La Quinta Passes Franchising Milestone

Thursday, March 10, 2011

La Quinta's plans for growth rest on franchising.

La Quinta recently realized a milestone it has been working toward since it started franchising 10 years ago. Now, slightly more than half of La Quinta's 808 properties are franchised.

It's a direction that the company plans to maintain as it pursues its international growth strategy.

President and CEO Wayne Goldberg described the strategy as leveraging the brand, not the balance sheet.

While the company continues to invest in its own hotels one example being the $50 million it put into its downtown Chicago property Goldberg told Hotel Interactive it likely would not develop any new hotels. But he also ruled out divesting anything, saying there was no plan to change the number of hotels La Quinta owns and operates.

"We're not opposed to owning assets," he said, pointing out that the company owns more than $4 billion in real estate. "We own enough that I'm not going to lose sleep if we don't add any more." Still, the brand's legacy as an owner-operator sets it apart from other hotel companies.

"If you go to any of our competitors, their major customer is the franchisee. They're worried about their franchisee," Goldberg said. "That's how they make money: They sell. That's important, but our franchisees aren't our customers. They're our partners. We want to work together and help them make money and help them succeed. There's only one customer, and that's the guest." The company continues to attract new owners, but executives at this week's annual conference at the Boca Raton Resort & Club said the goal is to grow from within.

With nearly 40 percent of franchisees owning multiple properties, the message clearly is getting across.

"Our vision from the beginning is we want to have 500 owners and 2,000 properties," said Rajiv Trivedi, executive vice president of franchising and chief development officer. "We believe in evolving in a relationship. We never want to sign one deal with a person. We always sign the first deal with the person. Our goal as a company is to find a way to make that so successful that the first results in a second and the second results in a third. Ultimately, what is business about? Repeat guests. What is the franchise business about? Repeat franchisees. That is the barometer of our performance. If it's not happening, it means somewhere we haven't done that." La Quinta's domestic growth is happening largely east of the Mississippi, and deals are in place for hotel openings there over the next two to three years, Trivedi said. Now, the company is taking an international focus with development planned in Mexico, Central and South America and Asia.

"As the world is shrinking our brand needs to become more international," Trivedi said.

When a La Quinta opens abroad, though, the typical guest won't necessarily be an American on vacation. Trivedi has mapped a clear vision for the guest profile.

"We are not building hotels for international travelers. We are building hotels for local consumers because that builds the longevity of success for a hotel," he said. "Certainly it will have business from international travelers, but that can't be the only source. As we meet owners, create product and create marketing, our first and important goal is to create awareness and loyalty from the local guests." That vision is aided by the fact of an emerging middle class in these countries. There also is a niche for La Quinta to fill.

"What also has become evident is the lack of hotels of our kind, select service, that are economical to build, economical to operate, that have greater margin and consistency in quality and services," Trivedi said. "That's why I see the opportunity." Financing new development remains challenging, but some franchisees are finding openings.

"How financing has become easily available is when you own two or three properties of the same brand and have shown the performance continues to be going in a positive direction even in these tough times," he said. "When you present a market that has similar demographics as the other two markets, banks actually would want to jump into that opportunity." Another strategy is for owners to make a larger down payment than in the past, so the loan to value is as low as 60 percent.

As much as the brand is invested in growing, it also has to deal with contraction. Trivedi spent the end of 2010 visiting severely underperforming hotels, and some visits lead to the termination of franchises. In those situations, Trivedi said he gave owners time to find a new brand and declined to charge liquidation damages. He also dealt with terminating deals with new construction signings.

"We evaluate each situation individually," he said. "The relationship means a lot to me. You never know how successful that person is going to be tomorrow, and you may miss out on the opportunity to do multiple hotels with them. Many of the construction deals we had on our files, the owner was not able to do because their value of their other portfolios came down and they have more burden on their assets. We let them leave. I focus on making revenue by bringing guests to the rooms, not by punitive charges to my franchisees." The result, Trivedi said, is that La Quinta has not faced litigation from a franchisee in its 10 years of franchising.

He declined to give the exact number of hotels that faced termination, calling it "very small." But parting on good terms helps avoid litigation. Not charging a fee is a sign that both sides worked in good faith, he said.

"Ask around the industry to see how many of our competitors can live up to that standard," he said. "Integrity has enabled us to spread the brand throughout North America and now into South America, and other parts of the world." No matter where the hotel is located, part of remaining a true select-service hotel is to limit amenity creep. La Quinta's role as an owner-operator keeps that at bay, according to Jeff Palla, vice president of franchise operations.

"We own and operate hotels, and that means we consistently make decisions for our brand with a clear understanding of each decision to the bottom line," he said. "We do not require programs or amenities unless we believe it will give a return on your investment."

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