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Limited vs. Full service:the midscale battle

The midscale segment is undergoing a transformation on the other side of the Atlantic. New concepts are appearing like Aloft, NYLO. Historic brands are undergoing a metamorphosis– Holiday Inn, Courtyard, Best Western and others are being regenerated. Increasingly serious competition from “limited service” 3*s, favored by both developers and clientele, oblige “full service” hotels to reinvent themselves. This explains the intense dynamism of a segment that has not yet reached-far from it-the limits of its development.

What is true around the world is even more evident in the United States: midscale hotels without full F&B outlets (1) are all the rage among developers. But this success did not happen yesterday - it has been a decade at least ­and seems to be here for a while. According to Lodging Econometrics, 37 % of hotel projects today target “limited service” versus 6% for the “full service” midscale. What began as a means of revitali­zing a segment with high operating costs has become an attractive product for franchisees thanks to its hi­gher return on investment.(1) As the language used in the segment is not very precise with regard to Full service and Limited service, for writing this article we have adopted the usage of JD Power, which establishes a Satisfaction Index each year that is recognized by the US industry as authoritative.In the current depressed en­vironment, “limited service” midscale is the segment with the “best” results. This is proof, were it necessary, that these concepts correspond to the changing needs of clientele. No extra services: the 3* without full F&B is a simple product that offers guests the most freedom. It makes it possible to “have your breakfast when you want it, how you want it when meetings follow one af­ter the other, which is what business travelers are loo­king for,” observes Jim Anhut, senior vice president, chief development officer at IHG for the Americas.With its free, hot, Express Start breakfast, Holiday Inn Express is attempting to stand out among the harsh competition. But not so fast… since 2003 Drury Inns offers its hot Quikstart breakfast... Still family orien­ted and not much inclined to franchising, this brand with nearly 120 hotels has the hi­ghest satisfaction on the segment each year according to JD Power and Market Metrix.Clientele are attracted by its promise: “The Extras Aren’t Extra at Drury”. At Drury, everything is free! WiFi, long distance calls, parking, in­room coffee, soft drinks, popcorn, and even an aperitif between 5:30 and 7 pm.Along with dynamic actors like Drury Inns, almost all the American “big players” have developed their “limi­ted service” products. When it bought Baymont Inns & Suites from La Quinta in 2006, Wyndham International consolidated its presence that was already strong on this segment with Wingate and Ramada. The group recently proceeded with a reorgani­zation of its offer around this brand that will gradually ab­sorb the old AmeriHost pro­perties. The brand will compete with Comfort Inns & Suites (Choice), Hampton Inn (Hilton), Country Inns (Carlson), Fairfield and SpringHill Suites (Marriott) and thus Holiday Inn Express, all brands that may congratulate themselves for several years of strong growth in their supplies.La Quinta, owned by Blackstone along with the group Hilton Hotels, has also undergone impressive growth since the investor entered into play. The supply has nearly doubled since its takeover at the beginning of 2006 to more than 700 hotels at the end of 2008. The brand is proud to be considered the one offering the best Return on Investment for two years. This explains a massive arrival of new franchisees. Thus the brand offers a young supply. Three-quarters of the 80 hotels added in 2008 are new constructions. Having given created a new élan thanks to a new logo and new Beautyrest bedding, the group is now coming close to 1,000 properties 250 hotels in the pipeline.But does the dazzling development of limited service hotels appear to toll the bell for “full service” properties? “I do not think this segment is dead or dying. The proof is that we have 250 full-service Holiday Inns in the pipeline,” shows Jim Anhut. At a time when the competition is growing more intense, “full service” has no other choice but to reinvent itself. After nearly 60 years of existence, Holiday Inn is giving itself a serious rejuvenation treatment. “In order to continue being the reference brand you cannot sit still and let your properties deteriorate and lower their quality,” maintains the chief development officer at IHG for the region. “With generations and generations who have grown up with this brand, relaunching Holiday Inn was part of our obligation as an heir to this icon of the hotel industry”. It is not just a relaunch for owners and franchisees, but a veritable metamorphosis. A billion dollars will go into this program that should end in 2010. “Things are on the right track. At the end of this process, Holiday Inn will be brand new,” rejoices Jim Anhut. With the departure of aging and low-performance properties and the arrival of brand new hotels, the average age of the supply has dropped to 7 years.Holiday Inn counts on this new élan to boost its average daily rate and position itself at the upper end of the “full service” segment. “The initial reactions of clients and owners validate our work,” remarks Jim Anhut. IHG has made in-depth considerations to create properties that are in tune with the times while working on the F&B sector, on techno­logy and the supply chain to improve the profitability of its properties. Thus, IHG has revised its F&B concept Kem’s, launched in 2006, to adapt to new expectations with modern, warmer colors. Another example is Sporting News Grills, which are radically focused on the X generation. “Focus groups showed us our customer segment like sports. Offering them a place where they can watch their favorite teams when they are away from home while having a bite to eat is an ob­vious complement to our status as official supplier to Major League de Baseball,” explains John Merkin, Senior VP brand management Holiday Inn for the Americas.The new “full service” midscale hotel segment is up and running. Also participa­ting in this race to modernity is Courtyard by Marriott which will invest $500 million over three years to refresh its lobbies. Warm colors and state-of-the-art technology– the interactive screen called Go Board will act as concierge – are on the program. Best Western is also set to improve the range of its offer. This other em­blematic midscale brand worldwide has launched its prototype Atrea, the first property of which just ope­ned in San Antonio. Positioned at the upper end of the midscale segment, this prototype costing $90,000 per room is “conceived to compete with brands like Hyatt Place, Cambria Suites, Hilton Garden Inn and Courtyard by Marriott (edi­tor’s note: the two brands that are most appreciated on the “full service” segment ac­cording to JD Power),” warns Troy Rutman, director of external communication for Best Western. 28 Atreas are currently planned, half of which implicate developers that will test the brand Best Western for the first time.Still out of the competition, Starwood has opted for a ra­dical solution: the creation out of nothing of a midscale lifestyle brand. Aloft, which has the chic and trendy lineage of the brand W, is positioned right at the top of the segment while remaining – sign of the times – “limited service”. Conceived in a partnership with architect David Rockwell, this concept offers urban design, state-of-the-art technology and lively common areas ­Remix lobby, Wxyz bar and the eating space Refuel by aloft offering takaway sweet bites, snacks and beverages 24/24. The first property opened in June 2008 in Montreal and, less than a year later, Aloft had nearly 20 properties in North America. The goal for growth was 500 world-wide in 2012, but in the current crisis this would not appear to be very tenable.Reach 50 properties in 2010 and 150/200 hotels in the mid term: NYLO will have difficulty reaching this benchmark for some time, despite solid ambitions at the outset. With its innova­tive industrial design and at­mosphere tat is also lifestyle, the concept concocted by Michaël Müller had all the right stuff. The first NYLO opened in Plano in 2007, but since then only two other hotels have opened their doors. At the same time, the group also launched the “select service” version of the concept. The first XP by NYLO should open in 2010 in the suburbs of Raleigh and Dallas. But the bankruptcy of its pri­mary backer, Lehman Brothers, allows uncertainty to persist and, at best, lead to a certain amount of delays for a brand that was planning in rapid development through franchising once the first properties opened.The current crisis will logically have its share of de­lays and cancellations. However, the whole segment – “full and limited service” together – preserves a very wide growth margin. The possibilities for locations are infinite from the State of Washington to the Atlantic and down to Texas and Florida. And that for all types of location: tertiary cities, economically active suburbs, and, of course, the major highway axes. But today it is the large cities that are the targets of developers and brands more than ever. “We have a dozen properties open or being developed in large urban centers. This proposition is very appealing for a clientele that cannot afford the Plaza,” observes the chief develop­ment officer at IHG for the Americas. La Quinta has just opened in the centre of Chicago. New York is of course a goal of choice. Hampton, Comfort Inn, Holiday Inn Express, Fairfield but also Best Western, Aloft and Four Points by Sheraton have or will set their sites on Manhattan.Thanks to the Atrea prototype, Best Western hopes to penetrate new markets strong presence on tertiary and rural markets. Atrea allows us to set foot in secondary,” explains Troy Rutman. “Distribution is an is one of the most critical aspects. You must be everywhere a client might need to reserve. And you must have the hotel ad hoc for the destination.” Which is not al­ways to the disadvantage of “full service” hotels. “There are many markets where you have almost no offer for meetings, where there is no hotel for inviting a client to dinner or for a drink. I am sure that “full service” will continue to deve­lop, although certainly not as rapidly as “limited service” hotels. But the ROI can be similar is you manage to optimize the management of meeting and F&B spaces,” remarks Jim Anhut. “An F&B offer makes sense in certain hotels and less in others. The key is to know your clientele precisely and make strategic decisions concerning the best usage of each square meter in order to meet customers’ needs,” according to Troy Rutman. The right hotel at the right place or the price of success.(1) As the language used in the segment is not very precise with regard to Full service and Limited service, for writing this article we have adopted the usage of JD Power, which establishes a Satisfaction Index each year that is recognized by the US industry as authoritative.

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