Hilton, Holiday Inn Enter The Extended-Stay Fray

<B> Hilton, Holiday Inn Enter The Extended-Stay Fray</B>

By Lynn Woods

The extended-stay market is getting new competition this year from the entry of big players Holiday Inn and Hilton into a segment long dominated by smaller and lesser-known brands.

Holiday Inn in December opened its first Staybridge Suites property in a North Atlanta suburb. Consisting of studios and one- and two-bedroom suites, the brand falls in the mid- to upper-price sector, with rates ranging from $60 per night for a month-long stay in a studio to $150 per single night in a two-bedroom suite. At least 12 additional properties are slated to open by year-end, with another 40 under construction and an additional 50 in development.

Hilton followed suit in January, when it announced the launch of Hilton Residential Suites, a premium brand offering full business amenities in each suite, complimentary breakfast and meeting facilities. Twelve hotels are under construction throughout the United States, including Dallas, Detroit and San Francisco. The first property will open next year, and by 2003, Hilton plans to have 100 properties open or in development.

Executives at both companies said they see enormous long-term opportunities in the still-growing extended-stay segment, and noted that the softening of the sector in some markets was not due to a falloff in demand but rather to the difficulty smaller firms have had in obtaining capital.

Staybridge Suites, on the other hand, is "at the high-price point, a sector consisting of only 400 to 450 hotels total," said senior vice president and brand manager Jim Anhut. In contrast, the Holiday Inn Express brand alone accounts for 900 hotels.

Jim Abrahamson, senior vice president of franchising at Hilton Hotels Corp., noted that Hilton Residential Suites will appeal to the same corporate traveler who patronizes other Hilton brands, as compared with the different customer base of the lower-tier sector. And the drop-off in construction actually works in Hilton's favor. "A lot of startups can't continue after the year 2000," he said, "but Hilton, Marriott and Promus will continue to grow. There'll be a flight to the quality brands."

Obviously, Holiday Inn and Hilton bring to the table a significant advantage in their widespread brand recognition and corporate programs. Both companies also benefit from being able to cross-market their new extended-stay product through their other brands--using their central reservation systems and guest loyalty programs, among other ways--and through worldwide sales forces.

Meanwhile, market leader Marriott has expanded its presence with the acquisition of ExecuStay, which provides corporate apartments. With its ExecuStay, Residence Inn and Towneplace Suites inventory, "Marriott is the only hotel company that can provide a total extended-stay solution," said Lee LaRochelle, senior vice president of ExecuStay by Marriott.

Residence Inn experienced its biggest growth ever in 1998, and will match it this year, predicted Tim Sheldon, brand vice president of Residence Inn and TownePlace Suites by Marriott.

Currently numbering 305 hotels, of which about 35 opened last year, Residence Inns are beginning to expand into urban downtown areas, with a project in Philadelphia on the drawing board.

Rates have gone up about 5 percent over the past few years, reaching an average of about $100 a night, Sheldon said. Though it is the market leader, Residence Inn accounts for less than 5 percent of extended-stay customers. "There's plenty of demand," he said. "I think the category will continue to grow. Ninety percent of this market is currently captured in transient hotels."

Underscoring the point, Marriott's midprice extended-stay brand Towneplace Suites, launched two years ago, is "the fastest brand to reach 100 properties in Marriott's history," he said. The limited service hotels, which offer rates in the $65-a-night range, currently number 34 and should reach 51 by year-end. The company has set a goal of opening 100 all-new properties by the end of 2000.

Rooms in Towneplace Suites are 20 percent smaller than those in Residence Inns and no food service is offered. Locations are limited to suburban markets, where demand is highest. The average stay is 18 to 20 nights, compared with slightly more than four nights at Residence Inns.

Embassy Suites--another established brand that falls within the short-term, all-suite sector, with an average stay of 3.6 nights--has attracted more commercial customers over the past few years. "The biggest change at our brand is that we have more preferred business than we did two years ago," said senior vice president John Holthouser, noting that 65 percent of the brand's total business is corporate and "20 percent of the room nights are for five-plus nights."

Thanks to the strong economy, Embassy Suites has increased its rate over the past few years and now averages $125 a night. "Supply is growing at a slower clip in our segment than in the limited one," Holthouser said.

The biggest shift in the industry has been the increasing number of entrants in the lower segment of all-suite hotels, he added. The reason is fiscal: "Midprice and economy segment properties don't face the same capital barriers as do upscale developments. They have lower capital costs, so it's a lot easier to finance them."

To expand into strong secondary markets at an affordable cost, Embassy Suites has launched a smaller, 150-unit prototype of its brand. Six of these properties have opened in the past 18 months. The company plans to open nine additional hotels in 1999, and has another 11 under construction and 28 still on the drawing board.

Embassy also is targeting expansion beyond the national borders, with two hotels now under development in Canada and four in South America.