Trusthouse’s New Line of Motels Aims to Lure the Budget Traveler
Trusthouse Forte Hotels of El Cajon, which owns or franchises 550 hotels in North America, made headlines this week when it announced that it plans to add the infamous Watergate Hotel to its list of luxury hotel properties.
The acquisition of the Washington hotel, scene of the 1972 break-in that proved the undoing of Richard Nixon, demonstrates Trusthouse Forte’s stated appetite for expansion on all fronts in the lodging industry.
But executives of the company, best known for its 492-hotel Travelodge chain, insist that it is the budget traveler--not the big spender--who holds the key to future profits.
To win over the cost-conscious traveler, Trusthouse Forte recently introduced a new line of hotels called Thriftlodge, a hotel that typically consists of 60 to 80 rooms priced at $25 to $30 per night. The first Thriftlodge, now open in Thomson, Ga., will be followed by 500 more of the budget hotels over the next five years.
Trusthouse Forte is not the first hotel chain to recognize this under-served market. Major hoteliers including Quality Inns and Days Inns have established low-priced products to compete against market leader Motel 6, the Dallas-based company that, as of Jan. 1, operated 522 budget hotels totaling 59,900 rooms.
Quality Inns of Silver Springs, Md., for example, has opened three of its Sleep Inns budget hotels since last June and plans to open 26 more by the end of 1990. Days Inns of Atlanta has opened 28 of its Daystop budget properties, with 50 more set to open by the end of the year.
The new breed of hotels is appearing at a time when the hotel industry is awash in a nationwide glut of rooms because of overbuilding, especially in luxury and economy class properties. Occupancy rates are at near-record low levels in several major U.S. cities.
Still, a significant percentage of cost-conscious business people and the fast-growing senior citizen population balk at paying the nighly rates of $50 to $100 that most business-class hotels charge. Instead, they opt for lower-priced hotels when available, market studies have shown.
Although competition is significant, Trusthouse Forte executives say their Thriftlodges will fare well in the new market because they can deliver a better, cheaper budget product more quickly and efficiently than their competitors.
A big key to the Thriftlodge line’s low prices is the modular construction technique, which drastically lowers the cost of development, said Barry Conrad, Trusthouse president and chief executive officer. The modular approach enables the company to build clean “high-tech” rooms in a matter of days and weeks instead of months.
Trusthouse Forte, whose parent company is Trusthouse Forte PLC of London, is the only hotelier now using this building process, Conrad said. The assembly-line production of bedroom units is designed to allow Thriftlodges to make a profit while charging low room rates.
“Our studies have shown that families are once again traveling by car, rather than traveling by airplane, which is becoming so expensive,” Conrad said. “(Thriftlodges) will also be for the businessman who might be traveling on his own account.
“There are 1,000 cities in North America with populations between 15,000 and 50,00) . . . those are the cities we’ll be targeting,” Conrad said. “This way, people can go through the country on a network of Thriftlodges. And, every time they stop, they’ll know exactly what the price will be and know exactly what the product will be.
“In the past, these cities have been served by the mom-and-pop shops, but our (products) will offer more amenities,” Conrad said.
Industry analyst Daniel Daniele of Laventhol & Horwath refers to the Thriftlodge units as “high-tech, hard-budget” products because they come equipped with portals that enable business people to plug in their computer modems. Thriftlodges will soon offer “electronic check-in and check-out,” enabling guests to enter or leave via a drive-through similar to those found at banks.
Sleep Inns, the budget hotel line of Quality Inns, offers another “high-tech” feature. Sleep Inns has discarded hotel keys and allow its guests greater security by using a “cellular entry” system: guests use their own credit cards to enter rooms.
Daniele, who works out of Laventhol & Horwath’s Chicago office, predicted Trusthouse Forte’s new budget line would draw ample numbers of patrons.
“They should do well against the aging hotels of the world, like the Motel 6s,” Daniele said. “Nothing against Motel 6, they’ve been tremendously successful. That’s why the others are copying them. But people like to try things that are new. If you say you got low rates at a 20-year-old hotel, no matter how nice, people aren’t impressed.
“But if you say you stayed at a brand new hotel and the rates were really inexpensive . . . well then, that’s something,” Daniele said.
Besides the demand for budget units, Daniele said hoteliers started building such inns because it was difficult to obtain financing for more elaborate projects.
“This is probably the fastest-growing segment of the lodging industry,” Daniele said. “With very little financing available for larger deals, the major players have been turning to projects that require less capital.
“Instead of a 275- to 325-square-foot room” typical of larger hotels, “they’re building bedrooms 198 to 248 square feet in size,” Daniele said. “Such projects are attracting new entrepreneurs and existing operators who can get financed through the Small Business Administration or at their local business bank.”
Lower construction costs is where Thriftlodge can get an edge on its competitors, said Jere Hooper, Trusthouse executive vice president/franchise development.
“It’s furnished and carpeted when it comes out of the factory,” said Hooper, describing a Thriftlodge unit. “The bedroom itself is built in a factory and then hauled to the site, where it is tied down to the foundation and to each other.
A Thriftlodge exterior is decorated to match the region where it is constructed: the company manufactures four facades--Spanish mission, urban, Cape Cod and Southern colonial.
“It’s like building a car . . . if you build a car one by one it’s going to cost you a fortune,” Hooper said. “But, if you build an assembly line of cars, it’s much cheaper,” Hooper said. “The modular concept is just like an assembly line.”
According to Hooper, by using the modular concept, a Thriftlodge can be built at a cost of $20,000 to $23,000 per room. In comparison, Hooper says, other budgets hotels cost $30,000 per room or more to build. Laventhol & Horwath’s Daniele, however, said he knows of competitors who have built hotels at a cost of $26,000 per room.
“Besides the actual price factor, the modular concept hastens the construction pace,” Daniele said. “If you can get a hotel up and running . . . not only are you saving constructions costs, you’ll be making money faster, too.”
