Expansion Plan – New global franchising platform to accelerate Sonesta’s growth

Between acquiring RLH Corporation (RLHC), adding more than 200 properties to its brands from Service Properties Trust and launching two brands with Sonesta Select and Sonesta Simply Suites, Sonesta International Hotels Corporation has had a year of profound growth. Now it is poised to grow even more with the launch of a global franchising organization.

“This is an incredible transformation that this organization has gone through in a relatively short period of time,” said Keith Pierce, EVP/president, franchise & development, Sonesta. “Especially in the face of a global pandemic when, frankly, most major lodging companies were playing defense and furloughing and terminating, preserving capital and closing ranks to survive during this horrific period in time—not only for the industry, but for humanity.”

At the beginning of 2020, Sonesta had only 58 hotels under three Sonesta-specific brands in the U.S., and now, through its additions, it is now one of the largest hotel companies globally with roughly 1,200 properties, more than 100,000 guestrooms and a portfolio of 15 brands across multiple market segments.

Pierce, who officially joined the company when the RLHC deal closed in March, brings in a wealth of experience in hotel franchising. He spent 27 years with Wyndham, serving in various roles including EVP, brand operations for North America, and before that, president of hotel brand operations for the Americas, and group president for hotels at Wyndham’s predecessor company, Cendant Corporation.

“I have spent the better part of my career running large brands that are pure franchise, so we were prepared,” he said.

In addition to Pierce, Sonesta also added industry vet Brian Quinn as chief development officer in March. Quinn has more than 20 years of senior development and sales management experience, including nearly three years as chief franchise sales officer at RLHC. “Brian comes to us with a great background and a real depth and experience in franchising,” said Pierce.

Quinn’s experience will help to have a balanced franchise leadership team. “We’ve got a group of individuals who are extremely talented and skilled in select-service, upscale and upper-upscale in the IHGs, the Marriotts and the bigger and more complex deals,” Pierce said. “Then, we have a group of individuals who are focused on the economy, individual owner/operator, the smaller properties. I spent a lot of time on those businesses. I had Days Inn and Super 8 as two of the brands that reported to me…mostly individual owners and operators. The skill set is slightly different.”

He continued, “I knew that coming into the exercise, and so by bringing Brian in, he has got the background and experience through IHG. He was at Red Lion at one time before. He has that strength and breadth of knowledge to cut from upscale all the way to economy. Now as we build up the organization, we basically bifurcated.”

Sonesta is in the process of integrating the two companies, consolidating infrastructure in the back-of-house services, legal, finance and IT. “That is a lot to accomplish in a relatively short period of time,” he said. “The good news is that you’ve got a team in the Sonesta folks that has done some incredible work absorbing more than 250 managed assets in a short period of time. While that was happening, we were acquiring RLHC…I have gone through the transaction. I have transitioned leadership.”

Franchising platform
The acquisition of RLHC was not only about adding its 900 hotels and eight brands, according to Pierce; it was also about adding its franchise platform for the primarily owned and managed Sonesta. “So, the acquisition of RLHC brings a franchising platform to the business and it allows us to build that muscle around the Sonesta brands, most notably Sonesta Hotels, Sonesta Select, Sonesta ES and Simply Suites,” he said. “Rebuilding that engine and that muscle in the world of franchise development is absolutely critical for this organization to get back on track and get those growth numbers going in the right direction.”
Royal Sonesta, the upscale brand, will remained primarily owned and managed by the company.

The new platform has provided the company with a running start in its franchise efforts for the four brands. “We have already begun,” said the EVP. “We started writing up franchise disclosure documents. One of the benefits of buying a franchise platform in RLHC is that you’ve got the legal team. You’ve got the infrastructure around franchising because there are eight brands at RLHC, and they all have franchise disclosure documents. Now we are writing those Sonesta franchise disclosure documents, which will allow us to get in the marketplace a lot quicker than if you were to just start from scratch, which is another benefit of buying into a platform.”

The company didn’t miss a beat on the RLHC side with franchisees after the purchase, according to Pierce. “A couple of days later, we were back in the market selling franchises,” he said. “We were prepared with the modifications of the franchise disclosure documents for the RLHC brands to get back into the market. Once you have a material change in the world of franchising, you have to go back to your franchising disclosure documents, re-register, and if you have prospects, redisclose.”

The goal for the organization is that by the fourth quarter of this year, franchising will be in full swing for all 12 brands, including the four Sonesta brands. “The interest that we are receiving is unbelievable,” he said.

Pierce reports that the company has already engaged a developer in Canada, and although it already has a master franchise agreement in Latin America, there is opportunity to grow in the area as well.

He envisions that most of the new franchisees coming on board in the beginning will be on the conversion side. “At first, there will be mostly new conversions because that is the environment today until new construction comes back,” he said. “Plus, there are a couple of the brands that we need to build out our prototypes, designs and requirements. On the franchising side, new construction will be part of the growth model into the future.”

Attracting potential franchisees
Now that they have the franchise platform, what will bring potential franchisees into the fold? For Pierce, it’s simple: The company owns and manages properties just like its franchisees. “For us, this is going to be a very unique opportunity to be a franchisor and an organization that is friendly, approachable and reasonable in terms of requirements and standards and those things that you need to succeed,” he said. “That may sound a bit trite to a certain extent but, ultimately, when franchisees can connect with you and you are reasonable when it relates to brand standards and requirements, it means a lot to the them because you are an owner and operator yourself and are right there in the trenches.”

The company knows firsthand the challenges that its franchisees are facing because it faces them itself. “In many ways, we are aligned on the challenges we confront day in and day out as hoteliers,” said Pierce.

He pointed to the current challenge of finding much-needed labor on property. “It has always been a challenge in the hospitality space—but post-pandemic it has become a real challenge,” he said. “Now, as performance starts to increase in the industry, we can’t get enough housekeepers. You are getting occupancy back, but you can’t get the rooms cleaned. What do you do? Do you reduce your inventory? Change what you provide to the consumer? So, when our franchisees are sharing those challenges, we are experiencing those same challenges at 300 hotels. We are very much aligned, and it is different than if you are in a traditional straightforward franchise organization like where I came from.”

Another major difference-maker to Pierce is what he calls the human capital. “One of the unintended consequences of some of the other organizations growing to be so large globally is that it is hard to provide regional support because the numbers are so big,” he said. “When you have 8,000 hotels, typically after a support person gets to about 50 properties, you get diminishing returns in support. When you run the numbers, that is a lot of bodies. We have the ability to really over-service and provide that human capital touchpoint.”

He knows of this from his previous experience. “Before I left my other company, our licensees were referred to as just a site number,” he said. “We didn’t have any relationship with them, just ‘What’s your site number?’”
That will be different for Sonesta’s franchisees. “We have an opportunity to have a relationship, to build a culture,” said Pierce. “It’s high touch. That’s where we will create our point of difference.”

He cites the Voice and a Vote program at Americas Best Value Inn, a brand that came from the RLHC acquisition, helping to build that relationship. “They play a role in how we shape the organization and its future,” he said. “They have played a role that has been lost a little bit with the prior ownership, and we are bringing it back.”

Pierce and his team are also gaining valuable input from the three franchise advisory boards for Americas Best Value Inns, Knights Inns and Hotel RL/Red Lion Hotels who were already part of RLHC’s efforts to hear from owners (see sidebar, previous page). “We have had great conversations,” he said. “The franchisees are excited. Across the three boards, there are 27 board members. I have spoken to each one of them before the acquisition, one-on-one. Then two weeks ago, we had our first round of franchisee advisory board meetings. We are off to a great start.”

The company’s new scale and the leverage it provides with vendors will also provide franchisees with a benefit. “Over time, scale is a real driver of getting your cost bases down and providing that cost reduction down to your franchise community,” said Pierce. “As part of the acquisition, there are some real synergies around scale and it is really just readdressing the relationship we have with third-party providers, whether it be OTAs, technology providers or other vendors.”

He used the example of approaching OTAs in search of the best commission. “This is probably one of the biggest opportunities—when you go to Booking.com and Expedia and say, ‘We need to get the best possible commission for our franchisees,’” said Pierce. “In Q1 of 2020, Sonesta was 58 hotels, so they got X commission. But now, we go back to them and now we are 100,000 rooms and 1,200 properties and we are growing—and growing quickly. We want to revisit that higher commission.”

Building recognition
While Sonesta has grown from 58 properties to 1,200-plus in a little more than a year, that doesn’t mean that its name recognition has grown to that of other comparable brands, and the company has a strategy to address that.
They are starting first with B2B efforts, through industry media. “What you will notice in our first ad campaign, and the gamechanger creative there, is on the bottom, there is a brand bar that says ‘Sonesta + RLHC,’” said Pierce. “That is our first introduction to the industry and the development, franchise, owner and managed [communities].”

As the campaign continues through the year, the RLHC name will be removed from ads. “There will be a Sonesta Collection of brands,” he said.

As the company works to integrate the Sonesta and RLHC organizations, they will move to consumer awareness, through different mediums including digital and print.

A key way the brands will be integrated in a consumer-facing way, according to Pierce, is through both companies’ loyalty programs. “The Sonesta program is a traditional points-based type—consumer gets points, franchisee gets charged,” he said. “On the RLHC side, it’s not a points-based program. We’ll bring those two loyalty programs together as one of the first points of stitching the company together.”

Expansion beyond franchising
While Pierce was brought in to build up the franchising aspect of Sonesta, he said that the company is still growing in other areas.

“On the owned and managed side, leadership is looking at three markets—primary gateway markets like New York, L.A. and Miami—that we don’t have a presence in today under Sonesta,” he said, adding that they will likely be under the upscale Royal Sonesta flag, giving the brand a strong presence in those center-city locations.

Sonesta is also looking at its existing portfolio and the changes that came about with the additions made in the last year. “Right now, the team is going through and basically rationalizing the portfolio,” said Pierce. “There are some unique markets where there was a property that was a Marriott on one side of the street and now it is a Sonesta Select, and there was a property on the other side of the street that was a Holiday Inn and now it is a Sonesta Hotel. Just because the team took back so many hotels, there are a couple markets where you have multiple properties in the same market. At some point in time, we will look to evaluate the best strategy for those markets and those assets where we have duplication.”

Brand advisory board members add perspective
Sonesta currently has advisory boards for three of its brands. Hotel Business reached out to a member of each for their thoughts on having Sonesta as a new partner.

“Sonesta’s acquisition of RLH and its brands, which includes ABVI [Americas Best Value Inn and CBVI [Canadas Best Value Inn] franchises, has rejuvenated optimism for the growth of our brands,” said Naman Patel, president, Patel & Joshi Hospitality Corp., and member of America’s Best Value Inn franchise advisory board. “Keith, along with new and current franchise leadership, has shown that they understand why our brands appeal to hotel operators and what it will take to achieve success in this space. I’m excited to work with Sonesta’s franchise team to get our brands where they need to be to generate revenue and value for our hotels.”

“I feel very hopeful with the acquisition of the Red Lion family of brands by Sonesta,” said Jatin Patel, principal, BHG Hotels, and chair of the RL/Red Lion advisory board. “Keith did a very good job of reaching out to us and keeping us informed along the process. With the RLHC family of hotels now having private ownership, I feel that it [will]be better for the brand as there will be more focus on improving the brands and its offerings.”

“It is very exciting when two established, successful brands such as Sonesta and RLHC come together for a bigger impact in the hospitality industry,” said “Mohini” Sukhmani Kaur Hari, owner, Bliss in Unity, Inc., and chair of Knights Inn Franchise advisory board. “The access to a larger joint customer base of both brands will benefit franchisees with increased bookings. It’s time for franchisees of both brands to learn from the best practices of each other and work in sync for the larger benefit. Better customer service should always remain a priority. As hoteliers, we are very excited and eager for the positive outcomes to follow. Most importantly, having a purposeful leader such as Keith Pierce as our EVP, with his years of experience in this industry, only paves the way for exponential growth.”

— Gregg Wallis

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