Where Sonesta thinks future growth will come from

LAS VEGAS — Sonesta International Hotels Corp. has spent the past few years differentiating itself from its larger competitors, and CEO John Murray thinks he sees an untapped avenue of growth for the company: third-party management. 

“We’ve been growing and getting our systems in place and right-sizing our organization for the tremendous growth that’s already occurred,” Murray said. “We’ve been franchising, but we’ve been waiting until we felt like we had all our ducks in a row to take on third-party management.” 

Sonesta owns and manages 209 of its properties, 835 of which are franchised. Murray said the idea of third-party management isn’t just coming from inside the company; some of its franchisees are requesting it, too.

“That’s going to be an avenue for growth that’s incremental to the growth that we’re achieving through investing or franchising,” Murray said. “[It’s something] we haven’t touched yet, but I think we will be.” 

Newton, Massachusetts-based Sonesta, the eighth-largest hotel company in the U.S., has had success zigging when its competitors are zagging. It’s embracing an asset-heavy approach when many of its larger competitors are going in the opposite direction. It’s also cutting its number of core brands while others continue to add. 

Murray spoke to the media last week during Sonesta’s first brand conference in Las Vegas. He was joined by COO Vera Manoukian and Keith Pierce, executive vice president and president of franchise development for the company.

Opportunities for growth

Murray said Sonesta has growth opportunities worldwide (the company already has hotels in Canada, South America, Egypt and the Caribbean). 

“We’ve really been focused on the U.S. and getting the distribution here,” he said. “We’re potentially looking to add in the Caribbean and Latin America.”

Murray said the next wave would probably be in Europe, followed by potentially India and the Middle East (the company has also previously had inquiries in China and Vietnam). But patience is still required.

“We don’t have that infrastructure yet, and we’re not big enough yet to have people worldwide,” he said. “So we’re doing it at the right pace.”

When asked where in the U.S. Sonesta would like to add, Murray said the company doesn’t have a hotel in one of the “cool” neighborhoods in Los Angeles or any hotel of substance in San Diego. 

Manoukian said Sonesta is also looking at resorts, which would be an important option for its rewards program (the company announced a unified loyalty program and centralized booking site, Sonesta Travel Pass, following its acquisition of Red Lion Hotels Corp. in 2021.) 

“That’s a little bit of a gap for us, and we will continue to look for opportunities in those areas,” Manoukian said.

Net unit growth is important. But we are private and can be selective if we want to retire a brand that’s not working.

Keith Pierce

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Pierce said net unit growth (NUG) is a focus for Sonesta and that 2024 will likely be the first year of net positive NUG on the company’s franchise side. “We’ll sell more, execute more and open more,” he said. 

Pierce said the fact that Sonesta is privately owned also gives it more flexibility than its publicly owned counterparts. 

“Net unit growth is important,” he said. “But we are private and can be selective if we want to retire a brand that’s not working.”

Working with franchisees

Manoukian said that because the company is an owner-operator of so much of its portfolio, it helps in working with franchisees. 

“In my experience with other brands, you would say this is the way it is, and that’s what it costs, and the owner has to absorb it,” she said. “We have to have something that we believe in as owners ourselves and that we’re able to afford and it’s going to offer a quality experience for our customers, but it also won’t kill our P&L.”

Manoukian said that Sonesta has to consider every decision that impacts an owner’s bottom line from both the owner’s and franchisee’s perspectives. 

“Every brand standard that we roll out, including shampoo and conditioner, we have to be extremely thoughtful and extremely calculated about the cost and how it’s going to impact the portfolio because we’re not just passing on the cost, we’re paying for it ourselves too,” she said. 

Pierce said the multi-dimensional nature of the company also opens up a lot of different M&A possibilities as well. 

“When opportunities come, we can look at them like asset-light companies with a variety of lenses, not just a pure franchise [opportunity],” he said. “Maybe it’s a pure franchise, maybe we acquire and manage it, maybe our capital partner (the REIT Service Properties Trust) acquires it… It allows for the ability to evaluate opportunities, particularly the more complex deals.”