HM on location: New brands help Red Roof reach new markets

Red Roof Chief Development Officer Phil Hugh [left] and President Andrew Alexander discuss strategy on the stage of the Gaylord Opryland. Photo credit: Hotel Management/Jena Tesse Fox(Photo credit: Jena Tesse Fox)

NASHVILLE—While the big buzzword of the Red Roof Inn conference held here at the Gaylord Opryland this past week was “relationships,” an equally heard word was “caution.” With the economy in a shaky place and concern over the track of the lodging cycle, developers, operators and brand leaders are proceeding carefully, keeping the lessons of the last downturn in mind as they find new ways to compete, although growth via domestic and international opportunities is not off the table for RRI.

Red Collection

The new Red Collection and HomeTowne Studios brands are poised to help the company attract market share amid changing consumer demands in more segments. “There's a lot of product that's been launched—not specifically in the upper-midscale [segment]—but our competition all have one or two soft brands, including Marriott and Hilton,” Chief Development Officer Phil Hugh told Hotel Management. To stand out from that competition, the company decided to target destinations where Red Roof does not yet have a presence. “We're looking to be in center cities and resort [markets],” Hugh said.

The midmarket, Hugh continued, has “a lot of movement,” but is “soft with regards to consistency.” The quality standards are different across different brands, he said, “and we thought we could come in based on our success in economy and upscale-economy to really define that space. So we stepped in with both feet.”

President Andrew Alexander said the roll-out of the Red Collection soft brand has been smooth. “Like any new brand, there's a ramp-up involved,” he said, adding that the St. Clair hotel in Chicago—the first Red Collection property—had a “strong summer” with repeat business. “We're getting a good base of local negotiated business. And then when the conventions are in town, it does extremely well.”

Related: Red Roof opts for 'smart' growth over rapid gains

More importantly, the St. Clair does exactly what it is supposed to do, Alexander said. “It allows us to increase rate beyond the Red Roof Plus level," he noted. The collection has three properties open and the team is seeking more locations. “For the Red Collection to become a brand, we need half a dozen more [properties] and we want to get there sooner rather than later,” said Alexander. The no-royalties promotion announced during the conference, Hugh said, will help the brand stand out among investors and should help it gain distribution in new markets, encouraging investors to make quick decisions. “We’ll very quickly have a core of properties that will propel the brand forward,” Alexander said. 

While they agreed that the collection’s pipeline is “pretty robust,” neither Alexander nor Hugh wanted to share details on where the new hotels would open, preferring to announce each project as the deals are signed and confirmed.

HomeTowne Studios

A year after the brand was launched, 54 HomeTowne Studios are now open, and Alexander said investor interest in the extended-stay brand is “substantial,” both in terms of conversions and new-builds. The company has rolled out a new prototype for the brand that Alexander expects to help it gain more traction in the next year. “We will finalize pricing over the next few weeks,” Hugh added, “but preliminary numbers are coming in right around $55,000 a key, which makes it work financially.” 

The majority of extended-stay development, Hugh noted, is “dumped into” the entire economy segment when it comes to construction. “I would say, off the cuff, 80 [percent], 85 percent of construction in the economy space is extended-stay or a hybrid that has a core economy product attached to extended-stay,” he said. 

 Hugh said the new brands are giving existing owners more reasons to remain with the company. “When they wanted to do an extended-stay product before, they had to leave,” Hugh said. “Now they're saying, ‘Let's start talking about some of the hotels I currently have to convert.'" 

Chief Marketing Officer Marina MacDonald said the expansion was not only about attracting customers to the new brands but making Red Roof—as a company of four brands—resonate with a broader demographic. “How do we increase the base with other customers that other brands are not really paying attention to?” she said. 

Next Steps

As Red Roof gains ground across the United States, the leadership team is eyeing international opportunities for growth. The company has four properties in Japan with two in the pipeline, five hotels in Brazil (“and we'll be receiving two more applications this month to open two more hotels in Brazil,” Hugh added), and “multiple” properties in Canada. “We have a lot of conversations going on in different countries,” Hugh said. “We are very clear on how we're going to grow. It's [not] going to be through...a master franchise agreement relationship. It's going to be through a developer agreement where we control quality, we control the servicing of the franchise and the person there that is on the ground is the owner of the hotel and is out to develop partnerships to build.” 

In the wake of Wyndham Hotels & Resorts’ acquisition of La Quinta, smaller brands like Red Roof are understandably considering merger-and-acquisition options. “We talk to everybody,” Alexander said. “For me to say we don't entertain every phone call—that would be a bad business decision, right? But it still would need to be the right fit and it would need to make sense.” Still, Hugh emphasized, the Red Roof board is not looking to merge or sell, and would not be launching new brands if a sale were imminent. “It wouldn't be efficient,” he said. Rather than seeking out new partnerships, he said, the team would rather seek out smaller chains—“not many exist anymore,” he acknowledged—and franchise them. “It would be better for us and be better for them to franchise with us and take advantage of everything that we're doing and have them receive the synergies of being part of us than it would be to merge.”