Why this CEO says the smart money is in select-service

ANAHEIM, California – Wyndham Hotels & Resorts is betting big on $275 million in technology upgrades for its franchisees and growth tied to the infrastructure and silicon chips bills that passed Congress the past few years.

In a Hotel Investment Today interview on Wednesday with Wyndham president and CEO Geoff Ballotti at the company’s annual conference in Anaheim, California, he said the investment, which is collectively called Wyndham Advantage, will help the company’s 24 brands continue to grow.

Ballotti also talked about the factors that have led to its aggressive expansion into the economy extended-stay segment with its Echo Suites by Wyndham launch.

The Echo Suites hotels, which are all new construction, are coming from a demand for extended stay that surged during COVID and is still well ahead of the rest of the industry.

But Ballotti also said the work that is now starting from the $1.2-trillion Infrastructure Investment and Jobs Act, which was passed by Congress in 2021, as well as the $280-billion CHIPS and Science Act that passed in 2022, are also key drivers.

“The 265 agreements we’ve executed are with dozens of really sophisticated institutional developers who believe this infrastructure bill is historic,” Ballotti said. “And they believe an estimated 8 million companies will be contracting for a piece of that legislation.”

But even without the legislation, Ballotti said he thinks there is demand for economy extended-stay hotels that are new, clean and efficient.

Wyndham last year launched economy extended-stay brand Echo Suites by Wyndham

“The other thing fueling why extended-stay continues to outperform all other segments in the industry is the lack of housing… You have a lot of dislocation and relocation that our sophisticated investors believe will continue. And the infrastructure bill has led them to believe that this makes a lot of sense,” he said.

Ballotti added that right now, the smart money is investing in the select-service space.

“If you could build an Echo Suites at $80,000-$85,000 a key and generate a 15% to 20% cash return, can you do that in an urban downtown market today?” he said. “Are you going to [invest in hotels] where labor as a percentage of gross operating revenue is 50% to 60%, or maybe 70% if it’s luxury? We think at Echo Suites, it will be less than 12% of gross operating revenue. So, we’re targeting the select-service segments to bring those costs down continually.”

Technology focus

Ballotti said Wyndham's technology upgrades give hotels more efficient operations, a better guest experience and the chance for greater profits. They also come at no additional cost to franchisees.

He said it’s a “big deal” that Wyndham is the first in the select-service and midscale space to upgrade technology in a way that fully moves it off its legacy systems, adding that ROI for owners for the technology upgrades will vary.

“Every owner is unique in terms of their market,” he said. “But I think the best way for any of these owners and the brands to measure return is… how’s the brand performing against its competitive set. Is it performing against fair market share and all the brands? The big brands I just mentioned (Days Inn, Super 8) are well over where they were when we were together last together [at Wyndham’s last conference in 2019] and before we made this investment.”

Ballotti said Wyndham prefers having its franchisees opt-in to programs instead of being mandated. He cited its most popular program – Signature Reservation Service – as an example. The program, which sends the hotel’s phone calls to a center, allows its owners to drive $22,000 in incremental revenue with only $1,000 in cost. Thus far, 4,500 of Wyndham’s 6,000 U.S. franchisees have opted in.

The 265 agreements we’ve executed are with dozens of really sophisticated institutional developers who believe this infrastructure bill is historic. And they believe an estimated 8 million companies will be contracting for a piece of that legislation.

Geoff Ballotti

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“These are independent mom and pop small business owners who decided, ‘Wow, why would I answer my phone if I could bounce that call and continue to check in that guest in front of me? And send that call to a professionally run call center and know that it is going to save me money and drive more revenue,'” he said.

Ballotti said other opt-in tools, like one that allows for mobile tipping for the housekeeping staff, can help labor issues at the hotel. Pilot programs have shown a 30% increase in housekeeper retention.

He said franchisees that use the company’s revenue management system can also choose their market competitors, even if that means choosing ones in segments above them. He cites Microtel Inn and Suites and Echo Suites as brands aiming upward.

The company said the technology upgrades came from the direction of its franchise advisory and brand councils and include:

• A simplified, single-engagement platform for owners called Wyndham Community. The cloud-based software-as-a-service program only requires an internet connection. The company said it allows the owner and franchisor to look at the same interface with real-time insights on metrics and provides a direct connection to operational support.
• A new guest platform from Canary Technologies, which is rolling out in the coming weeks, will integrate directly with the company’s property management systems, allow direct communication to the hotel, mobile check-in and checkout, and an ability to review the stay. The company also says the technology allows its owners to upsell guests to boost revenue.
• A new OTA reconciliation tool that automatically reconciles each hotel’s stay data with the commissions previously charged at the time of booking, which has been done manually in the past. The tool currently covers bookings made on Expedia but will be expanded.