Twenty-two years after the successful launch of the upscale extended-stay Homewood Suites by Hilton brand, Hilton Worldwide doubled its presence in the extended-stay category, introducing the midscale Home2 Suites by Hilton in March 2011. In addition to price point, the two brands have their own profile and personality. Yet both have found favor with the franchise community. Bill Duncan, global head of brand management for both brands, credits the strength of the underlying business model.
Do you target Homewood and Home2 to different franchisees? It depends. At the same time each brand is distinctive with its own voice, there’s enough crossover, so that franchisees understand the commonality. The brands each have the word “home” in their name, for example, which underscores the residential nature of extended stay generally. Franchisees continue to sign up for both. You could say we’ve created separate swim lanes for the two brands, and at the same time, they run parallel to each other. The key issue tends to be determining the right location to build a Homewood and the right location to build a Home2 by understanding the opportunity in the local market.
Do Homewood and Home2 franchisees tend to have other Hilton focused-service brands (Hampton, Hilton Garden Inn) in their portfolio or are they more likely to stick with extended stay? When extended stay first started, it was more of a niche segment, so franchisees were prepared to be pioneers and just develop extended-stay hotels. They liked that there were fewer check-ins and checkouts, fewer suites to clean each day because extended-stay guests require less frequent housekeeping, and so on. But over the years, these franchisees have evolved to be really focused on the right product in the right market at the right time. Consequently, they’ve become very diverse in the products they develop.
Dual-brand projects have become quite popular. They often include an extended-stay brand as one of the components. Why? By having brands with two clearly defined target audiences, franchisees cover their bases. An extended-stay brand actually tends to be the anchor brand in these projects, most of which are in urban markets where available land is at a premium. More often than not in Hilton projects, Homewood is that brand. As a category, extended stay overall tends to be fairly resilient. Furthermore, having a suite product in the dual build creates a lot of value.
Is it fair to assume first-time franchisees aren’t typically being given the green light to develop dual-brand projects? That’s correct. You’d more likely see a proven Hilton partner taking on a project of that complexity. You really have to be on your game from an operations perspective when it comes to bringing two brands under one roof. But on the other hand, a stand-alone extended-stay hotel is an ideal undertaking for the first-time franchisee. In fact, it was part of our thinking when we developed the concept for Home2.
With extended-stay hotels being so residential in nature, do you see developers of multifamily real estate interested in crossing over to this form of lodging? Sure. But typically when we have conversations with these individuals, they’re deciding if they want the rental-type income stream or more of a hotel-type revenue stream. In the latter, there’s an opportunity to maximize income based on demand and really drive increases in revenue during peak times. We tend to have these conversations mostly in urban markets because the return from hotel can be so much greater.
