Midprice Room Supply Soars To Meet Growing Demand

<B>Midprice Room Supply Soars To Meet Growing Demand</B>

By Bruce Serlen

The U.S. midprice hotel segment showed particularly strong supply growth in the first quarter. Counting both chains with food and beverage and those without these services, PricewaterhouseCoopers reported that the midprice segment accounted for 41 percent of the existing hotel room supply during this period and 37 percent of rooms under construction. By comparison, 11 percent of rooms under construction fell into the economy category.

As for the growth in supply of specific hotel chains, four of the five chains with the most rooms under construction through March 31 were in the midprice category. According to Smith Travel Research, Hampton Inns & Suites headed the list with 12,300 rooms. Also placing in the top five were Courtyard by Marriott, Comfort Inns and Hilton Garden Inns.

Yet, growth can take different forms that go beyond simply clearing the necessary hurdles to build additional units. At Four Points by Sheraton, for example, growth meant forging a strategic partnership with another international hotel company and rebranding a number of U.S. hotels. For Red Lion, growth has been achieved this year by expanding--also through conversions--from its original regional base to other parts of the country. And for Ramada Inns & Suites, growth has meant developing a new prototype that had greater appeal for both business travelers and franchisees.

For travel buyers, midprice chains historically have provided an alternative, price-wise, to full-service hotels. Yet, rates at many midprice chains slowly have crept upwards in many markets as a result of the strong economy and subsequent lack of room availability. As a result, Four Points, Red Lion and Ramada said they were making a concerted effort to keep a lid on what's known as "amenities creep," which helps drive up prices. In this way, they can preserve the price/value proposition that always has defined the midmarket.

"Business travelers want the full-service, upscale experience, so it's our job to provide it at less than upscale rates," said Jane Mackie, vice president of brand marketing for Four Points by Sheraton, which is a unit of Starwood Hotels & Resorts Worldwide.

At Four Points, a significant milestone was reached in April, when the chain assumed the management contracts on 13 properties that were being acquired by Barcelo Hospitality, the U.S. subsidiary of Spain's third largest hotel company. "In one day, we increased our distribution by more than 10 percent, adding almost 2,700 rooms," Mackie said. "The transaction was a major step toward helping us realize our goal of having 160 properties worldwide by year-end." With the Barcelo deal, the number is at 132. The former Wyndham and Wyndham Garden Hotels are located in nine states and include properties in such key business destinations as Denver, Phoenix and Pittsburgh.

Because of the Barcelo connection, the hotels now are known as Four Points Barcelo Hotels by Sheraton. "While this dual branding is unusual, it is not unique," Mackie said, citing the Four Points by Arabella Sheratons that the chain operates with another strategic partner in Germany.


<B>Hilton Bolsters Red Lion</B>

Since its founding in the 1960s, Red Lion Hotels, which became part of Hilton Hotels Corp. as a result of last year's Promus merger, has had its greatest distribution in the Northwest. "Our growth strategy is to build off this strength, moving east across the country," said Tom Murray, CEO. "Our goal is to become a truly national brand, which will make us of much greater interest to travel buyers."

Because many of Red Lion's hotels were built 15 to 20 years ago as full-service properties, the chain has an advantage in today's marketplace, according to Murray. Rather than a liability, "these assets would be hard to replicate today. In other words, you can't be successful building full-service properties and charging midprice rates for them," he said.

There now are 28 Red Lions in operation, and plans call for 15 more to open this year, including in San Diego, Los Angeles and Denver. Another 30 are scheduled to come online in 2001 and another 30 to 40 in 2002. All will be conversions from non-Hilton brands.

"Certainly, these are aggressive goals, but having Hilton's support behind us has been beneficial," Murray said. "Having sister brands in so many cities as we expand makes it possible to share services and gain marketing experience. In many ways, we're like a start-up brand with 40 years of history."

In April, Ramada Inns & Suites announced it would build its first new prototype in New Orleans. The 130-room design features a welcome center in place of the traditional lobby front desk. "An electronic checkin and checkout kiosk will speed things up for the business traveler," said Steve Grew, corporate director for regional sales for Cendant Corp., Ramada's parent. Other amenities, such as cordless telephones and high-speed Internet access in guest rooms, were designed with the business traveler in mind, while other touches, such as the fireplace in the welcome center, benefit everyone.

The New Orleans property is near the airport. "These kinds of locations are especially desirable to us because they tend to have high visibility," said Grew. "With so many brands to choose from, keeping your name in front of your customers is an ongoing effort. As with key downtown locations, an airport property can be like a billboard for us."

In a similar way, name recognition is on Mackie's mind at Four Points. As the chain starts focusing on expansion in a region such as Asia/Pacific, she said it was important to develop a presence in primary destinations. "We just opened our first hotel in the region in Sydney. We chose Sydney as a way of familiarizing local travelers with the brand," she said. "Once you have name recognition in that market, then you can enter secondary and tertiary markets more easily."

Mackie also is a strong believer in the Sheraton sub-brand. "It's a big piece of our name recognition worldwide.