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Staying 'inn' the game Featured

10:10am EDT July 22, 2002

Staying 'inn' the game

Customers were giving it straight to Red Roof Inns CEO Francis W. "Butch" Cash: It was time for a change. Here's how Cash listened to them and invested $68 million to renovate all 231 inns nationwide to improve customers' view of his product and stop a downward slide in occupancy rates.

By JOAN SLATTERY WALL

When Francis W. "Butch" Cash joined Red Roof Inns Inc. as president and CEO in July 1995, one of the first things he saw was a red flag.

Cash had come to Hilliard-based Red Roof Inns with experience as an executive vice president at Marriott Corp., which focused on customers' wants. At Red Roof Inns, however, he found that the basic philosophy was to be the low-cost provider-and to be consistent.

Cash notes: "As a guest said to me one time, 'When you wake up one morning in a Red Roof Inn, you might not know what city you are in, but you know you're in a Red Roof Inn.' "

But that philosophy of uniformity, alone, wasn't pleasing the customer.

Research indicated the company was starting to slide in some of the ratings, such as room appearance and security issues, says Cash.

Cash, who in 1996 assumed the additional position of chairman of the company, knew he'd have to make changes to keep the chain competitive-big changes-before the situation worsened.

So he initiated Big Red, a $68 million project to upgrade and renovate all 231 inns in the chain over a two-year period. The cost of the renovations in 1996 equaled 5 percent of the company's revenues, while the greater portion, spent in 1997, equaled 15 percent.

Cash spent a year and a half researching the needs and convincing his board to support the project before bringing it to fruition. It was a gamble, to be sure, since the payoff was not guaranteed. He carefully weighed the risks and potential rewards and then mustered up the courage to climb out on the limb.

"If you feel that it's the right thing to do, you've got to go with your gut," he says. "You never get to the point where you're 100 percent sure, 100 percent confident that this is going to work. You have to study it. But there's a point in time where you have to say, 'Here's what we've got to do.' "


Hour of reckoning

Red Roof Inns' customers saw the truth: The chain had a good product, but it was dated-by nearly 10 years.

The decor hadn't changed since 1987. Despite no evidence to support it, guests perceived that the inns were less secure than competing inns because of the dark colors and dimly lit surroundings. Even inn managers complained that the old brown carpet never looked acceptable, no matter how many times it was cleaned.

These managers relayed to Cash what they had heard from guests. In fact, because customers said Red Roof didn't look as good as its competitors, inn managers told Cash they were uncomfortable charging the existing room rate.

Red Roof was also falling behind in its pursuit of executive guests.

"Our Business King room was, 10 years ago, the best room available for the business traveler," Cash says. "Over time, our competition caught up with us."

In the spring of 1996, Cash set out to convince his board of directors of the need for change-change he calls a defensive move rather than one justified by an immediate return on investment.

"When we went to our board we said, 'We cannot let our customer ratings continue to go down,' " he recalls.

Big Red would be financed out of the company's operating funds. In 1997, for example, operating income was $87 million, so there was no need for Red Roof to borrow money. In addition, Cash told the board that the changes would reduce repair and maintenance costs in the long haul. Add to that the troubling results of focus groups and customer surveys, and Cash did not have much trouble getting support from his board of directors.

"We wanted to end up with our hotels having a modern residential look and feel," he says. "We wanted to enhance the experience with all of our guests." He also wanted to reposition the Business King room as the premier room among similarly priced competitors-and increase the inns' occupancy rate at a time when there was a decrease industrywide for economy lodging chains.

According to Smith Travel Research, an independent firm in Tennessee that tracks the lodging industry, occupancy rates in the economy lodging segment for 1996 decreased 2.5 percent; between 1992 and 1995, the highest increase during any given year was 1 percent.

Cash started the Big Red transformation in the summer of 1996 by looking at room interiors; he knew Red Roof needed a new decor-and needed it fast.

Since his customers had told him what Red Roof was doing wrong, Cash wanted to ask them what would be right. He worked with an interior designer and decorated sample rooms at existing properties in the Columbus area to solicit guest comments before making the final decision.

Improving the dark exterior appearance of the properties involved more trial and error.

"We must have painted some of those doors 10 times before we got the color we wanted," Cash says, referring to the change from the dark green and brown color scheme to cream and red. Parking lots were restriped and sealed, and brighter lights were installed.

The planning stage involved about 50 senior managers from Red Roof's Hilliard headquarters, some of whom made nearly 30 visits to Red Roof properties across Ohio and out of state, to do testing and check feedback.


Sweating the details

It took most of the summer to research and plan for the project; in the meantime, Red Roof Inns' staff worked out a schedule to complete the projects with the least disruption to guests. Renovations would begin during the latter months of 1996 and early 1997, when occupancy was traditionally lower.

To maintain close coordination between Red Roof Inns' operations staff and the outside design and construction crews, Cash made one of the chain's best managers, Skip King of the Dublin Red Roof Inn, responsible for the entire project.

Once work started, Cash was surprised to find out how difficult it was to complete the job in one fell swoop at each inn. Problems ranged from follow-up work when a project wasn't completed just right, to the case of one inn that still isn't complete-a husband and wife who have lived there for seven years simply don't want their room remodeled.

To ease the challenge, inn managers kept in touch with King to provide daily, and even hourly, feedback.

The bulk of the project was completed before 1997's busy summer season, but Red Roof still faced the challenge of publicizing the change to its customers-since some had sought other lodging during renovations.

"It hurts you in the short run," Cash admits, noting that guests will go across the street to another hotel to avoid the inconveniences of construction. To help draw back those customers and bring in new ones, Red Roof added the word "remodeled" to many of its 500 billboards, and during the summer of 1997 the company ran a special media promotion on television and radio and in USA Today.

The company spent approximately $5 million-20 percent of its 1997 sales and marketing budget-to promote the changes.


Out of the slump

Right off the bat, Cash saw his primary goal fulfilled: Red Roof's occupancy rates increased 2.7 percent during the final quarter of 1997, after the bulk of the improvements were completed.

Also during that quarter, customer surveys showed improvement in 27 of 30 attributes, such as the cleanliness of the rooms and the value for the price as well as the room decor and safety issues that had fallen previously.

"So the customer is shouting back to us: 'Hey, we appreciate what you've done,' " Cash says.

Red Roof Inns has increased room rates-in all rooms, not just the Business Kings-every quarter since the Big Red project, while still staying an average of $1.50 per night lower than competitors, Cash says. An additional $1 million in income per year is generated from Red Roof's new video-on-demand ser vice added during renovations.

Also, as promised, 1997 repair and maintenance costs were reduced by $5 million-about 10 percent of that budget-and this year's budget is down another $2.5 million.

Employees appreciate the improvements, too.

"Our people are proud of what they're selling now," Cash says. Since the project's completion, he's received no further customer complaints.

Stock analyst David L. Gardner, who's been watching Red Roof for about three years, says he thinks Red Roof's brand was pretty strong even before the renovations.

"It kind of gives them a competitive positioning as the market tightens and new supply comes into the market," says Gardner, managing director of Baltimore stock brokerage firm Legg Mason Wood Walker.

In addition, Gardner says, the inn renewal program should help Red Roof's recent move into franchising, giving potential franchisees motivation to buy into the brand.

While Gardner sees Big Red as simply part of Red Roof's basic business strategy, Cash says he considered the project a risk.

"We were already a very successful chain," he says. "We were just trying to make sure we were back on top of the heap."