Comfort Inn 2007 Annual Report Download - page 17

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Hotels are broadly segmented into two categories: full-service and limited service. Full-service hotels generally offer
food and beverage (F&B) facilities and/or meeting facilities. Limited-service hotels, usually offer only rooms, although
some offer modest F&B facilities such as breakfast buffets and/or small meeting rooms. Full-service hotels are generally
larger, command higher room rates, and generate higher profits, although overall operating margins are normally lower
because F&B is a lower-margin business.
The lodging industry can be further divided into chain scale segments or groupings of generally competitive brands
as follows:
Chain Scale
Brand Examples
Room
Count
% of
Total
Avg.
Hotel
Room Size
Luxury.............................. Four Seasons, Ritz Carlton 80,514 1.8% 310
Upper Upscale.................. Marriott, Hilton, Sheraton 555,408 12.2% 380
Upscale ............................ Hilton Garden Inn, Courtyard, Residence Inn 427,696 9.4% 151
Midscale w/ F&B............. Quality, Clarion, Holiday Inn, Best Western, Ramada 519,500 11.5% 116
Sub-Total Full Service ............................................................................................................... 1,583,118 34.9% 176
Midscale w/o F&B........... Comfort, La Quinta, Baymont Inn, Hampton Inn 723,567 15.9% 87
Economy .......................... Econo Lodge, Days Inn, Super 8, Red Roof Inn 752,893 16.6% 77
Sub-Total Limited Service ........................................................................................................ 1,476,460 32.5% 82
Independents ................................................................................................................................ 1,480,632 32.6% 66
Total All Hotels .......................................................................................................................... 4,540,210 100% 92
Source: Smith Travel Research (December 2007)
According to Smith Travel Research, Choice branded system-wide market share as of December 31, 2007 in the
United States has increased 133 basis points to 7.8% of total industry rooms since 2002. The total number of domestic
hotel rooms has increased at an annual rate of less than 1% per annum during these same 5 years.
Independent operators of hotels not owned or managed by major lodging companies have increasingly joined
national hotel franchise chains as a means of remaining competitive with hotels owned by or affiliated with national
lodging companies. Over the past 17 years, the industry has seen a significant movement of hotels from independent to
chain affiliation, with affiliated hotels increasing from 46% of the market in 1990 to 67% of the market in 2007. Because
a significant portion of the costs of owning and operating a hotel are generally fixed, increases in revenues generated by
affiliation with a franchise lodging chain can improve a hotel’ s financial performance.
The large franchise lodging chains, including us, generally provide a number of services to hotel operators to
improve the financial performance of their properties including central reservation systems, marketing and advertising
programs, direct sales programs, training and education programs, property systems revenue enhancement services and
relationships with vendors to streamline purchasing processes and make lower cost products available. We believe that
national franchise chains with a large number of hotels enjoy greater brand awareness among potential guests than those
with fewer hotels, and that greater brand awareness can increase the desirability of a hotel to its potential guests.
We believe that hotel operators choose lodging franchisors based primarily on the perceived value and quality of
each franchisor’ s brand and its services, and the extent to which affiliation with that franchisor may increase the hotel
operator profitability.
Choice’s Franchising Business
Choice operates primarily as a hotel franchisor offering 10 brands. Our Clarion and Quality brands compete
primarily in the full service midscale with food and beverage segment; our Comfort Inn, Comfort Suites, and Sleep Inn
brands compete primarily in the limited service midscale without food & beverage segment; MainStay Suites and
Suburban Extended Stay Hotel compete primarily in the extended stay segment and our Econo Lodge and Rodeway Inn
brands compete primarily in the economy segment. As a result of our acquisition of Suburban Franchise Holding
Company, Inc., the Suburban Extended Stay Hotel brand was added to our portfolio on September 28, 2005. In January
2005, we introduced a new brand, Cambria Suites, which competes in the upscale segment. This newly created brand
opened its first hotel during 2007.
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