Today’s Hotelier has an exclusive story with Best Western Hotels & Resorts President and CEO David Kong on the company’s brand-new endeavor into the economy segment. This one’s going to be a game changer.
By Steve Visser
Best Western had a problem. It is recognized as a high-standard brand, which meant it had to keep standards up among its hotels or risk losing the higher-dollar guest. But enforcing those standards was costing it about 120 members a year, which meant losing a big chunk of revenue by protecting the brand.
David Kong, president and CEO of Best Western Hotels & Resorts, and his staff looked around the country and realized Best Western was leaving money on the table. Not only was it overlooking the economy class as a huge source of income, but it was also losing owners to hotel groups that could offer an economy alternative.
“It is kind of a shame to lose that many hotels,” said Kong. “And we lose them to a lot of the brands in these segments.”
Enter SureStay Hotel Group, a new economy and lower-mid-level brand Best Western rolled out during the Lodging Conference in late September, which seeks to solve that problem and complement the opportunities offered by its flagships: Best Western, Best Western Premier and Best Western Plus.
Many who do not wish to spend the average of $750,000 to make the upgrades Best Western is demanding of its members can now instead choose to convert to the new brand. They stay within the Best Western family and keep the support of the world’s largest hotel chain provides, Kong said.
“We were doing our business planning a couple of years ago, and we recognized that the economy and lower-midscale represented a huge opportunity for us,” Kong told Today’s Hotelier. “The question was: How do we tap into that marketplace?”
The SureStay opportunity will be a significant departure from Best Western’s membership business model, in which members vote on decisions impacting the brand and the brand cannot implement significant changes without a majority vote. Instead of having a one- to four-year average contract with Best Western, SureStay owners will follow a traditional franchise model with a 15-year agreement and royalty payments. Royalties are being waived initially and other incentives will be offered.
A hotelier with a knack for using Best Western clout to grow its brand
Kong, who became CEO in 2004, has earned a brand-building reputation at Best Western by launching initiatives that resonated with travelers. Best Western Plus and Best Western Premier came to fruition under his stewardship and the former, especially, has blossomed after quickly taking root among the business traveler class.
The company’s board of directors cited his ability to grab market share three years ago when extending his contract until 2018. “David brings strategic thought, innovation and energy to Best Western each day, and he has helped us unlock the brand’s potential,” Board Chairman Julie Montmaneix said after Kong’s contract was extended. “The membership is honored to have him at the helm of the Best Western brand.”
But it does appear that some of Kong’s thinking has shifted regarding the economy brand. In 2012, during the muted recovery, he was asked whether he agreed with the analysis that the hotel business was moving to the have and have-not model: that guests would either be bargain hunters or want luxury, which could squeeze mid-priced chains such as Best Western.
Kong, who was born in Hong Kong and started in the hotel industry as a busboy, noted in an interview with Travel Weekly that the mid-priced hotels had actually outperformed the luxury and upscale hotels in terms of profits and that Best Western was seeing double-digit growth.
At the time, Best Western Plus, which had been launched in 2011, had already surpassed 850 hotels since plenty of Best Western hoteliers saw more potential profits in a slightly upper-scale market, and that market has continued to grow. There are more than 1,000 of the upper-midscale Best Western Plus hotels now, which have been rated as the best hotel for business travel by Business Travel News the last two years running.
Kong credits the service, standards and support that the Plus version offers for its exponential growth. “We have some brand requirements, things like… toiletries, towel size and weight, sheets, bed cover,” he said in the 2012 interview. “When people walk into a Best Western Plus, people know right away that this hotel offers more than the regular hotels.”
Now he hopes Best Western will be able to deliver the same type of success for hotels competing in the economic spectrum by offering SureStay proprietors muscular marketing and advantageous fees and commissions while offering guests a quality-service bargain.
The hotelier: What does SureStay do for me?
First, however, Kong wanted to reassure existing members or those entrepreneurs seeking a Best Western membership that in no way would the SureStay chain diminish the value of the well-established brand.
Instead, a critical aspect of Best Western’s strategy is to offer SureStay as a “white label” brand – similar to what Del Monte does with its off-brand vegetables for Walmart – which the public will not associate with Best Western and its offerings of mid-level, upper-mid-level and premium hotel rooms, Kong said.
For instance, the SureStay hotels will use a “copy” of Best Western’s revenue engine, but there will be no combining of guest databases, and the Best Western brand will not be used for SureStay in consumer-facing channels such as bestwestern.com, Kong said. There will be no Best Western logo inside the hotels.
“We did not want to risk compromising our reputation and brand image,” he said. “We want to give our customers more options and more price point choices, but we didn’t want to do it through the Best Western label.”
For the hotelier, the advantages of making a conversion are still significant, Kong said. For instance, many hoteliers are facing significant upgrade costs demanded by Best Western and other hotel groups in catch-up repairs and improvements leftover from the Great Recession.
The hotel industry, in general, cut owners slack on standards during the economic downturn, but in 2012 decided that it had to put a stop to any potential slide to protect the brands, Kong said. Properties were assessed, improvement plans were developed and owners got their deadlines. Some were facing greater costs than others, but the average cost for repairs and upgrades was in the high six figures.
“We had the worst downturn that the industry has seen in 2009, and a lot of hotels were still reeling from that in 2010 and 2011,” Kong said. “I think all the brands were taking it easy on the hotels because we wanted them to recover.”
SureStay offers a hotelier who doesn’t think the market can justify the costs of the upgrades, the opportunity to down-scale to another price point. It is the first time Best Western has offered a migration route for members to an economy product.
And SureStay will offer different price points for its own range of brand options, Kong said.
- SureStay Hotels – economy segment
- SureStay Plus Hotels – lower midscale segment
- SureStay Signature Collection – soft brand in the midscale segment
Moreover, despite the branding shroud separating SureStay from Best Western, the new franchisees will still be able to leverage much of the behind-the-scene marketing and logistics infrastructure as well as purchase and commission arrangements that Best Western provides.
“There is tremendous synergy,” Kong said. “It is a win all around.”
Best Western also expects to be able to offer SureStay owners better fees – royalty, marketing etc. – and more support. While hotels will still be required to meet strict standards regarding customer service and unannounced inspections, they won’t be required to meet certain Best Western design requirements, Kong said.
He noted that this should give SureStay owners a sharp edge over many of their economy-brand competitors. He said many economy and lower-midscale brands don’t provide the same support to drive revenue or optimize the return on investment for their owners as the new-kid-on-the-block will bring to the table.
“SureStay aims to redefine the game by leveraging Best Western’s proven and award-winning revenue engines,” Kong said. “Scale matters.”
To further sweeten the pot, Best Western is offering an incentive for the first 100 hotels that sign up in the form of no royalty fees for the first five years during which Best Western will be trying to grow the chain, Kong said.
“And 100 percent of the money we collect through sales and marketing will be spent on sales and marketing efforts,” he said. “We don’t really intend to make any money for the first three years. We are interested in building a quality core group of hotels… we hope these hotels will become our advocates and our best salespeople in the marketplace.”
They expect to roll out 150 SureStay hotels over three years, beginning December 1, with some coming from existing Best Western members and recruited from other chains as well as independents.
While all properties initially will be conversions, Best Western plans to start a construction program in the economy model. Eight-hundred hotels in all are expected within a decade – a number that appears conservative when one looks at the growth of Best Western Plus over five years.
Of special interest to AAHOA members, Kong noted that the SureStay model was incorporating AAHOA’s 12 points of fair franchising (www.aahoa.com/home/advocacy/franchise-relations/points-of-fair-franchising) into the franchise agreement.
For example, SureStay will offer:
- Fair and reasonable early termination provisions. Specifically, there are “windows” at which a hotel can leave with minimum consequences if we are not meeting its expectations regarding revenue delivery.
- Areas of protection that protect the hotel’s right to compete.
- Advisory committees that allow for hotel feedback and recommendations.
- Standards of quality that are well-defined and uniformly and fairly enforced.
- Allowing hotels to purchase the vast majority of products from vendors of their choosing.
Every deal has a potential downside
SureStay proprietors won’t be getting all the help that a Best Western owner can expect. For instance, the hotel chain won’t be doing much – if any –advertising to promote the new brand. One-hundred and fifty hotels simply will not justify an advertising campaign, Kong said, in a chain that has more than 4,000 locations in more than 100 countries.
Competitor Choice Hotels International, which has been migrating some owners from Comfort to Sleep or to Quality inns, has an advantage in advertising since it lists its economy along with higher-end brands in its national ads. In that regard, Best Western is saddled with the fact that its corporate umbrella is its brand name, which is an asset in general but clumps all the entities together. Nor will the SureStay franchise holders necessarily benefit from the lucrative partnerships that Best Western has formed with such groups as Harley Davidson, Disney and AAA to boost room reservations – which have proven successful even during economic downturns that can play havoc with hotelier returns.
The Best Western partners are being approached about developing relationships and agreements with SureStay, but it is too early to comment on whether they will happen or, if they do, what form they will take, Kong said.
“I think there are great opportunities for us,” he said.
Still they expect to be up to 800 SureStay hotels within a decade, and Kong, who has been aggressive at expanding Best Western internationally, notes that he fully expects the hotels to also grow outside the borders of the United States.
And while there won’t be a direct advertising campaign, he said the corporation would be pushing the chain through its marketing and he expected online travel agency (OTA) bookings to enhance SureStay’s ability to snag the budget traveler.
Online bookings are huge, he said, and he noted that Best Western has an advantage with the online sites that can turn them from a major cost to a cost-efficient draw because of the lower commissions its members have to pay, therefore enhancing profit for hoteliers. Currently, however, a lot of those hoteliers outside the Best Western family may be getting slammed on fees because OTA booking is so prevalent, Kong said.
“I wouldn’t be surprised if hotels in these segments get 40 percent of their business from sites like Expedia,” he said. “In the next few years, most of our efforts [for SureStay]will be in sales, meaning we will leverage our worldwide sales efforts to drive business.”
SureStay standards will protect the guest and thus the brand
Kong says the cost efficiencies will benefit the hotelier and traveler alike, insisting that the new brand will not be cheap but simply serve the thrifty. The SureStay hotels will be held to strict standards for cleanliness, customer services and the amenities appropriate for that level of price, Kong said. That should reassure the customer who is mostly looking for a bed in a clean room and proprietors who want assurance that the brand will develop a good name.
The goal is that quality-control will make guests gravitate to SureStay as the best of the budgets – accomplishing for the economy chain what Best Western Plus did for the chain’s upper-mid business travel. In fact, SureStay’s goal might be to become the chain for the business person who travels on his or her own dime.
Eventually, Kong said, when SureStay moves from conversions to construction to grow the brand, the focus will be on ensuring hotels have comfortable suites with separate bedrooms, he said.
Kong describes the potential SureStay guest as someone unsure about their choices at the economy level – perhaps someone who has run into unclean rooms in the past – who can be wowed by the welcoming environment Best Western envisions for SureStay: clean and comfortable rooms, friendly and professional service, free and reliable internet free and good quality breakfast, and great value.
The SureStay hotels will be required to score at least a 3.5 on TripAdvisor and agree to a service guarantee that if anything goes wrong, hoteliers will take care of it, Kong says. That formula of standards and support should ensure happy travelers, and happy travelers should ensure more profits in the long run.
“Guests can be sure about their stay at SureStay,” Kong said. ■