Red Roof has continued its growth momentum in 2017 with the opening of the brand’s 500th Inn as well as its 50th Plus location. But the news was only the most recent in a flurry of development that began in 2014 with the announcement of Red Roof Plus , the brand’s premium product, followed by exponential growth in 2015 that included 69 new domestic properties, the addition of 88 new franchises for a 22% year-over-year growth along with international development deals spread across three countries. Compared with 2013, Red Roof sees a 41.18% growth rate by the end of 2016.
Last year, the brand saw another 69 new properties open in the U.S. alone. “We’ve exceeded our goals in hotel openings every year and we’re also very bullish on 2017,” said Phil Hugh, Red Roof’s chief development officer.
According to Hugh, the number of franchise agreements signed year-to-date already exceeds the number of contracts signed same time last year and if the trend holds, he expects 2017 growth for the brand to outpace what it’s been in the last two years.
“The economy segment has been somewhat ignored since the recession and all of the money that’s come back into the lodging industry has gone into the select-service category and above, which has created a window for a brand like Red Roof that has a medium size and is very consistent,” Hugh noted.
He attributes the ongoing expansion not just to franchise sales, but to year-over-year RevPAR growth. After modernizing its U.S. properties through its now completed NextGen renovation program—representing a $200 million investment—ADR for a sampling of redesigned properties jumped 6.8% to $76.79, while RevPAR for the same group of hotels increased nearly 10% to $56.37.
“We spend a lot of time with our existing franchisees to give them the tools they need to achieve these results,” he explained. “It’s about growing RevPAR and taking market share and that’s really the conversation that’s happening in the hallways.”
In addition to updating existing properties, location also has much to do with the financial results as Hugh also maintains that Red Roof performs extremely well in college and university locations as well as airports.
“Our focus will continue to be on these markets, although there will also continue to be opportunities on highways and interstates that are high traffic areas,” he said, adding that the brand does not yet have a presence at the Denver or Salt Lake City airports, as well as LAX. He added these locations, as well as the entirety of the U.S. west of the Mississippi River, represents the next step in Red Roof’s development.
“There’s a lot of open territory out there that needs product,” he said. “The majority of our product is east of the Mississippi and now it’s our job to take the brand to consumers out West.”
Although somewhat surprising that a brand that has been in existence for more than four decades lacks a strong presence on the West Coast, it initially launched in the Midwest under a company-owned model, not a franchise formula. From there, Red Roof expanded east, in part because travelers in that part of the country were already somewhat familiar with the brand.
Expansion into the Southeast was a natural progression of Red Roof’s growth, according to Hugh, because the region is less expensive and properties could still achieve strong occupancy rates. “We have a full team out West right now,” Hugh said. “The guy in Montana who owns three hotels and has never heard of Red Roof is going to take more convincing to rebrand his hotel with us when the closest one may be 500 or 1,000 miles away.”
The introduction of Red Roof Plus , the brand’s premium economy product, has also demonstrated positive results as it now comprises 10% of Red Roof’s portfolio, the precise goal laid out for the new product at its launch three years ago. Red Roof Plus properties include all NextGen upgrades, including flat screen TVs with 36 HD channels; upgraded guest bathrooms and bedding; wood-like flooring and microwaves; and mini-fridges. Red Roof Plus evolved from the fact that travelers are increasingly value-conscious and practice comparative shopping.
“Instability and challenges in the market cause people to look for more bang for their buck and they certainly get it with our premium economy brand. So, Red Roof Plus has worked for both our franchisees and our customers.”
But with more brand and service standards and more amenities than its non-premium counterpart come higher rates. Costlier daily rates play a strong role in determining the markets where Red Roof Plus currently has a presence as well as the markets that represent future expansion.
Hugh added, “Red Roof Plus will remain at 10% of the portfolio and although that could increase or decrease at times, we’ve also had franchisees who have wanted to open Plus properties only to realize that the demand generators in the markets don’t require a higher tiered product. If a market can support a Plus property, we’ll open a Plus . But we won’t open something just to meet a number.”
According to Hugh, the brand is taking a similar approach to continue international expansion, which he called opportunistic. Last year, Red Roof announced its first properties in Japan following news of a series of new-build properties across Thailand, slated to open continuously through 2020 as well as a deal in Brazil to open 35 to 40 hotels across the country over the next 25 years, with several already in operation.
“Let’s just say its news at 11 as far as where we’re headed because right now, we want to make sure it’s done right in these new locations and that the brand standards that are put into place suit these markets so that our franchisees are successful,” he said. Hugh added that Red Roof is keeping an eye on Canada where they hope to soon see some rapid expansion.