Interview: Motel 6/Studio 6 CEO Jim Amorosia

Los Angeles - In the managed travel space, the economy hotel segment gets much less attention than midprice and upscale tiers. That certainly was true of Motel 6 less than a decade ago, but in more recent years the chain has made measurable strides in attracting corporate business on the national level. Motel 6/Studio 6 CEO Jim Amorosia last month spoke with Business Travel News lodging editor Michael B. Baker here at the Americas Lodging Investment Summit, offering insight on the brands' expansion in the corporate space as well as an update on growth and renovations underway since October 2012 when Accor sold the brands to Blackstone. Edited excerpts follow.

What has the Blackstone acquisition meant for Motel 6?

When Blackstone bought us, they did their due diligence and saw there was an opportunity for capital investment in regards to the asset, so they assigned approximately half a billion dollars in [capital] investment over what would be anywhere from a 36- to a 48-month period. We started planning for it when they took us over, but we started officially spending it at the [beginning] of 2013. We renovated 98 company [properties] last year. We're going to renovate 125 this year, give or take 125 company [properties] next year and a few dozen in 2016. We're basically 100 percent renovated by the end of 2015. Prior, we were renovating but very small quantities, maybe 20 or 25 hotels a year. We were looking for matching types of thought process of investments from the franchise community, but because it was such a slow-growing process, there really was no momentum that was going on. With Blackstone, that momentum has come along very nicely to where, in 2013, our franchise partners renovated almost 200 locations, and this year, while we renovate 125, they're going to do 300. It's kind of like that snowball going down the hill. As they start to see there's credulity in the process, they are much faster to want to get on, and they also see that when these properties are renovated, there's a significant lift in regards to the topline performance.

What do the renovations entail?

We're renovating the entire asset, so it ranges from a mid-level renovation, where you're doing all the floor goods, soft goods, color goods, lobby, exterior treatments, asset repairs—whether it's a franchise or an owned asset—versus a full renovation, which is all of that plus all the [furniture]. It depends on which makes the most sense in terms of what you believe your penetration lift is going to be, in terms of the investment you're going to put in and the rate you think you'll be able to charge for that particular property. The [new] Motel 6 prototype, we opened that up in 2009. We have been able to take this room and amplify it across all our existing assets. If you look at the design of the room, it's quite flexible. It has the ability to be put into a lot of different style room types and assets, and it's the same with the Studio 6 room, so we've been able to duplicate it across many different properties without having to build a new hotel. The [mid-level renovations] typically run about $3,500 per room, and the full [renovations] typically run about $7,000 per room.

Do you do much business on the managed corporate travel side?

Eight years ago or so, Motel 6 did virtually no [business-to-business]. That's not to say that we might not have an individual location contract, but nothing on a national level. In 2013, we did $140 million. In a period of seven or eight years, we went from a standstill to a run. Within the next couple of years, we're going to cross a quarter of a billion, and by 2017, that B-to-B should be somewhere between $300 million to $350 million. It opens up a whole new avenue for us.

Why is that happening?

We have some interesting tools in our chest that we can offer to a business that most other economy brands cannot. We offer a direct-bill concept, where whether you own one hotel or 25 Motel 6s, you're able to structure that invoice, and you're able to see on one single invoice every single transaction that occurred across all 25 hotels for that particular customer. So you know at any given point in time what kind of business our sales force is bringing in to you in terms of driving your top line, and you're able to see for a nominal fee what we're doing in terms of controlling the receivables. We do that internally, for our owned assets and for our franchises. Let's say you're a contractor, and you've got maybe 20 crews out across the country, and each crew has five or six people, so you're taking five or six rooms in any particular location. You're able to see on all those locations exactly how many rooms each particular crew did, identified by your user base. It's been a tremendous boon for our franchisees, because they don't have to deal with the paperwork, and understanding where all these people are. We're also tying all of that through our distribution. So now we can have these customers—whether they are staying at an owned asset or a franchised asset—be able to go online through the mobile app or whatever it might be, and they can actually track the status of their people while we're tracking the invoice. We're the first in the economy segment to be able to do it at every single location.

Have you grown your sales force as well?

About two years ago we doubled our sales force. We wanted to be able to go from just outbound national sales, selling for future bookings across a various large area of the country, to having regionally inbound sales. So, we have national salespeople and regional salespeople.

What's happening with growth?

We opened up 90 in 2013, we're projecting 185 openings in 2014 and well over 200 going forward from that standpoint. In either 2017 or 2018, we'll go from slightly less than 1,200 hotels today to 2,500 hotels. In five years, that's spectacular growth. We were franchising prior to Blackstone taking us over, and we were doing quite well in franchising, but one thing Blackstone has brought to the table is the credibility of a very large hotel player—a player that owns Hilton, La Quinta, Motel 6, Studio 6 and is a team owner of Extended Stay America. When you bring that many pieces together, you open up a new market in regards to potential franchisees, people who in the past have not looked at Motel 6 or Studio 6 but have had relationships with Blackstone. When we can get in front of these people, we have a tremendous story to tell. We have an iconic brand with more than 50 years experience. We have an ad campaign that was considered one of the top 100 of the 20th century. We have a share penetration that averages about 120 percent against the economy segment, over 10 to 11 full points of occupancy better than the average economy-segment brand. When you put all of that together and the ability to open to a much bigger population of franchisees, the world is a much more interesting place.

We don't believe in a lot of amenities, in regards to building it into the cost structure, which drives rate but also bottom-line expense management to the franchisee. If the guest is interested in a particular service—Wi-Fi, for example—we're going to do it for a fee-based structure, where we tell the guest, "You want that position of lowest price, here's your lowest price. If you want these other things, we're going to charge you a relatively nominal fee, where you still—all-in—will be the lowest price, but maybe it's not quite as much a spread as it was prior." It's up to the guest then to make that decision.

Do you expect to open hotels outside of the United States and Canada?

We anticipate we'll be in Mexico sometime this year. In the next three years, we will enter into Central America and continue down into South America. At some point in the future, whether it's two years from now or five years from now, we believe the Motel 6 brand can be truly an international brand, whether it's in Europe or Asia.

What's happening on the Studio 6 side?

Today, Studio 6 is closing in on 100 locations. We'll probably be there by the end of this year. Studio 6 can be 200-plus locations in the next three years. Studio 6 is a brand like all extended-stay brands, very locally market-driven, so your marketing expenses are relatively smaller relative to a national brand that has to have national scope, and you're able to get a significant amount of share in terms of the number of people staying there. Because you have a different expense structure, whether it has to do with a partial lobby instead of a 24-hour lobby or a partial cleaning in regards to the number of times you clean in a given week, those additional efficiencies give a great look in terms of the product, and once you get that ongoing mass, it becomes more of a viable brand. The extended-stay market at the moment is pretty hot, so there are not the greatest opportunities out there to buy something, but if and when something comes along, Blackstone is very interested in supporting us in being able to take on an acquisition within the Studio 6 family. If that does happen, I could easily conceive that we double the size of the brand overnight.

What else is on the horizon?

Some of the things we're looking at in terms of structuring our web base and platforms ... as a person drives down the road to be able to have a push ad come out from a geographic standpoint. You're on GPS with your iPhone, and that particular market—let's say St. Louis—puts the Motel 6 on your map with 15 to 20 locations. How long that will take, I don't know, but considering how fast things are changing, it's probably not that long. We're very excited about some of the work we're doing with platforms and applications. We're redesigning our mobile apps and our landing pages, but all of that's being done from the standpoint of interface, to make sure it's easier. No matter what type of device you're talking about or application you're tying into, [our aim] is to be able to get from the point of interest to the point of commitment in three clicks.