Red Roof goes ‘upscale economy’ with Plus
03 APRIL 2014 6:02 AM
With the NextGen room renovation largely rolled out, Red Roof is upping the ante with its new Plus+ designation for its best-performing hotels.
COLUMBUS, Ohio—Red Roof Inn is giving customers a little extra in its attempt to carve a new niche in the economy sector.
Dubbed Red Roof Plus+, the recently rolled-out designator builds from the brand’s NextGen room upgrade that has seen refreshes to full-scale renovations throughout the portfolio.
“The best way to describe Plus+ is to give it a new category, and that is upscale economy,” said Andy Alexander, Red Roof’s president. “What does that mean? … For us it means that NextGen product. … It means enhanced service. And lastly it means creating a direct link to customers to get their feedback, both in terms of what they like about the product but also in terms of how can we improve and keep the product moving forward.”
The idea stemmed from favorable guest feedback for those Red Roof hotels that endured a top-to-bottom NextGen overhaul, including installation of wood-like vinyl floors, flat-screen TVs, new furniture and vessel sinks and granite countertops in bathrooms as well as exterior enhancements such as upgrades to painting, signage and landscaping.
“We did various levels of renovations across the country based on potential (revenue-per-available-room) gains and market demand. In those locations where we did a full NextGen … we saw our intent to return and intent to recommend really go through the roof. … The full NextGen renovation projects were so different and so much better that it led us to give them a separate designation,” Alexander said.
The initial Plus+ rollout included 15 of Red Roof’s 150 company-owned properties. An additional 16 will roll out before the summer travel season, he added.
In addition to the NextGen renovation, Plus+ hotels also feature a 24-hour service number for guests called Next Line.
“If you have an issue, you call Next Line and they resolve it for you right there,” Alexander said. “If that means calling the general manager at 2 a.m. to get him on a conference call with the front desk to get something solved, that’s going to happen. If that means moving your room or providing a complimentary stay, Next Line will resolve it right there.”
Costs plus+ ROI
Nearly 200 of the 350 hotels in the Red Roof chain have a “significant portion” of the NextGen renovation program. The holdouts have scheduled property improvement plans that will be executed within the next 24 months, Alexander said.
The complete NextGen renovation costs between $8,000 and $10,000 depending on the market and labor costs, the executive said.
As for the payback? “On our renovated properties we’re seeing high teen to low 20(%) (return on investments), cash-on-cash returns from these properties. We’re seeing RevPAR increases in the 15%-plus range year over year,” Alexander said. “It’s been a real success.”
NextGen properties also outperformed their competitive sets with indices of 113.7% for occupancy, 114.5% for average daily rate and 130.3% for RevPAR, according to the company. Average occupancy for NextGen hotels was 71.1%, while average ADR was $71.93 for the 12-month period ending 30 November 2013.
Costs to implement Plus+ include:
- $20,000 for initial integration, training, etc;
- $10,000 to $20,000 for new exterior signage; and
- $40,000 to $50,000 to install a signature canopy for hotels without a porte-cochere.
Alexander expects a similar ROI from those investments, driven in part by the creation of a new room category.
“You have the option of choosing the premium room. Think of a concierge floor or something similar at a full-service hotel,” Alexander said.
The rooms are handpicked by property GMs for their quality locations and size. They also include an upgraded bedding package and a nightly snack and breakfast offering waiting in the mini fridge.
“We’ve handpicked 10% of the rooms at each location and for an upcharge of $9, or $7 if you’re a RediCard member,” Alexander said. “… We’ve had about two weeks of Plus+ under our belts here, and the premium rooms at the Plus+ properties are selling at a higher percentage than the other rooms at the hotel.
“Not only are they willing to pay more, it’s looking like they’d prefer to pay more to get more,” he said.
The room primarily serves Red Roof’s disproportionate share of business travelers—something that differentiates the chain from competitors in the economy space, Alexander said.
“We’re in the 50/50 to 60/40 area, whereas I think most economy hotels are 70 to 80% leisure. That just gives us a better mix, especially in the winter when business travel continues to churn and leisure travel tends to drop off,” he said.
“If you’re a business customer and you’re staying at a Red Roof Inn, when you have to submit that to your employer, as long as it’s a Red Roof Inn, the additional $7 or $9 is not going to cause them not to approve your expense.”
Adding to the portfolio
Alexander has focused much of his attention in recent years to bolstering the existing portfolio—a task complicated by the global recession and internal economic strife.
“I became president of Red Roof in May of 2009, and May of 2009 is when we defaulted on our loans.
“That was a present for me for being promoted,” he joked.
“We’ve had a remarkable turnaround. That misfortunate allowed us to be in a position where we attracted some private equity. They were able to come into the brand at a very good leverage point, believed in the brand, believed in our story, believed in the strategy that I put forth and were willing to invest. That was genius on their part and it really allowed us to get in and get renovated when no one else was really in the ballgame,” Alexander said.
With the NextGen rollout almost complete and the initial Plus+ implementation underway, Alexander is now turning his attention to expansion.
“I expect this year to see significant additions to the franchise side of the business,” he said, pointing to the hiring of 25-year hotel-industry veteran Phil Hugh to lead up development as well as the creation of five dedicated development positions.
There’s a lot of green space in the West, Alexander said. In California alone, he could see an additional 150 to 200 Red Roof hotels.
Decisions to go Plus+ will be made on a property-by-property basis, the executive said. The goal is to upbrand 20% to 25% of the portfolio with the designation.
“Red Roof Inn is still the primary brand. … Red Roof Plus+ is an opportunity for our guest to experience an upgrade but more importantly for our franchisees to have the ability to upgrade their properties,” he said.