Choice’s CDO on where he thinks the company can grow

LAS VEGAS — David Pepper likes that Choice Hotels got in early on the extended-stay hotels boom. But he also thinks Choice got into the right segment — economy.

“If you look at the upscale extended-stay segment, you’re talking about seven-night [average stays], or four nights and lower,” he said. “When we’re looking at WoodSpring [Suites] and our extended-stay hotels, we’re talking about 30 nights... No one’s gone into that segment.”

Pepper, chief development officer for Choice Hotels International, said most of the brands have entered the midscale extended-stay segment, which will be more transient because of the higher rates.

He said Choice has an advantage over its extended-stay counterparts because of the company’s cost-effective model and prototype.

Like his CEO, Patrick Pacious, he’s not worried about the long-term extended-stay market becoming oversaturated.

“I feel comfortable that we’re not going to get oversaturated,” Pepper said. “What I think we’ve all done, all the brands in extended-stay, is mostly sold area rights. You have these big institutional developers looking at these areas that they do the underwriting, and if there are already two or three hotels, they’re not going to go into those markets because it’s not going to underwrite because they’re smarter developers.”

We saw this white space [premium value] that no one’s gone after. There’s not, to me, brands out there doing that. We saw that as a great opportunity.

David Pepper

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While Net Unit Growth (NUG) drives a lot of talk for the brands now, Pepper said that so much of Choice’s stock is owned by one family, giving it the luxury of having a longer-term vision for overall growth. “Everyone’s after NUG, so you’ve seen a lot of other brands that have not removed hotels,” he said. “We removed over 200 hotels last year. We’re looking at the long-term health of our brands, and we’re still growing.”

But he also said NUG is an important factor in Choice’s development plans. “If you don’t grow, you die. We’re absolutely focused on net unit growth,” Pepper said. “Look at the acquisition [of Radisson Hotels Americas] we just did; look at the last M&A attempt that we tried doing because it’s all about scale. You need to keep getting bigger. You need to keep getting more customers. And that’s how you can start lowering your franchisees’ costs when you’re bigger.”

Another area where Pepper is optimistic is the “premium value” segment, where last week Choice announced its new conversion brand: Park Inn by Radisson.

“It’s a real space that straddles that midscale and economy,” he said. “You’re seeing a lot of really well-performing economy hotels that don’t want to be known as economy hotels. You see a lot of midscale hotels that are falling into the economy space, but they don’t want to be known as economy hotels.”

Pepper said it’s a space where Choice doesn’t see much competition but does see a lot of growth potential. “We saw this white space that no one’s gone after,” he said. “There’s not, to me, brands out there doing that. We saw that as a great opportunity.”