Hotel Analyst: Best Western Launches New Franchise In Attempt To Slow Magnuson Hotels’ Rapid Growth

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By Katharine Doggrell October 12, 2016

Best Western has launched three brands under its new SureStay flag, using a white label franchise model. The brand, which does not feature the Best Western name, has been seen as a reaction to the launch of the low-cost Magnuson Hotels, which offers a fee-based alternative to franchises.

One source close to Best Western, who declined to be named, told Hotel Analyst that the brand was likely: “a direct response to Magnuson Hotels poaching Best Westerns”.

Tom Magnuson, Magnuson Hotels’ CEO, told us: “Best Western SureStay is a corporate venture designed to defend itself against the departure of nearly 500 hotels. Hotel owners that chose to join Magnuson Hotels’ low cost, no-Property Improvement Plan (PIP) brand platform. “If their motives were pure, they would have done away with expensive PIPs decades ago instead of issuing mandates to hundreds of small business owners and families.”

SureStay will give hotels with a TripAdvisor score of 3.5 or higher access to the company’s infrastructure and distribution channels. The company said that SureStay opened up a “migration path” for Best Western hotels which do not wish to pursue its design programme. Nearly 20 SureStay letters of intent have already been signed since a soft launch to Best Western members earlier this month. Initial projections for SureStay’s growth have 150 hotels online within three years and 800 by 2026.

The SureStay umbrella includes: SureStay Hotel (premium economy), SureStay Plus Hotel (lower midscale) and SureStay Signature Collection (midscale soft brand). Best Western said that it aimed to provide options in the marketplace “for franchisees who are disillusioned by one-sided contracts that do not deliver”.

David Kong, president & CEO of Best Western Hotels & Resorts, said: “In North America, there are currently 17,000 branded hotels, and another 12,000 unbranded, in the economy and midscale segments. The white label approach allows Best Western to tap into this tremendous potential without compromising its brand image. “Currently, many of these hotels have little to no consumer relevance. Their brands have very little potential to drive superior revenue, and the owners are incurring high franchise fees from brands that don’t provide the necessary support, service or value.”

In addition achieving and maintaining a TripAdvisor score of 3.5 or higher. They will also need to adhere to the SureStay Service Promise, which will include factors such as speed of Wi-Fi connection and standard of breakfast, as well as agreement to surprise inspections. Unlike the Best Western estate, there is no requirement to renovate a property to fit with design or standard requirements, as long as the TripAdvisor score and Promise are met. In its prospectus, the company said that it would adhere to fair franchising principles, including a 15-year contract with opportunity for early termination, areas of protection, advisory councils and freedom to use vendor of choice.

“With SureStay, we are seeking to create a core group of hotels that will differentiate themselves from others in the market, focusing on delivering high quality and outstanding service,” said Kong. “There is no PIP for SureStay hotels. Rather, we are working to create consumer relevance and confidence through unprecedented quality and care. We believe this will really resonate with consumers in these segments.”

The first 100 hotels to join SureStay will receive an array of incentives, including waived royalty fees for five years, a regional manager to kick-start their sales and marketing efforts, and hotel-level training support. Additionally, 100% of the marketing and technology fee (5%) will be re-invested to help hotels succeed.

“We believe SureStay creates a win-win-win situation – the consumers win through superior customer care, the hotels win through superior ROI and the brand wins through a new revenue stream,” said Kong. “Best Western members are firmly behind this concept as they understand the benefits and potential of this strategy. We are gratified by the warm reception and excitement surrounding SureStay, and feel we are off to a tremendous start.”

Unlike Best Western, which is a non-profit organisation, SureStay will be for profit. Although Best Western charges a membership fee, SureStay will charge based on a percentage of gross room revenue.

Best Western currently has a global network of 4,100 and currently offers seven brands, with Vīb launching in 2015 and GLō in September last year. Developers have broken ground on a Vīb in Chicago and the company has projects under development in Miami, Los Angeles, Staten Island, Springfield, Little Rock, Seoul, South Korea, and Vientiane, Laos and said it was actively negotiating deals in key US cities including Atlanta, Charlotte, Dallas, New Orleans, Scottsdale and San Diego. GLō is described as a “broad-midscale new construction brand that offers a hip, boutique-style experience for savvy travelers who expect the best in value, design and comfort”. The group has yet to confirm any sites under the flag.

HA Perspective [by Katherine Doggrell]: Much has been made of late of brands only being relevant to owners because of the distribution they offer and here come three which are only distribution and very little brand, certainly not an established one in which hotels can take comfort in times of need. The motivation for Best Western is one of scale – more brands, more negotiating power with the OTAs. The company already has plenty of flags operating in the SureStay space so offering more under ‘by Best Western’ would make no sense. This gives hotels which don’t want to pay to have certain colour chair – and would otherwise be at risk of leaving Best Western for the similarly-louche competition once they slipped off the standard spectrum – a chance to remain in the group. Cannibalisation must be a concern for Best Western who are now faced with proving what they have been telling owners all along – that they have a lucrative connection to the consumer. For those observing, they will also be proving that brands really are just distribution.

Published 12 Oct 2016

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