Why Sonesta embraces asset heavy

LAS VEGAS — Sonesta International Hotels Corp. believes it can differentiate itself from larger competitors by zigging when others are zagging.

One way to "zig" is by embracing property ownership when many of its brand competitors are asset light. Another way is by cutting the number of core brands in its portfolio while others continue to add.

CEO John Murray said Newton, Massachusetts-based Sonesta doesn’t want to be “asset light and fee heavy” for its franchisees.

“A lot of franchisees feel like… they’re paying fees up the wazoo from the big brands,” he said. “We’re not adding fees; we’re not nickel and diming [franchisees] for everything you received pre-pandemic.”

Murray spoke to the media on Wednesday 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.

Murray said the combination of increased fees and inflexibility from brands can be a tough pill to swallow. “We know what reasonable fees are for the services we’re providing,” he said. “We’re trying to be value-conscious.”

Big news at the conference was the debut of Sonesta's unified loyalty program and centralized booking site, Sonesta Travel Pass, following the company’s acquisition of Red Lion Hotels Corp. in 2021. As part of that process, Sonesta cut down its number of core brands from 17 to 13. That included combining Red Lion’s brands into one brand (Red Lion Hotels, Inns & Suites) and combining its cruise and resort operations (Sonesta Hotels, Resorts & Cruises).

Keith Pierce

“Most of our competitors are adding brands, we’re cutting back… and making it clearer for our owners and guests,” Murray said.

Pierce likened the new brand strategy to swim lanes in a pool, with each brand in a specific segment so they aren’t competing against each other.

“In some respects, we just consolidated them more neatly and cleaned up the room a little bit, as opposed to just wiping them out,” Murray said.

The strategy also included keeping the Knights Inn economy hotel chain (acquired in the Red Lion transaction) on a separate website and not part of the new loyalty program. Murray said those owners and guests weren’t interested in loyalty points, and some of the better Knights Inn properties would be offered a chance to upgrade to another brand.

Manoukian said much of the brand strategy was created from listening to owner and customer feedback, including creating the Sonesta Essential and Classico soft brand because of gaps in its current portfolio. “We listened to our consumers, and also our owners that told us what they are looking for,” she said. “The feedback was… there’s too much clutter and not much differentiation between brands… We eliminated them up to the core brands, which is the complete opposite from what I used to do when I worked with larger companies.”

Owning hotels

Sonesta is the eighth largest hotel company in the U.S., with approximately 1,100 properties and 100,000 rooms across 13 brands in eight countries. The company said it executed 65 new franchise agreements in 2023, which added 5,697 new rooms (earlier this week, it announced 15 new franchise agreements for the first quarter of 2024). The company introduced franchising in 2021 and said it has experienced fast growth over the past three years.

Vera Manoukian

The REIT Service Properties Trust (SVC) owns 34% of the company. Between September 2020 and March 2021, SVC transferred over 200 hotels to Sonesta brands, making the company a sizeable owner-operator of its portfolio. Through the first quarter of 2024, Sonesta owns and manages 209 hotels with 835 franchised.

Murray said that makes Sonesta comfortable with owning and maintaining real estate at a time when its competitors are pivoting away. He thinks that will help differentiate the company in the future. “We think it’s a good way to distinguish ourselves with franchisees,” he said. “That alignment of interests with franchisees is going to become increasingly important.”

Manoukian said Sonesta’s flexibility with its franchisees is a key asset. “We make sure we are tailoring our offerings… not [being] one size fits all is really what sets us apart,” she said.

Manoukian also said that approach helps focus everything through an ROI lens. “We just don’t have programs for the sake of having programs,” she said. “We understand what the standard should be. Does it make sense? Does it generate revenue and enhance the customer experience as a differentiator?”

Pierce said that owner mentality is a key selling point to current and future franchisees. “We’re probably the most demanding owner that we have because we have the most properties,” he said. “If we can’t get the right ROI, then it’s not going to make it through to the franchise community.”