ALIS Executive Suite Q&A: David Pepper, Chief Development Officer, Choice Hotels InternationalDecember 11, 2022Share As part of the Americas Lodging Investment Summit’s Patron sponsorship program, ALIS organizers asked Choice’s David Pepper eight timely questions as we prepare for the 22nd annual event January 23-25, 2023, at the JW Marriott/Ritz-Carlton Los Angeles L.A. LIVE. Following are his responses.ALIS: How has inflation and the threat of a recession affected the U.S. hotel franchising and development segments? PEPPER: There is no question that businesses are facing a combination of supply chain disarray and disruptions, higher prices for raw materials and commodities, rising labor costs, increased transportation costs and rising energy costs. Choice’s award-winning tools, capabilities, and expert advice from revenue management consultants enable franchise owners to quickly execute the right pricing strategy and effectively reach their target customers, which is critical in this inflationary environment. Across all segments in which Choice competes, consumers continue to shift their spend towards travel experiences—and this is expected to continue. When faced with high airline ticket prices and flight cancellations, Choice found that a majority of travelers who responded to our recent survey would rather switch to driving versus cancelling their vacation plans. This trend is particularly beneficial for Choice’s portfolio of over 4,000 hotels located within a mile of an interstate exit.ALIS: Most forecasts show supply growth checking in at about 1% each year for the next two or three years. How do you see it playing out based on Choice’s pipeline? PEPPER: The addition of the Radisson Hotels Americas’ upscale brands increased the size of Choice’s global footprint in the upscale segment to approximately 80,000 upscale rooms. Through the acquisition, we will expand our regional representation in the Upper Midwest and West coast of the U.S. We also expect that this transaction will enable us to further build on our momentum in the upscale segment, accelerating growth for our Cambria Hotels and Ascend Hotel Collection brands and at the same time allowing us to expand the Radisson portfolio. Additionally, our newest extended-stay brand, Everhome Suites, is on the cusp of significant growth, with its first hotel, located in Corona, California, on track to open in September. Choice secured a commitment with one of the largest extended-stay investors in the nation to develop more than 20 new Everhome Suites hotels, bringing the development commitments for this brand to over 50 hotels. ALIS: What’s the message to hotel owners, investors, and developers from the lending community in general as 2023 approaches? PEPPER: At Choice, we are committed to helping our franchisees succeed and improving its value proposition for franchise owners. Owners and developers are choosing our brands over the competition because they know unlike other franchisors who focus solely on the topline, franchisee profitability is central to Choice’s value proposition. We’re continuing to prioritize the success of our franchisees by developing new tools, programs, and resources to position our seasoned and emerging franchisees for success. We are also working on new design concepts aimed at capitalizing on the emerging trends and growth opportunities within each segment.ALIS: Based on your portfolio and what you’re seeing throughout the industry, what segments are the most sought after for development and franchising opportunities? Why? PEPPER: Choice Hotels is continuing to strengthen its proven brand portfolio through investments that drive growth across higher value and more revenue-intense segments. Extended-stay has always been seen as recession proof, but 2020/2021 showed us that it’s also pandemic proof and the industry is shining a spotlight on extended-stay. For upper midscale, the Comfort brand is well positioned to capture demand from home family vacations to quick business trips with more than 1,600 hotels open coast to coast in the U.S. and more than 2,100 worldwide. Within the upscale segment, the Cambria Hotel prototype designed for secondary and leisure markets has been enthusiastically received by the developer community with 14 new agreements signed as of the end of Q2. We expect that the recent Radisson Hotels Americas acquisition will enable further penetration of the upscale market, creating an additional catalyst for Cambria’s growth. ALIS: How has the labor shortage affected the hotel development process? Is it something that the industry will deal with long term? PEPPER: We continue to see a labor shortage in the hotel sector. We work to provide our hotel owners with resources that can help them find employees for the open positions in their hotels, including hiring best practices, staffing and retention strategies and community workforce recruitment resources. We are working with our industry associations to ensure that the lodging sector is positioned as a long-term career opportunity for people who want to work. We support enhanced caps for H2-B (seasonal non-agricultural) and J-1 (cultural exchange/student) visa categories and are working with our industry allies to advocate for these changes. ALIS: What’s the most under-estimated challenge the hotel industry faces, and why? PEPPER: Representation in Operations, Revenue Management, Sales, and Finance between men and women is roughly on par. This means that women understand the business just as well as their male counterparts, and that the root-cause of the discrepancy when it comes to ownership is a cultural problem. The company recently launched HERtels by Choice Hotels - a dedicated program created to support, connect and empower women through the lifecycle of their journey to hotel ownership. The systematic barriers women face limits future access to top talent and performance for all of us in the hospitality industry. Despite this, women represent a market segment that remains under-targeted by hotel companies for ownership opportunities. HERtels is Choice’s next step in the company’s mission to fuel a diverse owner base and small business success.ALIS: What’s the most under-estimated opportunity for the hotel industry, and why? PEPPER: Industry-wide, we have seen continued strengthening of business and group segments past the height of the COVID-19 pandemic. Business travel is expected to increase across key industry verticals, fueled by the additional onshoring of the U.S. supply chain and investments from the infrastructure bill.