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Educating Franchisees Becomes Key in Fast-Growing Segment 

Jim Anhut knows how Kemmons Wilson of Holiday Inn, M.K.Guertin of Best Western and other early franchisors survived in the hotel industry. With the extended-stay segment of the industry still in its relative infancy and many products gaining steam in their efforts to achieve critical mass, the sky is the limit.

"We're not unlike the guys of the '50s and '60s, in (the early days of franchising, when guys like Kemmons Wilson walked in and said "Have I got a deal for you,'" said Anhut, Senior Vice President of Bass Hotels & Resorts Worldwide's Staybridge Suites by Holiday Inn extended-stay brand. "Only now, instead of people just starting out, there is a diversification strategy afoot.  Licensees are looking for a way to control geography rather than brand, and extended-stay is the one segment where there is a very low saturation point in any market." Instead of the interstate system in Wilson's and Guertin's day, it's the Internet  that is driving more and more traffic -- consumers and franchisees alike -- to new brands, Anhut said. 

"The business is responding to the changing habits of the population," Anhut said. Greg Plank, who in June was named president of Atlanta-based Suburban Lodges of America, said the climate in the extended-stay sector reminds him of his days of selling Sheraton franchises 20 years ago. "Successful businessmen in other businesses are trying to get involved in extended-stay," Plank said. "They all want a piece of what's going on because there is so much going on." 

"There are innumerable franchisees that haven't been tapped into," said Ken Rodgers, president and C.E.O. of Cendant Corp.'s Villager Lodges brand, which strictly franchises its properties. "Because extended-stay started in larger cities, midsize cities have hardly been touched. In those non-large populated cities, you have the same demand as you do in large cities." 

Anhut said the extended-stay segment is benefiting from the success hotel operators have had in the 1990s, as well as the success of people who invested in the Holiday Inns, Ramadas and Howard John-sons in the 1960s and '70s. 

"A lot of these franchisees are midcareer developer/operators that have made good moves in the last decade and are now looking down the road," Anhut said. "They can't buy undervalued hotels anymore because there aren't many around, so they are turning to extended-stay as a viable investment." "There are a greater number of options if somebody is looking at the entire segment," said David Krischer, chairman of Suburban Lodges America, which has been in business since 1988 and has been franchising its product since 1991.

"There are a number of franchise opportunities that have been created in the last year or year-and-a-half, and the majority of those are in the mid-tier and upper segments." "Franchising is prevalent now and picking up steam," said Yogi Rawal, brand president of Choice Hotels International's MainStay Suites brand. However, franchising alone doesn't make an extended-stay company a major player within the segment, according to Krischer.  "You have to reach a certain size for franchisees to consider you a major player," he said. "You need at least 100 hotels." At press time, there were 115 Suburban Lodges open or under construction and 25 in development. 

"For a national franchisor like us to put out a product, licensees want to see it everywhere out there," Rawal said. "Then the selling process becomes easier the more properties you have." "It takes critical mass to be successful, and franchising is an effective way to obtain critical mass," Rodgers said. Jim Roos, President and C.O.O. of Candlewood Hotel Co., said it's not uncommon for potential franchisees to question a company's commitment to the segment.

"They want to know if you are going to be in me business in a few years," Roos said. "That's why critical mass is so important. It shows your commitment to the brand." 

"The key is working with a company that is in it for the long haul and helps you establish market presence," said Sam Friedman, chairman of Atlanta-based AFCO, a franchisee with three Suburban Lodges of America open. "The marketplace is king. It rewards you for meeting its needs and punishes you for not meeting its needs." Unlike the days of Wilson and Guertin, potential franchisees today have a mind-boggling number of options to consider, including at least 34 extended-stay brands from which to choose, including at least 16 that franchise. 

"A lot of companies that went public have turned to franchising when the availability of capital curtailed [beginning in August 1998], " said Mark Skinner, principal with The Highland Group, an Atlanta-based consulting firm. "Those that can develop quickly with their own funds can get a better handle on quality and consistency than those that don't use their own funds." Many extended-stay companies aren't sure which strategy they want to take, which Krischer said is adding to the confusion among consumers and franchisees.

"Extended-stay is bouncing all over the place right now," Krischer said. David O'Shaughnessy, Executive V.P. with Accor Economy Lodging, which operates the Studio 6 brand, said the extended-stay segment still is looking for an identity, particularly in the lower tiers. "There's a plethora of brands out there that mean nothing to the consumer," he said. "The franchisees are equally as confused. If you look at them as a customer group, then extended-stay is one big picture that's out of focus." 

That confusion has led to plenty of misinformation among potential franchisees, O'Shaughnessy "A lot of people are building extended-stay products and operating them as traditional hotels, which will suffer financially," O'Shaughnessy said. "You have to operate these properties the way they were intended to, or they won't be as successful as they could be." 

That's where educating the potential franchisee comes into play.  "It does require an extensive amount of education from the licensee's standpoint," Roos said. Roos said that when he joined Candlewood he had to be educated and convinced that extended-stay was a viable alternative to traditional lodging. "Success in this is much more than a room with a kitchen," Roos said. "It's connecting with people who understand this portion of the business as well as the transient side of the business." 

O'Shaughnessy said there are at least two rules of thumb when operating an extended-stay property:  (1) look for business in the immediate market; don't rely on the transient market; and (2) don't even think about providing the same level of basic service, such as daily housekeeping. 

But that doesn't mean extended-stay properties should forget about service, according to Sam Hardage, president and C.E.O. of San Diego-based Woodfin Suite Hotels. "We're in the hotel business, not just the extended-stay business," he said. "Especially in the upper end, we have to be able to offer more services to those customers who want it." More consumers are learning what extended-stay properties have to offer, which puts more pressure on licensees to deliver, Friedman said. 

"It's a different product than traditional hotels, but in a sense it's all the same because guests learn to look for a certain package of services," said Friedman, who was part of the development team that built the Hyatt Regency San Antonio. "The marketplace changes minute by minute, so licensees have to be aware of what's happening at all times. The extended-stay product is a different package than traditional hotels, but it boils down to guests being human beings. They know what their expectations are and it's up to the hotel to meet those expectations. 

Expectation management is one of our biggest challenges in the hotel business." "One of the criteria we discuss at length with potential franchisees is operations," said Rawal, whose brand expects to have up to 35 properties open by the end of the year and add 20 to 25 properties each year for the next three to five years. "If they operate a property the way it was designed to operate, the return-on-investment will be substantially higher than that of a traditional hotel."