The New La Quinta
Since the closing of The Blackstone Group's $3.4-billion acquisition of La Quinta Hotels & Resorts in January, Alan Tallis and Wayne Goldberg have been on the move. In four short years, the La Quinta system has grown from 76 properties to nearly 500 today through a combination of franchising, company development and the acquisition of Baymont Hotels, making it one of the largest owned, operated and franchised companies in the limited-service sector. Blackstone has since sold the Baymont brand to Cendant.
Now working under Blackstone, La Quinta President and Chief Development Officer Tallis and President and Chief Executive Officer Goldberg plan to double the size of La Quinta within the next three to five years. We had a chance to catch up with Alan Tallis in a rare moment when he wasn't on the road to talk about his perspective on the La Quinta he joined in 1980 and then rejoined in 2000 and what has transpired since Blackstone's purchase of the company.
Melinda Bush: With your long history at La Quinta and in the industry, can you tell us how the company has changed from the 1980s to the La Quinta of today?
Alan Tallis: Although it was a public company, the La Quinta I joined in 1980 was still dominated by its revered founder, Sam Barshop. We were a classic owner/operator/developer. The company had put its toe in the franchise waters in the mid-1970s but for a number of reasons elected not to pursue franchising as a growth strategy.
The company started in San Antonio and Sam espoused a growth strategy known as clustering, adjacency and in-fill. He developed major hubs, first San Antonio, then Dallas, then Houston and spread out from each 300 miles and filled-in with other properties. At one point, more than 50 percent of the company's product was in Texas and the contiguous states.
Over time, we expanded the brand to the Southeast, Mid-Atlantic, Southwest, California and to a limited extent Pacific Northwest. When I returned in 2000, we looked at our growth strategy and determined that the best way to grow as quickly as we needed to remain competitive was to franchise.
Bush: How did you make it happen in what is a crowded and competitive marketplace?
Tallis: As of last year, 55 percent of our 427 La Quintas were owned and the rest were franchised. We have another 60 in the pipeline for 2006. We were definitely getting traction on the franchising side. Our success was because we did it a little differently than the other companies. When we started the program, I went out and talked to major franchisees in our industry and found out what they liked and didn't like about the brands they were with and tried to incorporate those ideas into our program.
We learned that franchisees like to be respected for the investment they make in the growth of a brand. By respect, I mean they want to make sure that if they invest in a market we're not going to encroach on their market areas. They want to know that if you commit to providing certain services, you will in fact provide those services.
We have three rules to success: One, we operate under a motto of “Promises Made. Promises Kept.” We make sure anything we represent to our franchise community is what we also intend to adhere to. Two, we don't discount fees. I know a lot of systems do and they may have good reasons, but we feel everybody needs to be on a level playing field and be treated equally.
The third reason for our success is our commitment to quality and consistency. As the owner of the majority of La Quintas, we feel strongly about protecting our interests along with those of the franchisees. And we meant it. We've asked several owners to leave the system because they didn't adhere to our standards of quality and guest satisfaction.
Bush: Let's fast-forward to today. How have things changed, having been purchased and taken private by the Blackstone Group? What are the plans?
Tallis: As of today, we have nearly 500 La Quintas with plans to grow to more than 800 properties within three to five years through a combination of owned, managed and franchised properties. Our plans for growth include the acquisition of hotels that are compatible with our system and can be converted to La Quintas.
By 2010, La Quinta will be the largest owned, managed and franchised limited-service brand in North America. We have a very strong focus on California and the Northeast, which would include New York City, Boston, New England and the Mid Atlantic states. We are also looking very carefully at Florida, as well as other areas.
We will continue our franchise program but on a very selective basis. We need to make sure that as we grow, we can acquire assets that won't put us in a confrontational situation with our franchisees. We're going to earmark the markets in which we think franchising is appropriate, and we are going to limit the number of new franchisees coming into the system. In terms of numbers, that could be 30 to 60 franchises a year, but it's going to be driven by our strategy.
Bush: You're competing in a very crowded brand marketplace: Franchised, owned and operated. What is your unique advantage?
Tallis: One unique advantage is a great deal of capital, which gives us the ability to grow, perhaps faster than other brands. Also, the fact that we are an owner/operator is a very distinct advantage over many of the franchise systems because we control our product. We control the consistency of delivery to our guests. And we control and have a better ability to enhance guest satisfaction and intent to return.
Bush: Let's discuss The Blackstone Group. Everybody in the industry is curious about a private equity firm that is so committed and dedicated to one sector, lodging. What's it like working for them?
Tallis: Exhilarating and invigorating. It's refreshing to work with people who are absolutely brilliant in terms of their real estate acumen. These are gentlemen, but they are consummate, astute dealmakers. They're quick to make decisions and they move very fast against the right opportunities.
Bush: Why did Blackstone want to enter into the mid-market segment, and why La Quinta?
Tallis: Blackstone found in La Quinta a company that is highly profitable. They understand that the segment we occupy is highly profitable. It's a segment that doesn't experience the fluctuations you have in the luxury and full-service segments. And with La Quinta, they have a company that is well-managed and already on a growth course.
Bush: What does the La Quinta organization look like under Blackstone ownership?
Tallis: What Blackstone did was to create co-presidencies. I am president and chief development officer and Wayne Goldberg is president and CEO. Wayne's responsibilities include the operations of all of our hotels and to a greater extent overseeing the support functions at the corporate level. My responsibilities are specifically focused on growing the company. Reporting to me are those functions within the corporate arena that support the growth effort. Temple Weiss is executive vice president of development and Raj Trivedi is executive vice president of franchising, and both are focused on growing the brand. We keep the organization chart simple, tight and ready to move.
Bush: What is the catalyst for all of the market segmentation going on in the industry? Nobody wants to be in the budget category any more. Instead we have mid-market, upper mid-market, first-class, upper first-class, luxury. What's causing this upward creep in the marketplace?
Tallis: It's all consumer-driven. Today's consumers have a greater expectation of product than yesterday's consumer. They're not just looking for shelter; they're looking for experiences and product guarantees. And to provide them with those experiences, you've got to provide them with reassurance and a greater amenity package. You have to provide them with a room that looks and feels more like their bedroom at home. All of that has costs, and as you add costs you obviously have to increase your rates to achieve an appropriate return on invested capital.
Bush: Do you have price points in mind as you expand the La Quinta brand? And where do you position the brand in the mid-market segment?
Tallis: We're priced a couple of dollars less than Hampton, about on par with Holiday Express and maybe $10 to $12 above Fairfield. We want to make sure our capital investment allows us to stay within that range so we're in line with our comp set.
Melinda Bush, CHA, is president and chief executive officer of Hospitality Resources Worldwide, management and market development advisors to hotels and resorts. She serves on boards of several private and public companies and was named Outstanding Woman of the Year by the Travel Industry Association of America. Reach her at email@example.com
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THE BIG IDEAS
Here's a profile of the kind of properties La Quinta seeks to acquire or franchise:
- Age: New build to 15 years old
- Rooms: 100-plus
- Building: Multi-story, interior-corridor
- Guestroom size: 12 feet by 17.5 feet
- Bathroom entry: 12 feet by 8 feet, seven inches
- Amenities: Swimming pool/spa; exercise rooms; seating/serving area for free continental breakfast
- Meeting space: Minimum of 1,200 square feet
- Affiliation: Independents or national brands with terminable contracts
- Financing: Free and clear
- Ownership: Fee simple (will consider long-term ground leases)
- Markets: Urban, suburban and resort near major demand generators, such as corporate headquarters, airports, office parks, theme parks, etc.
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