Cendant ascendant

The launch of a Howard Johnson Serviced Apartment in Bristol is the start of Cendant Corporation's assault on the UK's three-star market. Sara Guild reports.

This month sees the launch of the first Howard Johnson Serviced Apartment in the UK, with a 68-bedroom apartment in Bristol. Apartments in Liverpool, Manchester and Nottingham, and also Dublin, are due to follow later this year.

It is a swift turnaround in fortunes for Howard Johnson. With sister brand Days Inn, it was controlled by Premier Hotels, which went into receivership last spring.

In 1999, Premier had been appointed master franchisor for the two brands in the UK and in seven other European countries by Cendant Corporation, the US franchising giant that owned the brand names. Premier had established 15 Days Inn hotels along motorways up and down the country, and in London opened one at Waterloo and another at Wembley. Less successful was the expansion of the Howard Johnson brand name - it had only four hotels.

Swift action
But when the receivers were called in to Premier last May, Cendant moved quickly to take control of the brands. By July, it had announced it would take on the franchising and development from a newly created London base. In early November, Irish-born Roy Murray began work as managing director of hotel franchise services for Cendant's European division. Murray had previously spent 14 years with Choice International, latterly as vice-president (international), and has considerable experience in the franchise hotel market.

Asked whether Cendant should have taken charge of its own franchising from the outset, Murray is diplomatic about decisions taken before his time.

"There was a different philosophy then," he says, "and perhaps it was opportunistic, but it was not driven by the US companies branching out. The rest of the world looked at the US brands and said, ‘It works in the USA and it will work here too.' But the USA has 260 million people speaking a common language, with a middle-class market to feed those hotels."

While a common language and a middle-class traveller do exist in the UK, cash-flow became an issue and Premier failed to survive. Of its 19 hotels, only one has decided to leave the franchise, and Murray is left with 18 hotels with which to build brand awareness.

Murray is clear about where the two brands sit. Days Inn is at the budget end of the market - the "cheeky chappie", as Murray refers to it. It sells for £49 a night outside London and £70-£80 in the capital. He expects Days Inn to grow organically by 12 properties in 2002.

Howard Johnson is at the "top end of the three-star or in the four-star category", with rack rate ranges of £70-£75, with London commanding £130-£150. Murray expects to add 10-12 properties by the end of the year, including the five apartments.

As a franchising company, Cendant does not operate its hotels. What Murray is seeking are existing operators interested in converting their hotels to the Howard Johnson or Days Inn brand, or investors willing to fund new-build properties that can then be handed to management companies and run under one of the brands. Murray may also expand the brands through a joint venture with investors. He says that the company is "cash rich" and can afford to do so.

Existing hotels with a minimum of 80 bedrooms fit the Howard Johnson profile, although Murray admits that he will compromise on rooms if the location is right. The cost of converting such hotels to a Howard Johnson will average £2,000 to £3,000 per room but will not exceed £5,000.

In the USA, Howard Johnson is virtually a household brand, but few UK travellers will know it from its existence here. Opening five serviced apartments under the brand name will help to build that awareness. It is quite common in the USA to diversify a product under one brand name to suit different markets. So where the market demands are for a longer-stay product, it is sensible to open an apartment rather than a traditional hotel.

"It is really demand-driven," Murray says. "There are a lot of requests for extended stays all over the UK, as people and companies move out of London and into secondary and tertiary cities."

Murray believes that the brand needs "re-imaging" from the way it was being rolled out previously. "It is 25% higher in price [than a Days Inn] and needs to have a contemporary feel, but with a European/British style, and offer full service," he says.

Its market niche is what Murray's US employer would call mid-tier and what the UK market might call three-star. Once pilloried and declared a no-man's land for hotels, the three-star market was abandoned by hotel companies to such an extent that there is little competition for a franchise name such as Howard Johnson.

Quality signature
He believes that the strength of a brand name works well in the mid-tier market, where standards can vary greatly from hotel to hotel. "Branding offers a signature that should spell quality," he says. "That is what the consumer buys a brand for. If it is not up to standard, then they have some comeback. They will sacrifice individuality for price on that point."

The timing could not be better for the likes of Cendant to be recruiting independent hoteliers to the Howard Johnson brand. "A bad market is very good for franchising," Murray says. "What people think is, ‘I have to broaden my market', especially in the mid-market sector."

Cendant's distribution and marketing might is enough to make it an attractive option for most independents. "Hotel operators want an international brand with the marketing power that someone like Cendant has," says Murray. "We own the global reservations system Galileo, and offer worldwide distribution. We own several brand names, including Avis rental cars, RCI and NCP car parks, and we can market and advertise our brands across all the others."

To add value for the customer and to strengthen brand awareness, Murray is planning on introducing a loyalty scheme within the UK by the end of the year for Howard Johnson customers. He has yet to finalise the discounts and he is cautious about how it will affect Days Inn, as he knows that, at the budget end of the market, there is a danger of squeezing the margins.

While 11 September has not had a great impact on the Howard Johnson or Days Inn markets, Murray recognises that, if the four-star hotels continue to have difficulties and drop their rates by 30%, there will begin to be an effect on his brands.

But he prefers to be optimistic. While he points to the strength of the pound and to Germany's declaration that it is in recession as potential obstacles to financial prosperity, he believes that the Commonwealth Games in Manchester this summer and the Queen's Jubilee have the potential to boost inbound tourism.

Days Inn and Howard Johnson

1925 Howard Johnson opens ice-cream stand.

1954 First Howard Johnson hotel opens in Savannah, Georgia.

1990 Howard Johnson acquired by Hospitality Franchise Systems, which later merged to become Cendant Corporation.

March 1998 Premier Hotels awarded master licence to develop Days Inn and Howard Johnson hotels.

March 2001 Royal Bank of Scotland calls in its loans to Premier.

May 2001 Royal Bank of Scotland puts Premier in receivership.

June 2001 Cendant terminates agreement with Premier and assumes the master franchisor license.

February 2002 There are 15 Days Inn and three Howard Johnson hotels and one Howard Johnson serviced apartment in the UK.

Cendant Corporation

Brands: Days Inn and Howard Johnson

Managing director, hotel franchise services (Europe): Roy Murray

Maximum rack rates: Days Inn, £49, £80 (London); Howard Johnson, £70, £150 (London)

Hotels: Days Inn, 15 at present, 12 more by end 2002; Howard Johnson, three at present, 10-12 more by end 2002

Howard Johnson serviced apartments: one, four more by end 2002 (one in Ireland)

Turnover for 18 hotels (June-December 2001): £10.7m

Forecast increase: 10% in 2002 in same time-frame

Business generated by GDS and travel agents: 60%