine with our guests. People are happy to forego the daily service to get this great product for only $149 a week" says Scharoun. Guests do have the opportunity to exchange their linens for a nominal fee, but only during office hours. "That's part of the apartment concept, where office hours are 9-6 Monday through Friday, 10-2 on Saturday, and closed on Sun. There is someone on the property 24 hours a day in case somebody needs something, just not visibly there in an open office."

According to Scharoun, earning a good profit in the economy sector of extended stay depends on a combination of lean staff and minimum one-week stay. "A typical 100-unit hotel requires an average of 20 people, most of which are either on the 24-hour desk or cleaning every day. We are staffed at 4.5 equivalent employees. At the same time, we have a solid policy of requiring a minimum one-week stay because we operate with such a lean staff. The question has been raised, 'if you are running 98% full and someone walks in and wants that last room for one night, would you take that business?' The answer for us is no. We cannot afford to take a $20 a night customer because then we need more housekeepers the next day to clean that room. It's simple economics", declares Scharoun.

Growing fast with room for more
Value Place has only been franchising for less than one year. "We actively started the franchise sales efforts in July, 2004. Our goal was to sell 12 license agreements and have maybe 24 franchise commitments paid. Now 11 months later, we have 171 paid and signed license commitments", says Scharoun. Things are moving fast for Value Place and the franchise is just getting started. "We are still looking for franchisees," says Scharoun. "We believe there is room for 1261 Value Places as of today. Including the corporate development we have commitments for 193, so we still have a ways to go. We are franchising with the most wonderful people and they are not necessarily from the hotel business. They are just world class entrepreneurs who know our company history and track record for success."

Contact Information: Gina-Lynne Scharoun, Value Place, President Franchise Services LLC, (316) 631-1361, bcornejo@myvalueplace.com, http://www.myvalueplace.com/

Staybridge Suites leads the way in upscale extended stay
Staybridge Suites is an extended stay hotel chain owned by InterContinental Hotels Group (IHG), the world's largest and most global hotel company. It caters to the upscale side of the marketplace. Staybridge offers guests the choice of studio, one-bedroom, and two-bedroom suites (only). The average daily rate is around $90. As a brand, there is no minimum stay, but individual hotels have the option to require a minimum.

Inside and out, this chain of hotels is designed with eye appeal and guest comfort in mind. Robert Radomski, Vice President Brand Development, says, "When you drive up, there is a definite upscale design that is very striking. The exterior is stacked stone and stucco with lots of peaked roofs that makes it look very residential. Inside, it's warm and inviting. Our hotels are built with a Great Room area right off the front desk intended as a place for guests to congregate. We made the Great Room comfortable with a fireplace front and center, lots of comfortable seating, big screen TV, and a library off to the side for a little bit more intimate space if you want to read. Our suites are spacious, but we know that doesn't mean you necessarily want to stay in there every hour that you're in the hotel."

Staybridge is loaded with services and amenities comparable to its upmarket competitors. The modern interior design creates a familiar residential-style environment with wood flooring and furniture, easy chairs, plus a workspace with desk and ergonomic chair. Other core brand elements include 24-hour front desk, 24-hour convenience store, grocery shopping service, complimentary fitness center and guest laundry room, two-line speaker phones with voice mail in all suites, and high-speed Internet access (in most units). The kitchen area is fully outfitted with oven, refrigerator, dishwasher, microwave, and utensils. Radomski says, "Maid service consists of a full clean once a week and light touch on a daily basis that includes making the bed, vacuuming, collecting towels, and wiping down counter tops. If a guest wants or requests a full clean at any time, we accommodate them. Very, very seldom do we get that kind of request."

"We also provide a daily complimentary breakfast with at least two hot items that rotate on a daily basis," adds Radomski. "Three nights a week we have a Sundowner Reception that includes a light meal. On Wednesdays, we have our traditional barbecue night."

Extended stay is here to stay
"Extended stay lodging came into being back in the 70s and 80s, but it has really taken off since the early to mid 90s," says Radomski. "As companies downsized and outsourced, more people became independents. Consultants came into the working world and companies started sending them out onto job assignments from place to place for long periods of time. That scenario created the need for extended stay lodging."

Independent consultants account for a large portion of Staybridge guests, but there is much more to this market than is first apparent. "Corporate training is probably the biggest chunk of business for us. In order to compete, companies really need to have well trained workforces. A lot of corporations have training facilities at their headquarters where they bring individuals in for one or two-week blocks all year long from all over the country or North America or even all over the world. We can take advantage of this market by having hotels near those facilities to house the people coming in for training," explains Radomski.

Another market source is internships. "Summer is a big time for college interns," Radomski adds. "Sometimes we will get 25 to 50 interns staying in our properties while they work for multinational organizations during school breaks."

Unlike most hotels, Staybridge doesn't wait for customers to come in off the street. "Our principal approach is to solicit customers at the corporate level. We treat this as a B2B transaction for the most part, working with the corporate travel manager or training manager or sometimes the human resources director. HR managers are really a different audience for us than for a traditional hotel because they often manage the internships and relocations. They are the gateway to that sort of business" , says Radomski.

Targeting the corporate market has a big effect on where Staybridge Suites are located. Radomski says, "Location choice is critical things for our brand. The best location is near a corporate office park. We compete and perform the best when we have a location that is embedded within a half mile or mile of a named corporate office park with a large concentration of Class A office space."

Greater rate of return for franchisees
"Staybridge offers franchisees two benefits", says Radomski. "First, extended stay has the big advantage of sustaining an average 10-15% higher occupancy than the hotel industry as a whole. That happens because with longer lengths of stay, you smooth out the peaks and valleys that you get normally on a seasonal basis or on a weekend/weekday basis. Second, Staybridge Suites has a very efficient operating model. Because it is not full service, you can operate the hotel with a minimal amount of staff. When you combine that with the high occupancies it yields a greater rate of return for the owner than your typical full service hotel and for most limited service hotels.

So far, Staybridge Suites has out-performed its competitors by amassing 75 hotels faster than any other chain in the upscale extended stay segment. "In the U.S. right now, we have 78 units completed with another 60 in the pipeline. Among open hotels, they are split down the middle, company-owned versus franchise. In the pipeline, the large majority in the pipeline is franchise," says Radomski. "Absolutely, we are open to new franchisees."

Contact Information: Robert Radomski, Vice President Brand Development, Staybridge Suites, brown.kessler@ichotelsgroup.com, http://www.ichotelsgroup.com/