Sonesta International Hotels Corp. officially became one of the largest hotel companies in the world this month after closing a $ 90 million acquisition of RLH Corp., the parent company of Red Lion Hotels.
Sonesta has not finished growing up. The company officially launched on Tuesday a merged network to franchise the brand’s flags to new owners. The aim is to attract new owners to the eight RLH brands as well as to the Sonesta Hotels & Resorts, Sonesta Select, ES Suites and Simply Suites pavilions.
Sounds good, doesn’t it? But some big pieces are still missing. Business leaders recognize that they must now quickly adopt big-brand strategies around franchise and loyalty programs to maintain momentum.
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“We are turning a bunch of plates right now, but it’s important work for us,” said Carlos Flores, CEO of Sonesta, in an exclusive interview with Skift about the brand’s next steps in growth.
Flores and Keith Pierce, who now oversee the combined company’s franchise division, have run a major awareness campaign among RLH franchise owners since the acquisition was announced late last year. Part of that talk is about stabilization and retention – competing hotel companies like Wyndham and Choice Hotels are kind of on a mission to convince existing hotel owners to accept one of their brand affiliations.
These deals, known as conversions, are increasingly popular with hotel companies during the pandemic as loans are tight for new construction projects. Converting an existing hotel to another brand always costs money, but it’s not as expensive. Sonesta sees a lot of its future franchise deals going through conversions, at least when construction loans are so tight.
But the leaders of the rapidly growing company recognize the need to find a way to better compete through its loyalty program. Companies like Marriott and Wyndham all present their loyalty programs and distribution channels as top value propositions in discussions with potential franchisees.
Sonesta has a loyalty program, but the pre-acquisition company only had around 300 hotels. RLH operates a loyalty program, but not a tiered or points-based system that would be on par with a Marriott Bonvoy or Hilton Honors platform.
“Loyalty programs have become the glue and the thread that binds all of these brands together in mega-businesses,” said Pierce. “I guess you will see that a lot of work will be done in the Sonesta business with the current loyalty program on the Sonesta side and the one on the RLH side where we find out how we can bring these [brands together]. “
The only downside to migrating to a points-based system is convincing franchise owners that it’s worth it. Loyalty points serve as a type of currency, but this type of program adds about 5% of spending to an individual overnight stay for franchisees, Pierce said. Ultimately, it becomes another franchise right.
“What will define successful execution is whether franchisees find value in a points-based program,” said Flores. “We have to tackle the issue of whether you can triple or quadruple your loyalty, but now you have overhead. “
While they weren’t ready to give details on what Sonesta’s future combined loyalty program would look like, Flores and Pierce clearly see the value of something akin to a Bonvoy or Wyndham Rewards.
“There are a lot of consumers who travel who have a lot of points and want to keep building those points,” Pierce said. “If they have a choice with two assets side by side, if they have a lot of points, they’ll generally go in the direction where they can continue to build those points. “
Growth and retention
It’s no secret that Sonesta has big ambitions for growth. The company has grown from less than 100 hotels at the start of the pandemic to nearly 300 before the RLH deal was struck due to IHG and Marriott’s defaults with Service Properties Trust, or SVC – a Boston real estate trust that also owns a 34% stake in Sonesta.
The acquisition of Red Lion brings Sonesta’s global footprint to approximately 1,200 hotels and 15 brands. The deal also brings stronger franchising capabilities that Sonesta did not have prior to the acquisition, which will almost certainly lead to significant growth. The larger scale allows for stronger purchasing power in everything from vendors to technology providers and online travel agencies.
The company plans to focus its franchise expansion in North America before expanding further in Latin America. Flores was not prepared to give a specific growth target or a projected number of properties as he has done in the past.
“We envision significant unit growth on the franchise side. Keith is not there just to keep the existing portfolio, ”he added. “There is a lot of optimism, and you should expect to see a lot more growth from Sonesta.”
But growth is not the only goal of Sonesta with its new RLH brands. Retaining current owners remains a key strategy, both in light of growing competition for conversion as well as franchisees’ dissatisfaction with previous management groups.
Sonesta executives held discussions with the 27 members of the Red Lion, Americas Best Value and Knight’s Inn brand franchise boards to better understand how to improve franchisee satisfaction.
“When you sell franchises, it’s one thing to attract new people, but you have to keep the existing ones,” Pierce said.
Avoid Brand Glut
Now that Sonesta is a major hotel player, some of the brand overlap companies like Marriott and Accor are also coming under fire.
Offerings include premium brand Royal Sonesta to extended stay brands like GuestHouse. But there’s an overlap within the extended living space, as Sonesta’s ES Suites brand and RLH’s Americas Best Value Inn and Knights Inn also operate in the area.
Given the strength of extended stay hotels during the pandemic, Sonesta executives see an opportunity by offering multiple brands but at different prices.
Flores noted that the integrated network has much less overlap than what would have happened with other potential acquisition targets. Further brand updates are expected across the Sonesta network.
“We’re making sure we’re good stewards of the brand and harnessing all that value,” he added. “When we have big brands, we want to create as much value as possible. “
Photo credit: Sonesta’s wild growth during the pandemic continues, but business leaders recognize they need to implement some sort of loyalty program to attract more customers. Sonesta International Hotels Corp.