Yesterday at the NYU International Hospitality Industry Investment Conference, Extended Stay America hotels (ESA) announced the brand’s next five-year growth strategy, anchored by its first ever franchising program and a return to new hotel builds, the first in a decade. ESA is combining its attractive and best-in-class operating model with a franchisee-friendly agreement and guest-inspired redesigns to accommodate an ever-growing and underserved mid-scale extended stay audience.
In a United States industry comprised of 55,000 hotels and 5.2 million hotel rooms, approximately 22 percent of demand for those rooms comes from guests staying five nights or more at a time. Yet only 8 percent of the available inventory is considered extended stay. Seeing an attractive demand profile within the segment, limited supply growth, and a tremendous business opportunity, Extended Stay America is evolving to meet the needs of today’s travelers.
As part of the brand’s previously announced ESA 2.0, Extended Stay America expects in the coming months to return to unit growth, with a target portfolio of 700 Extended Stay America branded properties by 2021, approximately 70 percent of which will be owned/operated and 30 percent franchised. The company will also adopt an asset merchant approach to its large real estate holdings – buying, selling, developing and improving real estate one site at a time.
“As we begin franchising at ESA for the first time, we’re seeking partnerships with well-capitalized franchisees capable of developing their market areas, which might include buying the existing corporate-owned ESA hotels and converting them to franchised units. We would like to see our prospective owners ‘cluster’ operations for better efficiency and pricing power within their markets and match their local development and ownership expertise with the advantages of Extended Stay America’s scale,” said Extended Stay America EVP and Chief Asset Merchant Jim Alderman.” The goal is for each franchisee to control multiple properties, with the potential of taking ownership of and facilitating our brand’s presence in entire markets.”
Extended Stay America’s keen focus on serving extended stay guests, with sales, revenue management and operations strategies specifically catered to this audience, yields industry-leading margins and outstanding cash flow across its 625 owned and operated properties. By implementing a streamlined and effective operating model with only 12-13 associates at each property, workplace standardization and clear operating procedures, Extended Stay America has created consistency in guest experience across the brand’s portfolio, eliminated waste and improved labor standards. With the launch of its franchise program, Extended Stay America will make its operating model available to third-party owners and operators for the first time.
By concentrating on fewer, but larger, franchisees, each can control more assets within their chosen markets and Extended Stay America can continue the consistency for which the brand is known, serve the increasing demand in new and growing suburban markets and provide scale opportunities for its franchisees. By 2018, Extended Stay America will be actively franchising, with interested partners having options to convert existing assets, buy and franchise existing hotels from Extended Stay America, or build new franchised properties.
In addition to growing the brand and attracting best-in-class partners, Extended Stay America is investing in well known, experienced and well-established talent to bring ESA 2.0 to life. Extended Stay America’s Executive Vice President and Chief Asset Merchant Jim Alderman and Vice President of Marketing Strategy and Planning Rick Canale welcome a stellar team of industry professionals with more than 65 combined years of hospitality experience: Managing directors of real estate, Judi Bikulege and Steven Scheetz; and managing director of real estate development, Stephen Miller.