One of the fastest-growing hotel business in the U.S. now has a tool to broaden even further.
Sonesta International Hotels Corp. debuted Tuesday its Sonesta Franchising platform, a development vehicle that will allow the business to franchise in the U.S. 4 of its brands: Sonesta Hotels & Resorts, Sonesta ES Suites, Sonesta Select, and Sonesta Just Suites. The ability to franchise was one of the driving factors behind Sonesta’s $90 million RLH Corp. acquisition earlier this year.
Boston-based Sonesta’s acquisition of the company behind brands like Red Lion Hotels and GuestHouse Extended Stay sustained its 1,400-percent development from the approximately 80-hotel portfolio it had in August 2020. The combined business now has around 1,200 franchised and handled hotels. This most current development unlocks for much more.
“There has actually been a great deal of consolidation in the hospitality service. Certainly, [there was] one huge one and a great deal of other rivals that have purchased brands here and there. The advancement community and the owner community truly desired a new entrant and a new brand family,” Brian Quinn, chief advancement officer at Sonesta, said in an unique interview with Skift prior to the franchising launching. “It’s truly amazing to satisfy that requirement.”
Marriott International owns less than 20 of its approximately 7,800 hotels. However Sonesta’s minority owner and capital partner Service Properties Trust, or SVC– a Boston-based accommodations trust with a 34 percent stake in the hotel company– owns a substantial part of the property from its almost 300-hotel, pre-RLH acquisition Sonesta portfolio.
That more intimate relationship with hotel ownership gives the business an upper hand in comprehending the ire of capital expenses and other brand requirements passed down from hotel moms and dad companies, Sonesta’s thinking goes.
New brand requirements, which can consist of things like costly upgrades with new signage or furniture, often get pushback from franchisees who say they do not generate much roi. Quinn believes the franchisor and franchisee relationship done right is the most substantial partnership in service.
“We comprehend all the difficulties that they went through around CapEx and restoration and now skill and managing conflicting demands around cancellation cost flexibility but maximizing earnings,” Quinn said. “We do that every day, and I simply think that will make us a much better franchisor and continue to bear in mind that part of the relationship going forward.”
Asset-Right Over Light
The RLH acquisition opened a path for Sonesta to get into franchising in the U.S. RLH was already years into a push to go asset-light, where the company didn’t own much of its hotel real estate and rather franchised out brand name licenses to specific owners. This is a basic hotel industry trend that manages hotel companies the ability to grow faster and typically operate better in financial declines.
Even major hotel companies like Marriott and Hilton, both with significant company travel-oriented residential or commercial properties in their portfolio, snapped back to higher profits this year much faster than the accommodations trusts that owned the hotels. But Sonesta and SVC leaders aren’t intending on completely quiting their realty holdings.
Provided SVC’s lodging trust purpose to own hospitality property, Sonesta expects to keep possessions in significant U.S. cities like Boston, Los Angeles, New Orleans, and Chicago. Its high-end Royal Sonesta brand isn’t currently on the franchising list, either. Franchising will assist significantly boost a spoke network of hotels outside significant markets.
“A great deal of our competitors have actually gone to an asset-light model,” Quinn stated. “We might be a little asset-heavy, however we like to say we’re going to get asset just-right.”
Each of the four brand names Sonesta will franchise caters to a various section of the marketplace. Sonesta Hotels & Resorts provides more personalized guest experiences in a mix of city and leisure markets. Sonesta Select properties are described as “neighborhood hotels” for tourists on the road while Sonesta ES Suites and Sonesta Just Suites target the upscale and midscale sections of the extended-stay sector, respectively.
There is usually a workhorse brand or two for franchising amongst the major hotel business. For IHG, it is Vacation Inn and Holiday Inn Express. Comfort and Quality are leading brand names for Choice Hotels. While Quinn shied away from offering a lot of specifics on developer interest, he did suggest there is an expectation the extended stay brand names as well as Sonesta Select will garner a lot of attention.
Sonesta Select has enough of a minimal service offering that it isn’t as pricey to run as a full-service residential or commercial property with expensive facilities like a medical spa. But the brand keeps features like a gym, made-to-order breakfast, and a bar that make it appealing to a variety of tourists.
“It takes the very best of upscale and the best of what we learned about select-service and limited-service and puts it together in the high end space,” Quinn stated. “So, the owner can get an excellent rate and excellent flowthrough. It’s quite amenity-rich however not the complete boat.”
One to View
Sonesta ended up being the eighth-largest U.S. hotel company essentially overnight through its RLH Corp. acquisition, however the business was currently acquiring significant industry interest from 2 SVC-cancelled deals with bigger brands.
The company went from less than 100 hotels at the beginning of the pandemic to nearly 300 before the RLH offer closed as a result of IHG and Marriott defaults with SVC. The Red Lion acquisition brought the overall Sonesta footprint to roughly 1,200 hotels and 15 brands.
The larger scale enables more powerful purchasing power with regard to whatever from suppliers to technology suppliers and online travel bureau. But it also supplies another sizeable choice for hotel owners to think about instead of the similarity Marriott, Hilton, or IHG.
“I do not know that I had the sense that there was such a need for that,” Quinn said. “Possibly the pandemic exacerbated that. But you speak to owners, and they’re looking for innovation.”
A new franchisor choice that has more near-term experience with owning numerous hundred hotels through the pandemic instead of just franchising them is a plus. However franchising likewise comes down to who is doing the very best task at the negotiating table.
Marriott might own less than 20 of its hotels, but it likewise has the biggest development pipeline of a significant hotel business. That sort of franchise appeal can be chalked up to things like distribution and appointments networks in addition to a commitment program that taps into a worldwide network of homes throughout a litany of rate points.
Do not rule out Sonesta. Chatter at a number of hospitality market events in recent months buzzed around development of the business, particularly how it was at first sustained at the expense of Marriott and IHG. Now comes the natural development piece in constructing out the network.
Quinn, who formerly operated in development at companies like IHG and Choice, is extensively viewed as a catalyst to help Sonesta increase expansion at a quick clip. Keith Pierce, called the business’s head of franchise and development earlier this year, invested more than 17 years at Wyndham, which has taken off in recent years with its own franchise and brand growth.
But another catalyst for Sonesta might when again be at the expenditure of major brand names. All the significant companies unwinded brand standards throughout the pandemic to supply franchisees a monetary life raft to weather the storm. However a lot of those companies are anticipated to reestablish and enhance standards by next year.
Too heavy a hand around that reintroduction throughout the unpredictable travel recovery could drive disgruntled hotel owners into the arms of a business with a different approach.
“We require to be logical with the standards that we have, and they need to be rooted in a customer requirement that can move the needle,” Quinn stated. “If I [as a franchisee] am going to spend cash, it better drive profits. That is what I think plays into the hand of a new entrant.”