Sonesta to offer hotel franchise for the first time in the United States to keep growth on the fast lane
One of the fastest growing hotel companies in the United States now has a tool to grow even further.
Sonesta International Hotels Corp. Tuesday launched its Sonesta franchise platform, a growth vehicle that will allow the company to franchise four of its brands in the United States: Sonesta Hotels & Resorts, Sonesta ES Suites, Sonesta Select and Sonesta Simply Suites. Franchise capacity was one of the determining factors in the $ 90 million acquisition of RLH Corp. from Sonesta earlier this year.
Boston-based Sonesta’s acquisition of the company behind brands such as Red Lion Hotels and GuestHouse Extended Stay fueled its 1,400% growth from the portfolio of approximately 80 hotels it owned in August 2020. The combined company now has approximately 1,200 franchised and managed hotels. This latest development opens the door to many more.
“There have been a lot of consolidations in the hotel industry. Obviously, [there was] a big one and a lot of other competitors who bought brands here and there. The development community and the owner community really wanted a new entrant and a new family of brands, ”said Brian Quinn, Director of Development at Sonesta, in an exclusive interview with Skift prior to the start of the franchise. “It’s really exciting to meet this need.
Marriott International owns less than 20 of its approximately 7,800 hotels. But Sonesta’s minority owner and financial partner, Service Properties Trust, or SVC – a Boston-based accommodation trust with a 34% stake in the hotel company – owns a significant portion of the real estate from its nearly acquisition. 300 hotels, pre-RLH, Sonesta. wallet.
This more intimate relationship with hotel ownership gives the company a head start in understanding the wrath of capital spending and other branding standards passed down by parent hotel companies, Sonesta thought.
New branding standards, which can include things like expensive upgrades with new signage or new furniture, are often pushed back by franchisees who say they don’t generate much return on their investment. Quinn believes that the well-established franchisor-franchisee relationship is the most important partnership in business.
“We all understand the challenges they’ve encountered around CapEx and remodeling and now talent and dealing with conflicting demands around flexibility in cancellation fees but maximizing revenue,” said Quinn. “We do this every day, and I just think it will make us a better franchisor and continue to pay attention to this part of the relationship going forward.”
Asset-Right Over Light
The acquisition of RLH paved the way for Sonesta to embark on the franchise in the United States. RLH had already been in an asset relief push for years, where the company did not own much of its hotel real estate and instead franchised brand licenses to individual owners. . This is a general trend in the hospitality industry that allows hospitality businesses to grow faster and operate better during an economic downturn.
Even large hotel companies such as Marriott and Hilton, both with large business-oriented properties in their portfolios, posted larger profits this year faster than hotel-owning accommodation trusts. But the executives of Sonesta and SVC are not considering selling their real estate entirely.
Given SVC’s Accommodation Trust’s goal of owning hotel real estate, Sonesta expects to maintain assets in major US cities like Boston, Los Angeles, New Orleans and Chicago. Its premium brand Royal Sonesta is also not currently on the franchise list. Franchising will go a long way in strengthening a network of star hotels outside of the main markets.
“A lot of our competition has moved to a light asset model,” Quinn said. “We might be a little asset heavy, but we like to say we’re going to get assets just right. “
Each of the four franchised Sonesta brands caters to a different segment of the market. Sonesta Hotels & Resorts offers more personalized guest experiences in a mix of urban and leisure markets. Sonesta Select properties are described as “community hotels” for travelers on the road, while Sonesta ES Suites and Sonesta Simply Suites target the upscale and mid-range segments of the extended stay industry, respectively.
There are usually one or two flagship brands for franchising among the large hotel companies. For IHG, these are Holiday Inn and Holiday Inn Express. Comfort and Quality are the flagship brands of Choice Hotels. While Quinn avoided giving too much detail on the developer interest, he did indicate that the extended stay brands as well as Sonesta Select are expected to receive a lot of attention.
Sonesta Select has enough limited service offerings that it isn’t as expensive to run as a full-service establishment with expensive amenities like a spa. But the brand retains features like a fitness center, made-to-order breakfast, and bar that make it appealing to a variety of travelers.
“It takes the best of the high end and the best of what we’ve learned about selected service and limited service and puts it together in the high end space,” Quinn said. “So the owner can get a good rate and a good flow. It is quite rich in equipment but not the complete boat.
One to watch
Sonesta became America’s eighth-largest hotel company overnight through its acquisition of RLH Corp., but the company was already gaining major interest in the industry thanks to two canceled deals by SVC with bigger brands.
The company has grown from less than 100 hotels at the start of the pandemic to nearly 300 before the RLH deal was struck due to IHG and Marriott’s defaults with SVC. The acquisition of Red Lion increased Sonesta’s global footprint to approximately 1,200 hotels and 15 brands.
The larger scale allows for stronger purchasing power in everything from vendors to technology providers and online travel agencies. But it also offers another important option for hotel owners rather than hotels like Marriott, Hilton or IHG.
“I don’t know if I felt there was such a need for it,” Quinn said. “Maybe the pandemic has exacerbated this. But you talk to the owners, and they are looking for innovation.
A new franchisor option that has more short-term experience with owning several hundred hotels during the pandemic rather than just franchising them is a plus. But franchising also comes down to who does the best job at the bargaining table.
Marriott may have fewer than 20 of its hotels, but it also has the largest development pipeline of a major hotel company. This kind of attraction to franchises can be attributed to things like distribution and reservation networks, as well as a loyalty program that taps into a global network of properties through a litany of prices.
Don’t rule out Sonesta. Discussions at several hospitality industry events over the past few months have revolved around the growth of the business, particularly how it was initially fueled at the expense of Marriott and IHG. Now comes the element of organic growth in building the network.
Quinn, who previously worked in development at companies like IHG and Choice, is widely seen as a catalyst in helping Sonesta accelerate its expansion in the blink of an eye. Keith Pierce, appointed head of franchise and business development earlier this year, has spent over 17 years at Wyndham, which has exploded in recent years with its own franchise and brand growth.
But another catalyst for Sonesta could once again come at the expense of the big brands. All major companies relaxed branding standards during the pandemic to provide franchisees with a financial liferaft to weather the storm. But many of these companies are expected to reintroduce and strengthen the standards by next year.
Too heavy a hand around this reintroduction during the uncertain resumption of travel could push disgruntled hotel owners into the arms of a company with a different approach.
“We have to be rational with the standards we have, and they have to be rooted in a consumer need that can move the needle,” Quinn said. “If I [as a franchisee] will spend money, better generate income. This is what, in my opinion, plays into the hands of a new entrant.