Red Lion CEO on the Myth of Loyalty Programs Driving Lots of Business

Red Lion Hotels Corporation CEO Greg Mount wants to clear something up related to Red Lion’s purchase this week of the Knights Inn hotel brand from Wyndham for $27 million.

For those in the industry who might wonder if Knights Inn franchise owners, by becoming part of a much smaller company, will get the short end of the stick with regard to access to loyalty program members, Mount has something to say.

“The only two programs that drive meaningful demand are Hilton and Marriott,” Mount said. “Outside of that, some of these other systems have large numbers, but they’re not getting a significant amount of demand. It’s kind of a falsehood as it relates to what’s really being driven. I know there are systems [loyalty programs] out there with 80 million guests to it, but they still have to take 30 to 35 percent of their demand from OTAs [online travel agencies].”

In other words, unless your hotel is affiliated with the Hilton Honors or Marriott Rewards/Starwood Preferred Guest program, the business demand being driven by your hotel brand’s loyalty program probably isn’t very significant, even if you were once part of Wyndham.

“I think that we all have to be really careful in estimating the value of that,” Mount said, referring to the relative size of hotel loyalty program memberships.

So even though Wyndham Rewards boasts 55 million members, how much of Wyndham’s business is actually being booked by those loyal guests? According to Wyndham CEO Geoff Ballotti, who spoke to Skift in January, the company’s North American occupancy share by loyalty members is 37 percent, up 6 percent from 2015 when Wyndham Rewards was relaunched. In comparison, Marriott CEO Arne Sorenson has said loyalty members drive up to 55 percent of his company’s business.

Mount didn’t disclose how many members are in Hello Rewards, his company’s loyalty program, or how much of its business is driven by loyalty members, but what he did say is that thinking that loyalty programs will help drive a significant amount of hotel demand is “old fashioned.”

“How consumers are booking rooms and what is relevant to them is going to change and has changed,” Mount said. “We need to understand that the OTAs are going to be faced by a big challenge too. The Googles and Amazons of the world are going to enter that space. It’s a constant evolution.”

Instead, Mount said, RLHC is more focused on delivering “social media, e-commerce, and marketing” that’s akin to what you’d see from companies such as Amazon or Google. “Our focus is very different,” he said, and that’s why Knights Inn franchise owners shouldn’t be at all concerned about switching from Wyndham to RLHC.

He added that Knights Inn owners have been “very excited” about the acquisition.

RLHC’s approach to loyalty and driving demand to its hotels has always been a bit contrarian to its hotel peers under Mount’s leadership.

In August 2016, the company formed a ground-breaking partnership with Expedia to offer its member-only rates on Expedia.com and Hotels.com, in exchange for automatic enrollment into its loyalty program, which includes access to a booked guest’s information. Traditionally, when a consumer books a hotel on one a third-party site, that guest’s information is not shared with the hotel.

Mount said RLHC is currently considering forming similar partnerships with other online travel agencies and he has high hopes that more will want to work with companies like his going forward.

“As you see bigger systems [hotel companies] start to put real pressure on them [online travel agencies], you’ll see they’ll start to evolve and look to become more of a partner than they have in the past,” Mount said. “We’ve led that charge and we’ll continue to lead that charge.”

How the Knights Inn Acquisition Aligns with RLHC’s Growth Strategy

One way in which RLHC is not all that different from its hotel peers is in its pursuit of becoming a truly asset-light, all franchise-agreement hotel company. The company is currently in the process of selling off 11 property assets and pursuing a growth model that involves both organic growth and mergers and acquisitions such as the Knights Inn buy.

The Knights Inn purchase, Mount and RLHC chief financial officer Doug Ludwig said, was a “great opportunity” with “very attractive pricing” that was comprised entirely out of franchise agreements.

RLHC caught wind of the sale from Wyndham CEO Ballotti, a friend and colleague of Mount’s when they both worked for Starwood Hotels & Resorts.

Last year, RLHC purchased Vantage Hospitality for $27 million, and with that acquisition, RLHC added 1,000 properties to its portfolio. Since Mount became RLHC CEO four years ago, the company has grown from having 55 hotels to a total of 1,061. When the Knights Inn deal closes, it will have more than 1,400 hotels.

“It’s a great brand with some really great heritage and great recognition throughout the United States,” Mount said. “It’s one that we think, like we’ve done with some of our other brands, hasn’t been as relevant or focused on as it could be. It’s a great opportunity to bring it on to our platform, dust it off, and reposition it.”

What RLHC Intends to Do with Knights Inn

The Knights Inn brand isn’t going anywhere, and in fact, Mount hopes RLHC can continue to grow it, even outside North America and into Europe.

As RLHC did with the midscale Signature Inn brand, Mount has high hopes for making the economy brand more relevant and more contemporary.

The economy hotel segment, in particular, he said, is in need of more brands that stand out from the rest. “[The economy hotel category] is heavily commoditized,” Mount said. “It’s just a sea of sameness.”

With Knights Inn, he said, “there’s an opportunity to bring some branding and aspirational deliverables to the consumer in this space. The economy segment is one that can’t be forgotten — especially when you look at the portion of rooms that are booked in the United States — but to some degree it has been. There’s an opportunity here to innovate in the hotels and branding and also in the technology and innovation supporting these hotels.”

What Will RLHC Buy Next?

RLHC is still going to look for more brands that it can add in the upscale and midscale categories, as Ludwig told Skift in October.

While Mount wouldn’t detail any specific brands he had in mind, he did say, “We feel there are additional opportunities out there with smaller regional brands that are feeling that they’re becoming less relevant as consolidation continues and technology evolves. And there are also opportunities out there like the Knights Inn acquisition where some bigger systems are paring down.”