StudioPlus, ESA Prepare For Post-Merger Expansion

StudioPlus Hotels Inc. and its merger partner, Extended Stay America Inc., together have fewer than 100 hotels in operation--hardly enough to dot the American landscape from coast to coast. But the two companies--slated to complete their merger by mid-May--have an ambitious growth plan and a goal of becoming the chief player in the extended stay market.

By the end of this year, the two companies expect to double their product total to 181 midprice, economy and budget properties. Their goal for the year 2000 is 541 hotels. ESA's new Crossland Economy Studios, designed for blue-collar workers on limited budgets, will help speed the process.

"We plan on dominating the extended stay business, and at all price points, so that when someone is looking for extended stay lodging in the future--and this will probably take five years--it's going to be one of our products," said Norwood Cowgill Jr., chief executive officer of Lexington, Ky.-based StudioPlus, the more upscale of the companies' extended stay products.

Cowgill also expects the merger to eventually make StudioPlus--which operates mainly in the Midwest and Southeast--a nationwide brand.

Although StudioPlus is middle market, the companies are trying to position the product as competitive with both midprice and upscale brands. The company contends it can compete for long-term guests (those staying five nights or more) with almost any conventional hotel product, including all-suite hotels with significantly higher price tags. Defining characteristics of extended stay hotels include the availability of kitchen facilities, limited hotel services and weekly rates.

These objectives mean the companies will be challenging Residence Inn by Marriott, the hands-down leader in the upper tier of the extended stay market. Although he gave no specific plans for a product at that level, Cowgill said, "I could see us in those price points."

In the segments where the two companies are operating, Cowgill's vision of being the top player in a growing field "is not a dream," said Rich Conti, a principal in Coopers & Lybrand's Hospitality Consulting Group who follows the fledgling extended stay market. "Right now, they dominate the economy and the middle market segments."

If the companies got serious about moving upmarket to challenge Residence Inn, "there's not any reason why they couldn't," said Robert Mandelbaum, director of research at PKF Consulting, San Francisco. But he noted there are probably more opportunities to build moderately priced accommodations than to build more-expensive ones.

Competitors Abound

Indeed, ESA and StudioPlus are hardly the only hotel companies to have noticed those opportunities; they've just been the fastest out of the block. Now a wide variety of entrants is vying for the extended stay middle market--territory where hardly anybody had ventured just a few years ago.

Some of those companies could pose significant challenges to Cowgill's desire for dominance. Marriott, for one, has launched a midmarket product, TownePlace Suites (see story, Page 14), and Choice Hotels also has entered the fray with MainStay Suites. And while ESA and StudioPlus own all of their properties, Marriott and Choice are set to provide franchise opportunities, observers noted. "In the process of franchising, they could have explosive growth, too, because it won't just be their capital they'll be using," Conti said.

Founded in 1995 by H. Wayne Huizenga and George Johnson, Extended Stay America, based in Fort Lauderdale, Fla., is following the same strategy its creators pursued in putting Blockbuster Video outlets across the nation: identifying the right sites and proliferating fast. ESA opened 51 hotels in its first two years. This year, the total is expected to jump to 112.

StudioPlus, a decade-old company that pioneered the midprice extended stay hotel, stepped up its development efforts in the past year, when money was freed for hotel building after a lengthy dry spell. In 1996, it brought its total to 35 hotels from 22 the year before. Prior to the merger, the 1997 goal was to bring the total to 65 hotels. Cowgill was unsure about how much the link with ESA might boost StudioPlus' development plans in the short term. "We anticipate picking up our development and increasing that, but I don't see an increase in '97," he said. "I hope we will see some increase in '98."

Cowgill did say that the merger will affect how quickly StudioPlus enters some regions. The company, which operates mainly in the Midwest and Southeast, will be able, for example, to get into California more quickly because of ESA's real estate position there. Cowgill expects his brand to be nationwide by the end of 1999.

At prices ranging from $300 to $400 a week, StudioPlus is aimed at a white-collar audience.Extended Stay America's efficiencies, priced between $200 and $300 a week, appeal to a mixture of blue-collar and white-collar workers on stricter budgets. Crossland Economy Studios' rates are between $159 and $179 a week.

At present, StudioPlus and ESA don't offer negotiated volume deals with special pricing arrangements. But volume customers may negotiate such things as service levels or occasional shorter-term stays.