No Frills, High Margins: Inside Extended Stay America's Formula

There's nothing sexy about Extended Stay America (ESA). No rooftop infinity pools. No celebrity chef restaurants. And definitely no turndown service with artisanal chocolates on your pillow.

But ESA does have over 700 nearly identical hotels scattered across 45 states, most sitting near highway overpasses or office parks. Guests settle for weeks or months and buy groceries to stock their kitchenettes.

As ESA turns 30 this year, it has become the object of envy, with larger rivals like Hilton, Hyatt, Marriott, and Wyndham rushing to replicate its brands.

"Eight new extended-stay brands have been announced in the past several years," said Greg Juceam, ESA's president and CEO.

That's a lot of added competition since 2021 when Blackstone and Barry Sternlicht's Starwood Capital took ESA private in a $6 billion deal.

Yet Juceam is confident ESA can sustain its market lead and that there's enough demand to support the increasing supply. Last year, ESA served 22 million guests and "had 180 basis points of market share growth," he said.

Two Nights? No Thanks.

The secret to ESA's stability is almost absurdly simple: Longer stays equate to better economics than traditional hotels enjoy. Lower costs can drive higher margins, even though extended stay typically commands lower average nightly rates.

At a traditional hotel, housekeeping turns over rooms daily, the front desk constantly processes new guests, and occupancy swings wildly with the seasons. At ESA properties, more than 75% of guests stay for a week or longer. Half stay for a month or more.

This transforms the operational model. A standard 120-room ESA needs just 6 to 10 employees compared to hundreds at a full-service hotel. Housekeepers visit weekly instead of daily. Front desk staff might check in five or six guests on a typical day, leaving plenty of time for other tasks.

The result? Higher margins, more predictable revenue, and fewer staffing headaches in an industry notorious for turnover. 

Juceam said ESA typically runs about 8 to 9 occupancy percentage points higher than the broader hotel industry.

Juceam noted that ESA's business model might even be resilient during a mild recession —without predicting the odds of a recession happening this year. (See Skift's earlier story.)

Containing Costs for Owners

While some extended-stay brands might have slightly nicer finishes and a fitness room, none are lavish.

"The fastest way to destroy this model is adding expensive amenities that force you to raise rates," Juceam explains. "Once you hit certain price points, the average length of stay plummets. Suddenly, you're just a regular hotel with a kitchenette nobody uses."

Speaking of expensive amenities, don't expect to find a store in the lobby of an ESA property. The company assumes that guests will drive to the nearest Target or Walmart to stock their in-room kitchen, and maintaining a shop would be relatively costly for owners.

Juceam said that the company derives cost efficiency from its consumer brand awareness. Its guests are more likely to book directly rather than through online travel agencies that charge high commissions.

"We have 90% brand awareness," said Juceam — claiming that's about 10% higher than ESA's closest competitor and roughly 20% above the industry average.

ESA said 83% of reservations for its core brand come through its site, app, call center, and walk-ins. That's much better than the direct distribution rate for the best-known hotel groups, which typically have between 50% and 60% direct bookings.

'Skin in the Game'

While most major hotel companies have raced to shed property ownership — Marriott owns just a dozen of its 8,000+ hotels — ESA has stubbornly maintained a vertically integrated approach. 

The company operates through three connected entities: a brand company, a real estate investment trust (REIT) that owns nearly 600 hotels (making it North America's largest hotel REIT by unit count), and a management company.

This integrated corporate architecture gives ESA what Juceam calls "skin in the game." Executives can test concepts in company-owned properties before asking franchisees to implement them. 

This also means ESA feels the real-world operational pain of any corporate mandate and has insight into the best practices to recommend.

"We eat our own cooking," as company materials put it.

Focus is another distinctive element. Unlike global hotel giants that offer extended stays as just one option in their portfolio, ESA does nothing else. Every aspect of its operations — from staffing levels to kitchen designs to booking systems — is built specifically for guests staying weeks or months. 

The CEO claimed that hotel owners may prefer ESA's specialization when deciding whether to go with it or some of the newer players in the market.

Three Flavors of Minimal

With competitors rushing in, Juceam is betting on ESA's experience and specialized focus to maintain its edge.

Since going private, ESA has expanded from its original concept to having three brands — each targeting different price points while maintaining the affordable extended stay focus.

• The flagship Extended Stay America Suites sits squarely in the middle with nearly 450 properties.

• At the value end, Extended Stay America Select Suites has rapidly expanded to 220 properties since debuting in late 2022.

• For the slightly more discerning long-term guest, there's Extended Stay America Premier Suites. This brand launched in 2021 and will hit 50 locations this month. Juceam personally shepherded this brand's development as a response to franchisees wanting to target a slightly upscale demographic.

The Beige Wave Spreads

ESA's growth strategy focuses on secondary and tertiary markets rather than major urban centers or resort destinations. 

It focuses on so-called "smile states" (referencing the smile line drawn from Arizona to Texas to the Carolinas and Florida on a map). It also targets mountain states where workforce housing needs are growing.

When selecting new sites, ESA looks beyond traditional hotel metrics to identify specific demand drivers for extended stays: construction activity, infrastructure projects, military bases, universities, retail centers, and hospitals. 

As for the competition from large hotel groups, Juceam said he isn't fazed.

"Proliferation follows performance," he insisted.

“Some competitors will make it, some won’t,” Juceam said. “But our singular focus, proven business model, and brand strength ensure that Extended Stay America will remain the dominant force in the extended-stay space for years to come.”

Accommodations Sector Stock Index Performance Year-to-Date

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