Dec. 18, 2002 - With corporations slashing business travel budgets, hotel occupancy rates in free fall and room revenue depressed, Red Roof Inns has embarked on what might be considered an unusual business strategy. 

The Dallas-based chain is adding about 140 hotels to its lineup, spending hundreds of millions of dollars more to renovate existing properties, and repositioning itself as a budget-rate alternative for business travelers. 

"Business travelers are more loyal," said Joe Wheeling, Red Roof's executive vice president and chief operating officer. "They stay for two or three days at a time, and they'll be back week after week." 

If the plan succeeds, Red Roof, a division of Accor North America, hopes to draw as many as 65 percent of its bookings from business customers, who have become more important to the chain as the economy has faltered. Business travelers now account for about half of the chain's guests. 

The slowdown in business travel has hurt many hotels, but Red Roof has been able to capture market share in the last two years with customers seeking lower rates, Mr. Wheeling said. 

The average Red Roof room costs $48 a night. Its competitors in the limited-service hotel segment -- which include Hampton Inns, a Hilton Hotels Corp. brand, and Irving-based La Quinta Corp. -- average $55 to $79 a night. 

Red Roof's makeover also is part of its parent company's strategy to find distinct market niches for its brands, which include the tourist-minded Motel 6; upscale Sofitel hotels; Novotel hotels, a midprice chain; and Studio 6, an extended-stay economy hotel. Dallas-based Accor North America, part of the worldwide Accor Group in Paris, bought Red Roof in 1999. 

Accor's biggest challenge has been to create a distinction in travelers' minds between Red Roof and Motel 6, both of which have gone after budget-minded vacationers. Red Roof's new focus on business travelers is an attempt to differentiate the brands. 

Business travelers are a better fit for Red Roof than leisure customers, Mr. Wheeling said. That's because many of the chain's properties are in suburban office parks, and few Red Roofs have pools. 

"Motel 6 has a bigger network and is marketed as a consumer brand," he said. "Red Roof is smaller, so we have to rely on repeat business and go after business travelers." 

Luring customers from La Quinta and Hampton Inns may prove difficult. 

"It's a tough time to compete up when everyone else is competing down," said Paul Keung, an analyst for CIBC World Markets in New York. 

At the same time, the hotel industry's limited-service segment boomed during the late 1990s, growing between 8 percent and 16 percent annually, according to Smith Travel Research. 

And in the last year, limited-service chains grew by 6.3 percent, Smith Travel analyst Duane Vinson said. The hotel industry as a whole grew just 1.4 percent last year. 

The segment's growth means that existing Red Roof properties are competing with a lot of new hotel rooms nearby. 

"You can renovate all you want, but if you're looking at a 15-year-old recently renovated hotel vs. a 2-year-old property, which do you think is going to win?" Mr. Vinson said. 

So Red Roof's plans include adding about 140 hotels to the 360 properties it now owns or franchises. Most will be on the West Coast. 

Red Roof also will seek to become a lower-priced competitor in some expensive hotel markets. The company recently opened such inns on Long Island, N.Y., and near Boston's Logan International Airport. Both are 80 percent occupied and offer rates of about $100 a night, Mr. Wheeling said. 

Red Roof is spending $204 million to renovate more than 200 of its older properties, and it has improved its frequent-guest program. 

To focus attention on the changes, Red Roof launched an advertising campaign aimed at road warriors, using a whimsical, flame-haired bobblehead doll voiced by actor John Goodman. 

Red Roof wants its renovated rooms to send the message that it offers the best value in the marketplace. "We're not going to offer a lot of amenities or a lot of service, but what we do offer will be exceptional," Mr. Wheeling said. "We aren't going to have a lot of fluff." 

Red Roof's renovation project began last month in the Washington-Baltimore area and is slated to last five years. The work gradually will make its way west, with the Dallas area's six hotels slated to get makeovers in 2006. 

The company is seeking to create a nontraditional look for its rooms and has hired an interior designer who specializes in high-end residential properties rather than hotels to lead the project. 

Renovated rooms will be furnished with contemporary furniture, Mr. Wheeling said, and marble vanity counters and ceramic tubs will be installed. 

"We want to be sleek and vibrant," he said. "We're doing away with the places dirt hides and going for a clean look." 

Red Roof is hoping those differences can give the company enough leverage to boost average prices $10 to $58 a night at a time when many hotel companies have had to lower their rates. That $10 could increase the profit margin as much as 5 percent, he said. 

Mr. Wheeling, who stays in a Red Roof four nights a week, said the repositioning could open the door to customers who haven't considered the brand. 

"It's a question of percentages," he said. "I have a lot of conversations with our customers, and I have a good idea of who our customer is and who our customer can be. There are a lot of managers, supervisors and salesmen out there, and I want to grow that segment." 

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