Skift Take

Sonesta is now a major hotel company with hundreds of franchised properties and an eye toward further growth. But the big hurdle is expanding its loyalty program. Marriott's takeover of Starwood showed the complexities of engineering loyalty across brands at a huge scale.

Sonesta International Hotels Corp. officially became one of the world’s largest hotel companies this month after closing on a $90 million acquisition of RLH Corp., the parent company of Red Lion Hotels.

Sonesta isn’t done growing. The company Tuesday officially launched a merged network to franchise brand flags to new owners. The aim is to bring in new owners to all eight RLH brands as well as the Sonesta Hotels & Resorts, Sonesta Select, ES Suites, and Simply Suites flags.

Sounds great, right? But big pieces are still missing. Company leaders recognize they now have to quickly adopt big brand strategies around franchising and loyalty programs to maintain the momentum.

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“We’re spinning a bunch of plates right now, but it’s important work for us,” Sonesta CEO Carlos Flores said in an exclusive interview with Skift about the brand’s next growth steps.

Flores and Keith Pierce, who now oversees the combined company’s franchise division, have been on a major outreach campaign to RLH franchise owners since the acquisition was announced late last year. Part of those talks are about stabilization and retention — competing hotel companies like Wyndham and Choice Hotels are on their own mission of sorts to convince owners of existing hotels to take on one of their brand affiliations.

These deals, known as conversions, are increasingly popular with hotel companies during the pandemic, as lending is tight for new-build projects. Converting an existing hotel to a different brand still takes money, but it isn’t as expensive. Sonesta sees a bulk of its future franchising agreements coming through conversions, at least while construction lending is so tight.

But leaders at the rapidly growing company recognize the need to find a way to compete better through its loyalty program. Companies like Marriott and Wyndham all tout their loyalty programs and distribution channels as leading value propositions when in talks with potential franchisees.

Sonesta has a loyalty program, but the pre-acquisition company only had about 300 hotels. RLH operates a loyalty program but not a status-tiered or points-based system that would be on the same level as a Marriott Bonvoy or Hilton Honors platform.

“Loyalty programs have become the glue and the thread that pull all these brands together within the mega-companies,” Pierce said. “I suspect you’ll see a lot of work will be done across the Sonesta enterprise with the current loyalty program on the Sonesta side and the one on the RLH side where we figure out how we can bring these [brands together].”

The only drawback with migrating to a points-based system is convincing franchise owners it is worth the expense. Loyalty points serve as a type of currency, but that kind of program adds about a 5 percent expense to an individual room night for franchisees, Pierce said. Ultimately, it becomes yet another franchise fee.

“What is going to define successful execution is do the franchisees find value in a points-based program,” Flores said. “We have to tackle the issue of, sure you can triple or quadruple your loyalty members, but now you have overhead.”

While they weren’t ready to give specifics on what the combined Sonesta’s future loyalty program would look like, both Flores and Pierce clearly see value in something akin to a Bonvoy or Wyndham Rewards.

“There are a lot of traveling consumers that have a lot of points and want to continue building those points,” Pierce said. “If they have a choice with two assets sitting next to each other, if they have a lot of points, they’ll generally move in the direction where they can continue to build those points.”

Growth and Retention

It’s no secret Sonesta has major growth ambitions. The company went from less than 100 hotels at the beginning of the pandemic to nearly 300 before the RLH deal closed as a result of IHG and Marriott defaults with Service Properties Trust, or SVC — a Boston real estate trust that also has a 34 percent stake in Sonesta.

The Red Lion acquisition brings the overall Sonesta footprint to roughly 1,200 hotels and 15 brands. The deal also brings stronger franchising capabilities Sonesta didn’t have prior to the acquisition, which will almost certainly lead to significant growth. The larger scale enables stronger purchasing power with respect to everything from vendors to technology providers and online travel agencies.

The company plans to focus its franchise expansion in North America first before developing further into Latin America. Flores wasn’t ready to give a specific growth target or projected property count as he has in the past.

“We are looking at significant unit growth on the franchise side. Keith’s not there just to babysit the existing portfolio,” he added. “There’s a lot of optimism, and you should expect to see a lot more growth out of Sonesta.”

But growth isn’t Sonesta’s only focus with its new RLH brands. Retention of current owners remains a key strategy, both in light of growing conversion competition as well as franchisee dissatisfaction with previous management groups.

The Sonesta leaders led discussions with all 27 members of franchisee boards across the Red Lion, Americas Best Value, and Knight’s Inn brands to gain further insight into improving franchisee satisfaction.

“When you’re selling franchises, it’s one thing to bring new folks in, but you have to keep the existing ones in,” Pierce said.

Avoiding Brand Glut

Now that Sonesta is a leading hotel player, it also has some of the branding overlap companies like Marriott and Accor get criticized for.

Offerings include the upscale Royal Sonesta brand to extended stay brands like GuestHouse. But there is overlap within the extended stay space, as Sonesta’s ES Suites brand and RLH’s Americas Best Value Inn and Knights Inn also operate within the sector.

Given the strength of the extended stay hotels during the pandemic, Sonesta leaders see opportunity in offering multiple brands but at different price points.

Flores noted the integrated network has significantly less overlap than what would have transpired with other potential acquisition targets. Additional brand refreshes are expected across the entire Sonesta network.

“We’re making sure we’re good custodians of the brand and mining out all that value,” he added. “When we have great brands, we want to frack out as much value as possible.”

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Tags: coronavirus, coronavirus recovery, sonesta

Photo credit: Sonesta's wild growth during the pandemic continues, but company leaders recognize they need to implement some kind of loyalty program to appeal to more customers. Sonesta International Hotels Corp.

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