It's no secret that the extended-stay segment has led the way in terms of performance during the pandemic. Extended Stay America is taking advantage of this relative position of strength to make changes that position it for the recovery and beyond.
The first change involves pivoting away from its position as a one-brand company with the launch of Extended Stay America Premier Suites, which looks to attract higher-paying guests with upgraded amenities. The company also will rebrand the remainder of its core hotels to Extended Stay America Suites over the next several months.
In announcing Premier Suites, the company said it expects the new brand architecture to improve the value of its portfolio, focus renovation investment on assets that will realize the greatest returns, increase the pace of franchise development, and drive improved earnings before interest, taxes, depreciation and amortization across the entire Extended Stay America umbrella.
The new Premier Suites brand evolved out of what President and CEO Bruce Haase called “extensive research”—not just with ESA's own customers but with potential customers and business-to-business buyers. “We did a lot of research in terms of what they were looking for,” he said. While the company has long had strong brand awareness (“We kind of own the category name,” Haase quipped), it also has high brand equity in terms of trial consideration usage, he said: “We found that that high brand equity wasn't just in midscale or lower-midscale and economy, but it transcended most segments of the extended-stay market. We have a really strong brand that I don't think we fully leveraged.”
With that in mind, the company looked to its strongest markets and properties that could benefit from a repositioning. The new brand caters to a new customer segment and expands into the next price segment up the average daily rate scale. Extended Stay America’s target audience for Premier Suites, Haase said, is not traditional Marriott customers, but those who might be fans of the Residence Inn brand. “We're not trying to reach for something that we're not,” he said. “We're looking to grow into an adjacent segment that we think we can perform well in.”
The new brand will launch in the second quarter with both new-build and “extensively renovated” properties, starting with 32 hotels that were already in the company’s system. They either already met or could be easily renovated to meet the standards of the new brand. More importantly, Haase said, they were in markets that already see a high level of corporate extended-stay demand and have solid revenue per available room. “Those properties were ripe for repositioning,” he said, adding that the company leadership would be looking through its portfolio for other opportunities to position high-potential properties in the future.
A year ago, Extended Stay America launched its 2.0 prototype in a bid to attract new owners to its growing franchise base. “We did a lot of testing on the prototype, and it was very well received for that customer segment that was just a notch above,” Haase said. “So really, the rebranding is going to help that new construction prototype achieve its ADR potential because the new prototype is very different [from] our existing state, and ... we really felt that in order to unlock the potential of that new prototype, a change in branding was required.”
While Haase expects moving from a single-brand company to a multi-brand company will take up much of the leadership team’s time this year, “one could certainly imagine that there could be other opportunities to add to that umbrella brand in the future.”
Performing and Outperforming
The company developed the new brand during the worst of the COVID-19 downturn, and Haase credits the team for thinking about the long-term picture while adjusting to a crisis. “I think we've demonstrated through the pandemic that we have a great business model that can survive and even thrive during the worst downturn in lodging,” he said. “Our goal, over the next three years as the market turns up, is to demonstrate that we can outperform through the better times.”
Extended Stay America has “a really good opportunity to do that,” he added, not just through brand segmentation but through other initiatives that the leadership team is working on in its commercial engine. As of press time, the company’s new website is due to launch, and Haase expects this to be “a real game changer” in terms of the team’s ability to drive more business through its proprietary channels online. “We really are a pure play in extended-stay, and that's a really strong competitive edge,” he said. “The dynamics of the extended-stay business—in terms of marketing and distribution and operations—are different than the transient business, and nobody else does what we do with the amount of expertise that we have.”