We keep referring back to this one, on the Beechmont Hotels website, and on this blog. So rather than try to explain a big part of it each time, I cut and pasted a once-and-for-all from an old business plan I had laying around . . . A link is worth a thousand explanations, and one good explanation is worth more than a dozen or so bad ones . . .
The original version, and some updates, go back to 2012 and originally appeared on Quora. You can still access that page and pay it a visit if you'd like to familiarize yourself with the thinking that went into it. Now, we maintain the definitive version on a shareable Google Sheets page, and keep it up as we go along.
Not all hotels are created equal. The differences between, say, a Hyatt Regency and a Motel 6 are obvious to anyone and need no explanation. But there are several levels in between, and distinctions among those can be blurry.
Throughout this blog, you will see references to various market tiers, so before we proceed into types of properties other than those we've already described, let's begin to define them. (We will define them more fully as we encounter them.)
Some, but very little, agreement within the hotel industry exists on what sorts of properties constitute economy tier, mid-market, and upscale properties and rates. So, Beechmont developed its own classification system. We don't assert that ours is more valid than any other, but there is no single one that everyone agrees upon (even ours has exceptions, as you'll see), and ours works for us.
Where we've deviated from as close to there is to an industry 'norm' – upscale, mid-market, economy – it is where we've noted a distinction between mid-market, select service (Class A), and mid-market limited service (Class B). By prevailing industry standards, both a new Hampton Inn and a thirty to forty-year-old Quality Inn are 'mid-market' properties, but there is a world of difference.
Making this distinction within the mid-market segment takes into account the relaxed standards from which many serviceable older properties in the mid-market segment (which we designate 'Class B') benefit. These older hotels cannot match the consistency of a Holiday Inn Express, a Hampton Inn, a Wingate by Wyndham or a Fairfield Inn (designated 'Class A'); but given proper care and management, they've got a few years' life left in them before they're ready to downscale to a Super 8 Motel or an Econo Lodge. This is reflected in what a guest expects to find if he checks into such a property, and the rate he can expect to pay.
These classifications only apply to conventional hotels, not all-suite, extended stay properties, a business model which is only a few decades old and is still evolving. And because we do not contemplate entry into full-service properties with food and beverage, we didn't take those into account here (footnote 1).
What determines the classification of a hotel into a given market tier is:
Market saturation is always a concern among hotel owners. Some markets are indeed overbuilt and some towns do have an overabundance of hotel rooms across the board. This will result in lower rates in each market tier, by contrast to the rates that hotels in corresponding market tiers in other cities can command.
But as there is very little competition between the hotels in different market tiers within any town, it is also possible to have a situation where market saturation occurs within one market tier, but there is actually a need for more rooms in another. This will generally show up in the form of price imbalances in room rates.
It works the same way in reverse.
The current edition separates upscale select service brands into traditional and lifestyle brands. It seperates Class A mid-market properties into two categories, A (first tier franchises -- Marriott, Hilton, IHG, and Hyatt if Hyatt were to introduce a mid-market brand -- like it or not, whether you or I think it's fair or not, these three are perceived by lenders as having more value than other Class A brands), and Class A1 (remaining Class A brands). We've also established the B1 category, just for Sleep Inn and Microtel (it's kind of unfair to lump a brand new one of either with a 50-year-old Quality Inn that's falling to pieces and barely maintains a TripAdvisor bubble score of 3.0).
What it all means for the guest?
Footnotes:
1 – Smith Travel Research has a somewhat similar classification system that shows up in its U. S. Chain Scales (http://goo.gl/yoL2d ), published every year. It has “upscale”, “upper midscale”, “midscale”, and “economy” classifications, which correspond roughly to our “upscale”, “class A mid-market”, “class B mid-market”, and “economy” classifications. (STR's U. S. Chain Scales also has an “upper upscale” and “luxury” classifications, which we don't address here.) But U. S. Chain Scales is based entirely on average daily rate. Ours is just a little more subjective, but it takes the other four indicators – customer expectation, product consistency and brand standards, age and condition of the property, and design – into account as well as rate.
Thus - for one example - we have Microtel by Wyndham classified as a class B mid-market product even though Microtel (as well as its Choice Hotels counterpart, Sleep Inn) was originally conceived as an economy brand. By design, that's what both were originally intended to be. But each has evolved over the last twenty years into a class B mid-market product. Indeed, Sleep Inn already shows up on U. S. Chain Scales as “midscale”. Microtel's only still-valid reason for being classified as “economy” by STR is the average daily rate commanded by its individual locations, and STR doesn't take the other factors into account. This is a result of bad judgment on the part of many Microtel franchisees: not even Wyndham is making much of an effort to market Microtel as an economy brand anymore, and most any Microtel location in good condition can perform better than that if it were marketed properly.
Beechmont is no longer contemplating development of new Microtels (we are developing our own Salem Inn brand in the class B mid-market category), but if we had one or more Microtels under management, we would market them as a class-B mid market product, increase the rack rate/”Best Available Rate” for that property to a corresponding level; and not try to take a new construction, prototype-based property and compete on price against nearby Econo Lodges and Knights Inns. (One advantage Microtel has is that you can't really look at one and easily tell how old it is, whether it's brand new, or even if it were among the first ones built nearly 25 years ago. That's how little the prototype has changed over the years.)
2 – Case in point: a big, impressive new mid-rise Holiday Inn in Jacksonville, North Carolina, that I used to see under construction when I was a kid, when my parents used to drive us by the site on our way to church every week, some forty-five years ago. Absolutely beautiful and dazzling when it opened, it was for most of some twenty years afterward just another Holiday Inn – as others equally large and impressive, some even more so, were built in other places, this one didn't seem so uniquely big and impressive any more. Then this same property was, for some twenty years after that, just another twenty to thirty-something-year-old Quality Inn. Now, it's just a 45-year-old Econo Lodge that's showing its age, and there are nicer places to stay in Jacksonville.
Not all hotels are created equal. The differences between, say, a Hyatt Regency and a Motel 6 are obvious to anyone and need no explanation. But there are several levels in between, and distinctions among those can be blurry.
Throughout this blog, you will see references to various market tiers, so before we proceed into types of properties other than those we've already described, let's begin to define them. (We will define them more fully as we encounter them.)
Some, but very little, agreement within the hotel industry exists on what sorts of properties constitute economy tier, mid-market, and upscale properties and rates. So, Beechmont developed its own classification system. We don't assert that ours is more valid than any other, but there is no single one that everyone agrees upon (even ours has exceptions, as you'll see), and ours works for us.
Where we've deviated from as close to there is to an industry 'norm' – upscale, mid-market, economy – it is where we've noted a distinction between mid-market, select service (Class A), and mid-market limited service (Class B). By prevailing industry standards, both a new Hampton Inn and a thirty to forty-year-old Quality Inn are 'mid-market' properties, but there is a world of difference.
Making this distinction within the mid-market segment takes into account the relaxed standards from which many serviceable older properties in the mid-market segment (which we designate 'Class B') benefit. These older hotels cannot match the consistency of a Holiday Inn Express, a Hampton Inn, a Wingate by Wyndham or a Fairfield Inn (designated 'Class A'); but given proper care and management, they've got a few years' life left in them before they're ready to downscale to a Super 8 Motel or an Econo Lodge. This is reflected in what a guest expects to find if he checks into such a property, and the rate he can expect to pay.
These classifications only apply to conventional hotels, not all-suite, extended stay properties, a business model which is only a few decades old and is still evolving. And because we do not contemplate entry into full-service properties with food and beverage, we didn't take those into account here (footnote 1).
What determines the classification of a hotel into a given market tier is:
- Customer expectation. While some overlap occurs, amenity levels obviously differ at the various market tiers. A guest will get a cooked-to-order breakfast at the Hilton Garden Inn – and it won't necessarily be a complimentary breakfast such as occurs at the other tiers: he'll be asked to pay maybe ten dollars for it. (A regular customer of Hyatt Place will know this, and be prepared to accept the choice: he can choose to have the breakfast and pay, or pass on it and save the ten bucks. If you want your eggs made to order, someone's got to pay the wages of the required kitchen staff.) At a Class A tier property such as at a Hampton Inn or a Holiday Inn Express, a guest might have to make do with scrambled eggs made from a powdered mix, and served from a common tray. If he roughs it at a Class B property such as a Quality Inn for a night, his 'hot breakfast' might consist of hard boiled eggs self-served from a slow-cooker pot full of water: a regular customer at a Days Inn will be used to this and know not to expect much more. If he really roughs it and stays at an economy tier property such as a Super 8 Motel, his complimentry copy of USA Today or The Wall Street Journal might show up as missing, and there will be no hot breakfast at all: breakfast will be limited to standard 'continental breakfast' fare, to which Econo Lodge customers are quite accustomed. At each higher market tier, the rooms are a little more plush, and their furnishings can be counted upon to be up-to-date. At each lower one, the rooms can be counted upon to be a little more spartan, and our guest might have to make do with an older, picture-tube type TV rather than a flat-screen, and five-year-old mattress or carpet.
- Product consistency and brand standards. Brand standards are very precise at the upscale and Class A select service tiers, and little deviation from them is permitted by the franchise organization. At the Class B limited service and economy tiers, the standards are more relaxed, and unless its a source of complaints, enforcement of them by the franchise organization is not always as diligent. A Holiday Inn Express must have the new flat-screen TVs: otherwise, the franchise organization will have a serious issue with its owners. A Comfort Suites must have the approved bedcovering, and if it doesn't, there's going to be a problem. For a Quality Inn, the standard won't be as stringent, a franchisee will be given more time to comply before a drop-dead deadline after which the hotel must have it occurs, and failure to meet it in the interim will cost them points on inspection, but won't really hurt them as long as they scored highly in other areas. Continental breakfast at the Class A mid-market tier will be supplied by a bakery: the owners of a Class B mid-market or economy tier property might get away with doughnuts that come in a big bag from the supermarket.
- Rates. Obviously, the more you pay, the more you get, and vice versa. If your demands are higher and inflexible, you will pay more: if you can keep them modest and compromise a little in some areas, you can save more. In most cities, hotels within each market tier set their rates in alignment with other hotels competing within that same market tier; and will generally neither try to demand the rate that prevails on the next market tier up (unless they're confident they can deliver close to that level of quality), nor make any effort to compete on price with hotels in the next market tier down (unless they feel that they have to in order to fill the rooms, and can keep their overhead low enough to do so profitably). It is possible for a popular, well-run Class A mid-market property to command a rate close to that which prevails at an upscale select service property, although you will rarely see one exceed that rate. Likewise, you'll frequently see a Class B mid-market property attempt to skimp on costs and compete with economy properties on price.
- Age and condition of the property: Product freshness means everything to hotel guests: no one wants to pay a lot of money to check into a hotel that 'looks old', unless it's in absolutely such immaculate, pristine condition that you don't really notice or ask how old it is. (Exceptions occur in the case of historic hotels, but very few hotels built in the last fifty years can claim such a distinction.) As an older property starts to show its age, and signs of wear, its owners might decide to 'downscale' it – keeping the costs of the next needed renovations down, and accepting the transition of that property into the next market tier down, perhaps even changing the franchise brand in the process – rather than spend the extra on renovations that would keep it competitive within the market tier of which it has been a part for the last ten years or so, and within which it is beginning to have difficulty competing (footnote 2).
- Design. In most cases, Class B mid-market properties are older properties that were once Class A properties and have since been downscaled. But some properties are designed and built using cheaper construction and a more economical design aimed at low overhead, specifically to position themselves and compete at the economy or Class B mid-market tier. (Beechmont's planned Salem Inns fall into the Class B category for this reason.) Sleep Inn and Microtel, for example, were each originally conceived as new-build, prototype based properties in the economy tier, and their facilities are built to a more relaxed standard than newer Comfort Inns or Wingates. It is nearly impossible to position either as an economy property and recover the investment in new construction. A customer is going to see neither a Microtel or a Sleep Inn as an 'economy' property at the rates that they have to charge in order to recover that investment (nor did the '80's era Budgetels and Fairfield Inns go over with customers as economy properties); no matter what the brand's marketing says. Yet that's how their inventors envisioned them: they did not take into account that there's always an old, run down $49.99 Econo Lodge up the road in a lot of markets. Meanwhile, the Sleep Inn and Microtel brands enjoy good product consistency and a market position that enables them to easily capture mid-market guests if they make the effort, command a rate comparable to that which prevails at Class B mid-market properties in the area, and compete well in the mid-market, limited service (Class B) category (indeed, Sleep Inn has better product consistency than Comfort Inn), so that is how we categorize them.
Market saturation is always a concern among hotel owners. Some markets are indeed overbuilt and some towns do have an overabundance of hotel rooms across the board. This will result in lower rates in each market tier, by contrast to the rates that hotels in corresponding market tiers in other cities can command.
But as there is very little competition between the hotels in different market tiers within any town, it is also possible to have a situation where market saturation occurs within one market tier, but there is actually a need for more rooms in another. This will generally show up in the form of price imbalances in room rates.
- If the upscale select service tier in a certain town is overbuilt, you can rent a room at a Hilton Garden Inn or a Courtyard by Marriott for not much – if anything – more than you'd pay at a Holiday Inn Express or a Fairfield Inn. This is a reality in many markets because of the sudden, new popularity of hotels in this market tier, and the resultant overdevelopment of them in some places. Whether or not it in turn forces the rates down at the Class A mid-market properties depends upon how many of those properties there are, and how they are able to compete.
- Oversupply of Class A mid-market properties will cause their rates to fall close to those rates you'll find at a Class B mid-market property.
- Likewise, an overabundance of older Class B mid-market properties will cause most of them to not be able to command a rate much higher, if at all, than the rates that prevail at area economy tier properties.
It works the same way in reverse.
- Where Class A mid-market rooms are in short supply, the Class B mid-market properties can command a pretty high rate. If the situation persists (a possibility, since there is no way a Class A mid-market property in a high-value location, such as next to a regional mall in a growing area, is going to downscale in the foreseeable future), development of a Sleep Inn, or Microtel by Wyndham, might be something to consider. Such a town would be an ideal location for a Salem Inn by Beechmont.
- Near-absence of Class B properties in a high demand area can allow a Super 8 Motel (such as the one in the Boston suburb of Watertown, Massachusetts, an economy tier property by every indicator except rate, and even the rate is a bargain by contrast to other Boston area hotels) to command a rate of $110 per night.
Market tier
| Upscale select service | Mid-market |
Economy
|
Product availability or consistency too poor to support brand classification
| ||||
Lifestyle
|
Traditional
|
Class A
|
Class A2
|
Class B1
| Class B | |||
| TripAdvisor bubble score score of 3.0 or better required to qualify | TripAdvisor bubble score score of 3.0 or better required to qualify | |||||||
| Typical rates: | $119+ | $119-$259 | $89-$149 | $59-119 | $49-89 | $49-79 | $29+ | |
Best Western
| Vib | Best Western Premier | Best Western Plus | |||||
| GLo | Best Western | |||||||
| Beechmont brands | 'Unchained' collection | Salem Inn by Beechmont | Calico Inn by Beechmont | |||||
| Carlson | Country Inn and Suites | |||||||
Choice Hotels
| Cambria | Comfort Suites | Sleep Inn | Quality Inn | Clarion | |||
| Comfort Inn | Econo Lodge | |||||||
| Rodeway Inn | ||||||||
Hilton
| Canopy by Hilton | Hilton Garden Inn | Hampton Inn | |||||
| Tru by Hilton | ||||||||
| Hyatt | Hyatt Place | |||||||
| IHG | Hotel Indigo | EVEN Hotels | Holiday Inn | |||||
Marriott
| aloft | Courtyard by Marriott | ||||||
| AC Hotels | Fairfield Inn by Marriott | |||||||
| Moxy Hotels | ||||||||
| Four Points by Sheraton | ||||||||
Red Lion
| Hotel RL | Red Lion | GuestHouse | Country Hearth | ||||
| Signature Inns | ||||||||
Wyndham Worldwide
| Wyndham Garden Hotel | Wingate by Wyndham | Microtel by Wyndham | Baymont Inn | Super 8 | Ramada | ||
| Days Inn | Howard Johnsons | |||||||
| Knights Inn | ||||||||
| Travelodge | ||||||||
Other
| LaQuinta | Motel 6 |
All Hospitality International brands
| |||||
| Red Roof Inn, Red Roof Plus | ||||||||
If this chart didn't come out looking very good on your device (and it looks good on very few of mine), you can access the original Google Drive file by clicking here.
The current edition separates upscale select service brands into traditional and lifestyle brands. It seperates Class A mid-market properties into two categories, A (first tier franchises -- Marriott, Hilton, IHG, and Hyatt if Hyatt were to introduce a mid-market brand -- like it or not, whether you or I think it's fair or not, these three are perceived by lenders as having more value than other Class A brands), and Class A1 (remaining Class A brands). We've also established the B1 category, just for Sleep Inn and Microtel (it's kind of unfair to lump a brand new one of either with a 50-year-old Quality Inn that's falling to pieces and barely maintains a TripAdvisor bubble score of 3.0).
What it all means for the guest?
- At the economy tier, price is paramount. That $59.99, more or less (and if you check into a hotel or motel that charges much less, you're inviting an unpleasant encounter with housekeeping, maintenance or security problems: it costs most hotels nearly that much per room to cover their costs and maintain their property properly) is all the money the guest is willing to spend, and then, they look at other factors: security (in an economy property, that matters), location, and 'nice' (as not showing too much wear, tear and accumulated grime). At that tier, it's all about cheap (subject, of course, to minimal housekeeping, maintenance and safety standards).
- At the Class B mid-market tier, price is still very much a factor, but value becomes a consideration as well. The guest wants to see a better breakfast, although he'll occasionally have to suffer along with something more plain: if the breakfast is something he can accept, he'll be happy at that hotel. She doesn't want to see security problems, although from time to time she might see people or things that look kind of scary: as long as she's okay that she's safe, the hotel's a bargain. The room must be clean, although it might not always appear to be that way. It must be up to date, with the carpet not too old, although in some places that depends on how you define 'old'. At that tier, it's all about compromise: a guest might accept or not notice a weakness in one or two of those - or other - areas that are of not as much concern to himself or herself, but wants the hotel to get the areas that are important to him or her right. As long as he's found a hotel at that level that works in the areas that matter to him, he's happy to pay the $79.00 per night (and will frequently try to haggle that rate, demand their AAA, etc.) and save the extra fifty bucks he'd pay at a Holiday Inn Express or a Wingate.
- At the Class A mid-market tier, the guest pretty much counts upon paying $129 per night, more or less -- but no compromising: at that tier, it's all about near-perfect and up to expectations. Everything has to be consistent and work perfectly, and there's little tolerance for neglect of the property or sloppy operation. You just don't see dirt, things that are broken (or even worn), or security problems. Individual hotel and brand attributes make some difference at this level, but these are secondary.
- At the upscale select service and any higher tiers, the rooms themselves are somewhat more plush, but not that much better in themselves, and what the guest is paying the extra money for is the added amenities and services each hotel offers - or at least access to them, even if he or she doesn't use all of them. Some - a lounge, perhaps, or room service, or a spa - are quite common. Others are more exotic and unique. W Hotels, a 'hip' luxury brand, has, as chain hotels go, quite a talent for thinking up new ones. One of the things I like about hotels in New York City and San Francisco (and lots of other places, now that boutique hotels are catching on as a customer option) is the ingenuity that goes into creating the experience of it - and in, say, New York and other major cities, always has.
Footnotes:
1 – Smith Travel Research has a somewhat similar classification system that shows up in its U. S. Chain Scales (http://goo.gl/yoL2d ), published every year. It has “upscale”, “upper midscale”, “midscale”, and “economy” classifications, which correspond roughly to our “upscale”, “class A mid-market”, “class B mid-market”, and “economy” classifications. (STR's U. S. Chain Scales also has an “upper upscale” and “luxury” classifications, which we don't address here.) But U. S. Chain Scales is based entirely on average daily rate. Ours is just a little more subjective, but it takes the other four indicators – customer expectation, product consistency and brand standards, age and condition of the property, and design – into account as well as rate.
Thus - for one example - we have Microtel by Wyndham classified as a class B mid-market product even though Microtel (as well as its Choice Hotels counterpart, Sleep Inn) was originally conceived as an economy brand. By design, that's what both were originally intended to be. But each has evolved over the last twenty years into a class B mid-market product. Indeed, Sleep Inn already shows up on U. S. Chain Scales as “midscale”. Microtel's only still-valid reason for being classified as “economy” by STR is the average daily rate commanded by its individual locations, and STR doesn't take the other factors into account. This is a result of bad judgment on the part of many Microtel franchisees: not even Wyndham is making much of an effort to market Microtel as an economy brand anymore, and most any Microtel location in good condition can perform better than that if it were marketed properly.
Beechmont is no longer contemplating development of new Microtels (we are developing our own Salem Inn brand in the class B mid-market category), but if we had one or more Microtels under management, we would market them as a class-B mid market product, increase the rack rate/”Best Available Rate” for that property to a corresponding level; and not try to take a new construction, prototype-based property and compete on price against nearby Econo Lodges and Knights Inns. (One advantage Microtel has is that you can't really look at one and easily tell how old it is, whether it's brand new, or even if it were among the first ones built nearly 25 years ago. That's how little the prototype has changed over the years.)
2 – Case in point: a big, impressive new mid-rise Holiday Inn in Jacksonville, North Carolina, that I used to see under construction when I was a kid, when my parents used to drive us by the site on our way to church every week, some forty-five years ago. Absolutely beautiful and dazzling when it opened, it was for most of some twenty years afterward just another Holiday Inn – as others equally large and impressive, some even more so, were built in other places, this one didn't seem so uniquely big and impressive any more. Then this same property was, for some twenty years after that, just another twenty to thirty-something-year-old Quality Inn. Now, it's just a 45-year-old Econo Lodge that's showing its age, and there are nicer places to stay in Jacksonville.
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