Interviewee: Andy Alexander, president, Red Roof Inns.
Interviewer: Jeff Higley, editorial director, HotelNewsNow.com
Interview site: Hilton San Diego Bayfront, site of the 2011 Americas Lodging Investment Summit
Interview date: 25 January 2011
Jeff Higley: “Hi Jeff Higley with HotelNewsNow.com here at the ALIS conference in San Diego, and I’m sitting with Andy Alexander, the president of Red Roof Inn. Andy, thanks for taking the time to join us.”
Andy Alexander: “Nice to meet you.”
Higley: “So let’s get this out of the way right off the bat. Like many companies, your company had some struggles during these last 24 months with the downturn. There were some issues with unpaid mortgages. You’ve worked out a deal with some lenders. Can you tell us a little bit of background of how that went down and what the result is?”
Alexander: “Well you’re right, Jeff. 2009 made it very difficult for us with our lending group. We were one of the last groups into the foray here in 2007 with the lending transactions that closed the acquisition. Over the last year and a half, we’ve been working hard with the lenders to come to a resolution. And we’ve reached an agreement with them where they’ve jumped on board with Red Roof Inn management and franchise. They’ve entered into a long-term arrangement with the brand and the managers, and we look forward to having that relationship and growing the brand.”
Higley: “So going forward, all of that’s behind you as far as you’re concerned. …”
Alexander: “There’s some details, but in terms of moving the brand forward, the brand’s on solid ground and ready to grow.”
Higley: “So let’s talk about that growth for a moment. You guys want to really expand your franchising efforts. Right now you have 140 franchised properties. Tell us a little about your expansion plans for that.”
Alexander: “2011’s a year that you’re going to see Red Roof Inn back out in the franchise growth mode. We’ve put together a marketing plan that focuses on our new slogan for franchising for Red Roof, which is ‘One brand, one focus.’ Really what that means to us is, as a single-branded organization, we’re able to push just the Red Roof brand and our franchisees forward, and help them grow their business as we grow ours. We don’t have competing brands to push them up to or down to, and we’ll never put a brand right next to a Red Roof Inn that competes. It allows us to focus more on a one-on-one basis with our franchisees. At 140 units, I know our franchisees. They can call me any time they want and have a discussion about how we can help them in their business. So we’re looking forward to accelerated growth. We’ve added three new developers in the last six months. One to focus on the Northeast in the United States, one to focus on the West, and really most importantly and most exciting for the brand, we’ve hired a Canadian developer to help push us into Canada. The Canadians think we’re already there, but we’re not. 2011 will be the year you see Red Roof Inn venture up to the Great White North.”
Higley: “So when you’re talking about those specific areas, do you have any hotels there now? And are there any specific markets in those regions that you really want to target?”
Alexander: “Well, we’re an East of the Mississippi brand primarily. We have assets in Texas, we have assets in California, and we have an asset in Seattle and some sprinkled in between, but primarily the growth of the brand, which truly started in 1973, really began in the Midwest. We have a fairly high concentration in the South. But just given the (average daily rates) and the profitability that the Northeast can provide to us, we have assets there now so there’s a solid base, but it’s a place where we have lots of green space and can really grow. And certainly the West is a great opportunity for us. The number of units that we can place in many key markets out there would allow us to grow relatively easily. The two top destinations that our customers stay and we don’t have units right now are New Orleans and Las Vegas. So we’re working hard on those two destinations so we can satisfy the needs of our customers.”
Higley: “Certainly with the environment as it is today with the new construction financing virtually at a standstill, I would suspect that early on that most of this accelerated growth plan includes a lot of rebranding existing properties.”
Alexander: “It is. What’s great for us is 15 to 20 years ago the Fairfield, Holiday Inn Express and Hampton Inn pipeline was full and pumping out a lot of properties, and many of those properties are now reaching the end of those agreements. The owners of those brands are looking elsewhere for new development or a different kind of guest experience. But those properties fit our profile very nicely. We’re working in our system both to upgrade it in terms of quality but also increase the size of our pipeline. So those are primarily targets for us.”
Higley: “So when you talk about adding additional assets from that class that’s maybe 15 to 20 years old, a lot of those are interior corridor. You have a number of exterior corridor in that core, Midwest area. How do you meld those two kinds of things together and still send the message of consistency across the brand.”
Alexander: “Well one of the great things about the Red Roof Inn brand is our customers see us as extremely consistent today. Whether it’s an interior corridor or an exterior corridor, we consistently hear from our customers that they feel we’re delivering them midscale quality at an economy price. That is something that won’t change. Whether it’s interior corridor—we already have many interior corridors, particularly on the franchise side of the business, and those properties do already meld in with the exterior corridor. The point is that for many of our customers, it’s not all about whether it’s interior or exterior. We have a strong core customer base with vendors, we’re very pet friendly—and those types of customers prefer the exterior corridor. They prefer to be closer to their vehicles, to be closer to their wares, and look at that as an advantage. I guess overall I would say that by adding more interior corridors, it will just serve to expand our customer base, not to limit it.”
Higley: “You have a program called Next Gen that’s being targeted to upgrade some of your rooms. Is that part of the process that you’ll use to bring franchisees into your system—by meeting the requirements for the Next Gen program?”
Alexander: “The Next Gen program is a very exciting upgrade. In two of our locations, in Beaumont, Texas, and Locust Grove, Georgia, we have brand new, new-built, Next Gen properties. If people want to see what Next Gen is all about, that’s where they can go and see it from the ground up. The great thing about Next Gen, in particular from a franchisee standpoint, is the price point. The Beaumont, Texas, Next Gen came in just over (US)$50,000 a key to build, which really is unheard of, even in the economy segment. Since we play at the top of that segment, competing against midscale product, being able to a build a midscale product in the low (US)$50,000 a key price range just allows for great opportunities for profitability.”
Higley: “So just to make sure I understand correctly, the Next Gen is just a new-build program?”
Alexander: “No. We both have a new-build program that obviously includes the whole exterior and interior, but there’s also a Next Gen conversion package, which really upgrades the property and makes it a boutique economy hotel. We just did a re-grand opening of our downtown Columbus property, which happens to be an interior corridor property, and we did all the rooms with the Next Gen product and the customers are loving it.”
Higley: “So in a nutshell, what does the Next Gen product deliver to the customer?”
Alexander: “Again, it’s a boutique, economy experience. It’s spa-inspired. In a new build, you’ll see rain showerheads, hardwood floors, glass doors that don’t require the customer to manipulate them so the customer can just walk right into the shower. The artwork that really is melded in to the building design rather than your typical beach scene that’s put on the wall that every hotel has the same. So it’s really that economy boutique feel, both in terms of the spa-inspired design but also in terms of the customer feeling that they’re getting a higher quality product and a clean product—the hardwood floors, the no-touch surfaces are things that our customer are telling us that cleanliness is of the upmost importance to them.”
Higley: “So is the program strictly for incoming, new properties, or is it a retro with your existing properties? And then the second part of that question is how does that differ corporate-owned, corporate-managed and franchised—what’s the cost factor involved in all of that?”
Alexander: “Well we haven’t ruled out a specific edict that all properties in the next 12 months need to convert to the Next Gen product because the economy has been such that that just wouldn’t further our business or the business of our franchisees. But as they come to the point where they need to renovate, then it’s time to move to the Next Gen standard. That’s happening across the brand both on the corporate side and the franchise side alike over a timeframe that is reasonable given the current condition of the properties and the (furniture, fixtures & equipment) involved. But as we bring in new franchisees, we certainly assess their product and within a three-year (period) is the usually the normal timeframe to bring them up to speed and move them into the Next Gen design.”
Higley: “With the financial stuff more or less behind you, the industry is starting to come around a little bit more. You’ve got this franchise program accelerated, and you’ve got about 340, 350 properties combined. What’s the ultimate goal? Where do you see Red Roof Inn five years from now?”
Alexander: “For 2011, we’re targeting 40 new properties, which we think a couple months ago we thought was aggressive, but we’ve already got 10 signed up and ready to go and here we are in January. So hopefully we can exceed that goal. So realistically, without acquisition, adding 200 properties over the next five years would be an achievable goal for us, one that we hope to exceed, but we want to be realistic also in terms of the growth potential.”
Higley: “What’s your message to potential franchisees about the stability factor? It was, if I remember my dates right, ’99 or so that Accor bought Red Roof, moved it to Dallas, and now you’ve come back to Columbus where Jim Truman was the founder and started it so you came back there in 2007. You’ve been through this economic time with the financial uncertainty that we talked about. What’s the pitch to franchises that yep, here we are in Columbus, we’re stable, this is behind us?”
Alexander: “It’s interesting. I can see how an outsider’s view of the history of Red Roof would be told the way you tell it. The core operations group both from the franchise side and the managed point of view has been Columbus all along; that hasn’t changed. … They moved the executive portion of the company to Dallas. Those who really run the brand and those who have day-to-day contact with the franchisees are the same people who’ve been in place from the Truman era. Rob Wallace, who’s the head of brand operations, has been with the brand for 25 years and the franchisees know him well. It’s probably more stability than any of our competitors have. We’re a private company, so we don’t give in to the wings of Wall Street and have to make our earnings next month or next quarter based on off the backs of our franchisees. We’re looking long term. We’re owners and managers as well. We don’t make decisions and push our franchisees into things that we wouldn’t also want to do ourselves for the long-term viability of the brand. On top of that, in terms of the stability of the franchise business, the franchise business has never had any debt on it. It’s always been free and clear and has continued to operate independently of the other sides of the business, again always in Columbus, always with the same core group of people.”
Higley: “So as far as then moving the brand forward, to recap: accelerated franchising program; getting the whole financial situation squared away, put that behind you; looking at Next Gen; you have something called Smart Design that’s part of that whole program. Can you kind of sum up what the play is for Red Roof going forward in the immediate future?”
Alexander: I’ll step back just a bit. We’re looking at three facets of our business in 2011 to continue growth. First is performance. The brand carries a 14% (revenue per available room) premium in the economy tract scale. We need to increase that. We think it’s great, we love having that premium, but we need to push that premium even higher. So that’s the first performance leg of our plan. In terms of growth, you’ve heard a lot about that. We want to grow our franchise both in the U.S. in key markets as well as up in Canada. And then the third—and it really does all come back to this in the industry—is a story of quality. Red Roof Inn has long has that consistent quality that we need to maintain. So while a lot of layoffs have occurred in the industry, we’ve added to our quality department and we’ve added to our training department because we need to get back to basics and to make sure that that quality is out there. And recently Market Matrix reported that in terms of Trip Advisor reviews—they file the Trip Advisor reviews and the compile them and tell you where you stand against your competitors—well we were No. 1. So we’re working hard to make sure that we maintain that rating in our segment, the economy segment. And we’re working hard to push on a social media front, because that’s really where today—I like to say that when it was all about outward advertising, you could say you were good. Now that social media is involved, you’d better be good. So we’re working on getting back to basics and being good in the eyes’ of our customers.”
Higley: “So it’s really all about meeting and managing expectations of your consumers.”
Alexander: “It’s more than that. It’s about meeting and exceeding the expectations of your consumers.”
Higley: “And one more thing to ask you, Andy, that I neglected to ask earlier, but I just want to be sure: It’s the franchising side that’s going to be accelerated. On the corporate side, you’re sticking with the properties you have? There are no plans there for growth at this point?”
Alexander: “There are no plans at this point, but Westmont Hospitality is one of our owners, and they’re opportunistic buyers, so they’re always out there looking around, but I don’t have anything on the plate to bring to you as sort of breaking news here. On the other hand, to say that they wouldn’t’ look if the opportunity arises and take some action, I’m sure they would.”
Higley: “Is there anything that we didn’t cover that you would like to add?”
Alexander: “I think that’s good. I appreciate your time.”
Higley: “Andy Alexander, president of Red Roof Inn, thank you so much for your time.”
Alexander: “Thank you. Thank you so much.”
