New entrants shaking up midscale hotel sector

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The first Tru hotel opened in Oklahoma City in May.
The first Tru hotel opened in Oklahoma City in May.

A battle for supremacy in the midscale hotel market is brewing as new brands from Hilton and InterContinental Hotels Group (IHG) are moving aggressively to take on traditional players such as Choice Hotels International, Best Western and La Quinta.

The resurgent interest in the midscale market is occurring as Marriott International consolidates its 30 brands in the upscale and luxury sectors that resulted from last year's acquisition of Starwood Hotels & Resorts.

IHG, whose two largest brands are the upper-midscale badges Holiday Inn Express and Holiday Inn, said last month that it would debut a yet-to-be-named all-franchise midscale brand in 2019 that would feature amenities such as smaller but stylish rooms, complimentary breakfasts, a grab-and-go market and highly connected lobbies.

That announcement followed Hilton's May global debut in Oklahoma City of its Tru by Hilton midscale brand. Featuring amenities such as keyless room entry via mobile devices, a multizoned lobby area called the Hive and 55-inch flat-screen TVs in guestrooms, the brand is slated to add 85 properties by the end of next year and 425 deals are "in various stages of development" as of last month, according to Tru by Hilton global head Alexandra Jaritz.

Research company STR senior vice president Jan Freitag observed of the new players, "They're saying, 'Let's give the customers everything they want and nothing they don't."

Freitag listed characteristics such as mobile check-in, bathrooms without bathtubs and bulk-bottled bathroom amenities (as opposed to individually packaged items) among the new-breed midscale features.

"This is a reset," he said.

Hilton and IHG are plunging into a sector that generates about $20 billion in annual revenue and, in terms of number of guestrooms, resides just below the upper-midscale sector that includes Holiday Inn Express (No. 1), Hilton's Hampton Inn (No. 5), Choice's Quality Inn (No. 6) and Holiday Inn (No. 8).

Last year, midscale hotel revenue per available room, or RevPAR, rose 3%, about the same as the overall industry, to about $55, compared with the $81 average for all U.S. hotels, according to STR.

Some stalwarts in the midscale sector -- which Freitag said often caters to groups such as youth sports teams, fraternities, religious organizations and reunions as well as traditional road warriors -- appear to be fighting back. Three years ago, both La Quinta and Wyndham Hotel's Wingate midscale brand debuted prototypes featuring more dynamic lobby areas, more natural light and improved grab-and-go markets.

Last year, Choice Hotels introduced a new prototype for Sleep Inn, a brand that dates back to the late 1980s and has almost 400 properties in the U.S. and another 116 in the development pipeline. Synopsizing the approach as "affordable style," Choice Hotels vice president of brand management and design Anne Smith said new Sleep Inn hotels can be built for about $60,000 per room, excluding land costs, or about 25% less than what Tru and IHG are touting for their new midscale brands.

"We've been dominating the space for years, so we're not intimidated by the newcomers," Smith said. "We've demonstrated our success, and we've perfected our strategy."

Indeed, Hilton took notice of Choice Hotels' expertise in the midscale segment by hiring Jaritz, a 14-year Choice Hotels veteran, in 2015, and selected her to lead the Tru effort when that brand was officially announced early last year.

So far, Tru appears to be pricing its rooms closer to the upper-midscale sector than to midscale. In Oklahoma City, Tru quoted midweek nightly room rates last week of about $100, comparable to the Holiday Inn and Holiday Inn Express properties near the airport, about $10 higher than Hilton's Hampton upper-midscale property near the airport, and about $25 more than the highest-priced of the city's three Sleep Inn hotels.

Another Tru property in McDonough, Ga., was quoting $95 a night, vs. $82 for the nearest Sleep Inn, suggesting that the new breed of midscale properties might attract a price premium.

On a conference call introducing IHG's new brand last month, Heather Balsley, senior vice president of Americas' brands and marketing, said, "We'll deliver an experience that delivers exceptional quality at a fair price. We've uncovered a really big opportunity."

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