CEO Jim Amorosia on the Growth of Motel 6 and Studio 6

Jim Amorosia, CEO of Motel 6 and Studio 6, has his company midway through enacting an ambitious growth plan fueled by the Blackstone Group’s acquisition and subsequent investment. Along with rolling out a capital improvement program across the entire system, Motel 6 is ramping up development, expanding even further into Canada, entering new markets in Mexico and South America, and moving into U.S. urban markets. He took a moment recently to give us an update.

So what’s new at Motel 6?
Here it is, 18 months after Blackstone bought us and we have three big things going on. The first is the renovation program. One of the first things Blackstone committed immediately to us was a capital investment that allowed us to refresh the entire system. We always knew that our franchisees were a little resistant because they weren’t seeing us renovate our owned assets as quickly as they were renovating the franchised assets. So when Blackstone made about a half a billion dollars in capital investment, and we were able to renovate 120 to 125 hotels at a time, franchisees jump in with both feet. We went from renovating 50 to 60 units a year, to being able to do 300 in 2013, 300 more in 2014, 400 in 2015, and completing a refresh of the entire system by early 2016.

One of the things the folks at Blackstone noted was that we had a good story that we weren’t getting out to the guest. They said look at that light tower on your prototype—it has a fantastic view that no one can miss and it’s an obvious directional. You can’t put the light tower on existing assets because that doesn’t make sense architecturally, but you have to do something. So we came up with three different exterior treatments above and beyond the normal lighting, signage, and colors that serves as both a directional and an entry point into the newly redesigned lobby. This will do a better job of luring guests to our properties.

Have there been properties that have been dropped from the system in the process of rolling out these improvements?
We have yet to part company with a franchisee simply because they didn’t want to do the investment. That’s not to say that we haven’t had a situation where we’ve had to part ways because [a franchisee] didn’t make sense, but typically that was for more than one reason. Either they weren’t comfortable with the investment or we weren’t comfortable with their delivery of product service in terms of quality. It’s very rare that it’s just one thing.

What else is the team working on?
We’ve also been spending an inordinate amount of time negotiating with all the big OTAs and metafirms to come up with the right approach to our business when it comes to distribution. Three years ago, the amount of third-party distribution we did was less than 1 percent. Last year, we did 13 percent, which will improve to 16 percent in 2014 and up to one-fifth of our business after that. We were able to do this because Blackstone gave us the size to negotiate a fee structure that made sense for our business and for our franchisees. The kinds of [OTA] commissions that are available to standalone properties aren’t an efficient usage of capital. But getting them at the kind of price that we’re negotiating now will bring another five or six points of margin down for the franchisee. So it will make sense to distribute through these channels.

Finally, we are this close to entering into Mexico with both new build and conversion. It’s possible that we’ll have a flag by the end of this year, if not early next. Most of this comes from our brand recognition south of the border. We’ve been pleasantly shocked by how many nationals have come to us saying that they want to build our hotels. So we’re looking at entering three areas of the country over the next 12 to 15 months.

Will you be tweaking the Motel 6 formula to make it work in Mexico?
There won’t be any change in regards to the positioning, but there will be in terms of the building since it makes more sense to build up than out due to land values. That means we’ll probably do more four- and five-story buildings than two story ones. And depending on the ancillary services in the area, we may need to do a little more inside the building.

Mexico is the first step. We’re going to continue South, and we have plenty of people interested.

What’s the latest with Studio 6?
We’re a little over 70 properties and still not even close to where we want to be, which is at a couple of hundred. It took a while for our franchise community to understand how they need to position themselves to make the [Studio 6] efficiencies work. Now we’re starting to get a lot of interest—especially on our new prototype. We’ll be opening three of those this year. We are getting interest in Mexico for this as well, and we’ll be calling it Estudio Seis there. But in order for us to get to the kind of numbers we’re talking about to make this a success, we need to be patient and wait for the right regional chain to come on the market at the right prices. It’s just a matter of time.

Where is the rest of the brand growth going to come from?
We have a little over 1,100 properties between the two brands and we’re looking to grow to 2,500 by 2017. While we’ll be in Canada, Mexico, and South America, we’re still looking at a tremendous amount of domestic growth for our brands. We’re only just starting to make an impact on the major MSAs, where we can do many, many properties. For instance, we’re surrounding San Francisco and we only have one property downtown. There should be at least 10, 12, or 15 properties there. Those are the kind of things we’re looking at.