Skift Take
Choice Hotels does not think about private equity entrants as competition, but as prospective partners.
Srividya Kalyanaraman
This was the year the short-term rentals industry saw it all– the great, the bad and the unsightly.
It has been a year of hard policies, softening need and intense competition. Especially, 2023 saw every major hotel business announce a prolonged stay brand name– Marriott, Hyatt, Hilton, Wyndham, Best Western among others.
However Option Hotels believes it has a clear competitive benefit over its peers. It has four prolonged stay brand names, a strategy to transform traditional hotel rooms into an extended stay unit by shipping and installing a cooking area, and a franchise model that permits the business to branch off of the Choice platform.
Through franchising and acquisitions, the company has actually established itself as a popular player. In 2015, Choice produced record earnings of $1.4 billion and a record earnings of $332.2 million.
Skift spoke with Matt McElhare, senior director of prolonged stay and Ron Burgett, senior vice president of franchise advancement in its prolonged stay organization.
Here are the leading takeaways listed below. Edited for clarity:
Do private equity firms investing in short-term leasings position a hazard to extended stay brands?
Matt McElhare: In a great deal of manner ins which’s validation for the opportunity that exists in longer stay lodgings. Which’s what’s been driving our financial investment as a company over the last 6 years– to build a leadership existence in the extended stay sort of branded solution for long staying travelers.
Right now in the hospitality space, need for longer stays is roughly 20% of general lodging demand, but supply is approximately about 10%. Bulk of these travelers are trying to find consistency, benefit and predictability.
Those three factors produce a competitive benefit for a top quality solution relative to a short term leasing where it is much more difficult to produce that consistency across the board.
Ron Burgett: Most of our brand names are playing in the midscale and economy section. Private equity firms like TPG– that’s a little bit more for the wealthy traveler. Can you picture the marketing costs to do that, right? However they don’t have the power of Choice Hotels.
And it’s a pricey model. It will work, since demand is two times the supply. We’ll let them have that little piece of the need at the top for now. But felt confident we’re not presuming that they’re not a competitor. We’re watching and we wish to see what they’re doing. But I think we can learn faster with our background.
What is Choice Hotels’ benefit in this competitive market of extended stays?
Matt McElhare: The factor all these business are introducing extended stays is because of how various they are from standard hotels. Over the last 6 years, we have actually been investing in capabilities like assistance from a sales viewpoint marketing, operations, training and advancement. Those crucial areas permit our developers to find the very best websites within the very best markets for extended stay, and then run them successfully.
How we win in this space is by being wholly focused on it, and assisting those originating from beyond hospitality or whether their main investments remain in conventional hotels. We help them succeed and actually achieve returns that are various from what you can accomplish with a conventional hotel.
How does the franchise design work?
Ron Burgett: We have actually flown under the radar for many years, and done extremely well regularly. But at the exact same time, we’re attempting to attract brand-new financiers to come into our midscale brand name. However what they desire is that cookie-cutter experience, they want Option to take the monkey off their back.
They have a pile of cash that their financiers want to put somewhere. I imply, we clearly are partial to ourselves, but we have put the whole turnkey model together. From site choice in the very beginning, which is critical, all the way to the operating design to and remaining at the hotel with our 60 people strong group focused simply on prolonged stays at Option Hotels.
Explain the kitchen-in-a-box concept
Ron Burgett: If we’re speaking to designers, and after that want to get in this organization– What’s the quickest method to do it?
We might enter into the transient hotel room and provide what Matt and his team developed, which is called kitchen-in-a-box. So we actually ship a kitchen for however numerous spaces they need to that property and give them an extremely clear operating design on how to turn that short-term room into extended stay. That’s the quickest method to enter business.
Matt McElhare: And we have made this procedure as easy as possible. Through working with designers, general specialists and folks that concentrate on remodelling, we’ve taken it 85 to 90% of the way. And then we have a system in location that helps fix for the staying 10% that simply reflects the nuance of every hotel, right there’s always going to be some individuality based upon the existing design.
We have actually made it simple in the sense that folks see the clear return on investment to bring it into extended stay and they feel that Option has provided a clear intend on how they do it.
And the proof remains in the outcomes– we have actually got 30 of these ongoing today with believe 18 already finished so there’s a lot of adoption of the idea because there are a lot of folks that have traditional hotels that have not carried out well over the last few years that are sitting in beneficial extended stay markets.