Budget for growth
Stuart Harrison prefers to talk about economy hotels rather than budget hotels. And the managing director of brands and franchising for Premier Hotels has much to discuss these days, as his firm begins to roll out the Days Inn and Howard Johnson brands in the UK.
Premier acquired the brands in a deal with the USA's giant Cendant Corporation in 1998, in which Premier became the master franchisor for Days Inn in the UK and for Howard Johnson in the UK and eight other European countries.
August will see the opening of the third UK Howard Johnson, a 120-bedroom hotel at Wembley in north London. The first Premier-owned Days Inn opened, with 162 bedrooms, at Waterloo in central London last December. By the end of 2003, Harrison hopes to have opened 40 Howard Johnson hotels and 100 Days Inn hotels.
Both brands sit in the budget market price range. Rooms in the Howard Johnson hotels will cost £55-£65 and at Days Inn £45-£55. But what, a traveller might ask, makes them different from the Travel Inn, Travelodge or Premier Lodge names that already pepper the market? Harrison believes that they are not all offering the same product.
"I see the economy market in terms of low, middle and upper," he says. "At the low end, there are Formula 1 and Super 8, but I don't think the British psyche will take to it, so we won't do it. The mid-range are the Travel Inns and Travelodges, and I believe Days Inn fits in that category."
But it is the upper range that Harrison finds most interesting. "Express by Holiday Inn was a highly successful introduction," he says. "Fifty of these hotels have been introduced in three years and the yields are highly acceptable, especially against the traditional three-star market. And this is where we will position Howard Johnson." As Premier has already opened 14 Express by Holiday Inn hotels under franchise from Bass, Harrison feels comfortable in that market, and he acknowledges that some commentators may say his "upper economy" competes in the three-star rather than the budget market.
But it is fulfilling the customer, not the classification, that is important, he says. "The mid-week, independent, corporate market on a specific budget wants a bedroom product where they can work, sleep and possibly use a bistro or coffee bar," he notes. "They do not want to pay the additional utility costs of leisure facilities, restaurants, conference and banqueting." So there is little of those in the Days Inn or Howard Johnson specifications. Harrison can cite 74 price differentials between the two products, from greenery to sheets, but in both cases he says that he recognises the needs of the guest.
In price, there is about £10 difference between a Howard Johnson and a Days Inn. The former offers guests access to a hot breakfast, all-day café-bistro food, and a hot evening meal on-site, but the parameters are not so rigid that they can't be broken. In London, Harrison says, the Waterloo Days Inn also offers an evening meal because guests expect it. At Glasgow Airport, the Days Inn will have added extras such as triple-glazing and safes in the rooms, because of the type of guest Harrison expects. "I'm not intransigent to the needs of the customer," he says.
Next door, Premier is building a Howard Johnson where an extra £10 per night buys guests higher quality linens and curtains, as well as underfloor heating in the bathrooms and anti-fog mirrors. The cost to Premier is about £4,000-£5,000 more per room.
As master franchisor, Premier Hotels is committed to owning Days Inn hotels in key cities such as Glasgow, London and Birmingham. "We will provide the backbone of the system," he says, "but we want a franchising environment for Days Inn."
Harrison is looking for partners in the form of small pub chains and hotel groups which will have the space to convert to the optimum 52-bedroom hotels. He does not rule out buying a small hotel group.
In addition to Premier's own building programme, it has formed a strategic alliance with Welcome Break (Caterer, 5 August 1999, page 6) to convert its Welcome Lodges to the Days Inn brand. Seven conversions have already been done, in addition to one new-build, and by September 2001 there will be 21 Days Inns along UK motorways. The deal, which has Welcome Break investing £18m in converting its Welcome Lodges to Days Inns, has given the brand exposure to 78 million visitors a year.
Brand exposure and growth is the name of the game, and Harrison is confident about Days Inn going head-to-head with the big Travel Inn and Travelodge names. "Sure, we are coming in as the number three player," he says, "but we do have the flexibility [to grow by] offering franchises."
On service, Harrison believes that his customers will appreciate the little things, like being able to pay on leaving rather than on arrival, and having a 24-hour receptionist and direct-dial phones in the rooms - particularly important for female travellers.
Yield over high occupancy
In a price-sensitive market, Harrison is aggressive, but admits that he wants yield, not necessarily high occupancy. At the Days Inn in Waterloo, room price at opening was £59.50, but when occupancy reached 85% the price increased to its current £69.50. With occupancy running at 94% in May and June, Harrison says that the price will be £75 from September. "I open a hotel with a rate to get occupancy and market share, then I move on the rate to get yield," he explains.
With the Howard Johnson brand, Harrison expects that Premier will do most of the building and owning itself, to build it up. It will sit alongside the 16 Express by Holiday Inn hotels that Premier has built, two of which are due to open at the end of this year, in Poole and at Brighton Marina. Attention then is sure to shift to building the Howard Johnson brand. Following the three sites in the UK, Harrison is beginning to look at European expansion, with Vienna, Dusseldorf and Frankfurt the likely sites.
Harrison believes that Days Inn and Howard Johnson are the last two major names to be imported to the UK from the USA. Cendant Corporation also owns Avis rental cars and NCP car parks, both of which Harrison hopes to work with on joint marketing initiatives.
A well-known proponent of the branded market, Harrison says that consistency is the key. The economy market is going to take on B&Bs, pubs and the "unfocused three-star hotel market", he believes. "I am the first to acknowledge that there are brilliant exceptions, but where is the consistency?" he asks. "On the whole, we can take market share."
Harrison points to Chesterfield, where Premier opened an 80-bedroom Express by Holiday Inn in February. "Within six weeks of opening," he says, "we had 70% occupancy. Why? Because we had taken from the bed-and-breakfast market and from the three-star market, and that will happen again and again around the country.
"I believe there is enormous potential to grow," he adds. "If you say that 30% of the UK market is branded and, of that, 5% is the budget sector, all you have to do is look at the USA and extrapolate."
In the USA, 70% of hotels are branded, and while Harrison does not think that the budget market here could account for 20% of that figure, he does believe that 12%-15% is a realistic target.
FACTS:
Premier Hotels
Master franchise holder for Days Inn and Howard Johnson brands
Bought from: Cendant Corporation
Managing director of brands and franchising: Stuart Harrison
Rates: Howard Johnson, £55-£65; Days Inn, £45-£55
Premier's plans: by 2003 - Days Inn, 100 hotels in the UK; Howard Johnson, 40 hotels in the UK and Europe
History of Howard Johnson
1925: Howard Dearing Johnson opens ice-cream stand
1935: Johnson franchises first restaurant
1954: Johnson opens first hotel in Savannah, Georgia
1990: Howard Johnson acquired by Hospitality Franchise Systems, which later merged to become Cendant Corporation
1999: Cendant awards master franchise for UK, Austria, Belgium, Germany, Luxembourg, the Netherlands, Portugal, Spain and Switzerland to Premier Hotels
Source: Caterer & Hotelkeeper magazine, 13-19 July 2000
