The hotel concept - Extended stay hotels

June 21, 2018

The contemporary hotel services market is characterized by a large number of buyers, highly dispersed and diverse in terms of their needs and expectations. There are also no hotels capable of creating a product that perfectly meets all potential guests, whom they would like to serve. Therefore, they should focus their activities on the most attractive customer groups, understanding their needs and preferences, and adapting their service and price offerings accordingly.

Hence, in line with the concept of segmentation, hotels catering to tourists and business travelers, luxury and budget hotels, those for motorists or exclusively for women, seniors, or families with children, as well as casino hotels or conference centers, emerge.

As seen, there are already many segments in the hotel industry, and new, previously untapped market areas continue to be discovered and entered. Classifying lodging service buyers based on the length of stay has been practiced for a long time, but it was only a few years ago that the true value of guests staying longer was recognized. This group of travelers proved to be so attractive and profitable for hoteliers that a completely separate hotel product was created specifically for them, known as an extended-stay hotel.

The beginnings of the new product

The father of the extended stay hotel concept is considered to be American developer Jack DeBoer, who in 1974 opened his first property named Residence Inn in Wichita, Kansas. Initially, it was a complex of apartments for short-term rentals. Over time, additional services were introduced for guests, such as reception services, room cleaning, or laundry, giving the property a more hotel-like character. However, special attention was paid to guests staying for longer periods, focusing on their specific needs and expectations. The demand for long-term accommodation had always existed, but in the American hotel industry, it was commonly believed that it could be successfully met by traditional hotels or apartment buildings. DeBoer was the first to see a huge opportunity in this. He precisely identified a market niche and tailored his offer specifically to serve this group of clients. Today, he recalls, "It was a segment that no one was interested in. We had no idea how big the market was. I think we still don't really know how big it is, but I can say it's enormous." The new hotel project turned out to be a great success, prompting the decision to replicate it by launching additional properties in other regions of the United States. This gave rise to the first network of higher-class hotels for "long-stay" guests, which completely dominated this market for 15 years.

Despite the sale of the Residence Inn chain to Marriott Corporation after opening 103 hotels in 1987, Jack DeBoer remained faithful to his extended stay hotel concept. Already in the following year, he co-founded a similar chain - Summerfield Suites (now owned by Wyndham Hotels). In 1995, he introduced the mid-scale brand of hotels - Candlewood Suites, and in 1998, Cambridge Suites, intended to be an improved version of Residence Inn.

The hotel boom

The historical success of the Residence Inn chain sparked significant interest in this segment and became a magnet for other companies investing in the hotel industry. By the late '90s, extended stay hotels were already part of the product portfolio of major hotel giants such as Marriott (Residence Inn, Town Place, SpringHill), Hilton (Homewood Suites), Choice (MainStay Suites), Six Continents (Staybridge Suites), and Cendant (Villager Lodge). Additionally, entirely new operators with new brands emerged on the market, such as Candlewood Hotel Company (Candlewood Suites) and Extended Stay America (Efficiency Studios, Crossland Economy Studios, and Studio Plus). Currently, according to The Highland Group report, the extended stay hotel segment consists of over 220,000 rooms and represents 5.3% of all hotels in the USA, divided into three categories based on price/quality (economy, mid-scale, and upscale) (2). The largest operators of extended stay hotels in the US market are two companies, each with several brands in this segment. Marriott International Inc., with 575 properties, has positioned its products in all price ranges, while Extended Stay America Inc., in just 7 years since its inception, has opened 451 hotels, mainly in lower categories. With such results, ESA has been recognized for the third consecutive year by Fortune magazine as one of the 100 fastest-growing companies in America (3).

Extended stay hotel guests

Extended stay hotels define their target market as travelers who need to stay at the hotel for at least 5 consecutive nights. Research conducted by the consulting firm D.K. Shifflet & Associates Ltd. showed that 36% of American hotel guests fell into this category. Therefore, considering that only 5% of properties fully meet the needs of this group of travelers, there is still a significant opportunity for additional ones to emerge in the future.

Extended stay hotels primarily target individuals whose temporary change of residence is related to work (business travelers). These mainly include contract workers, consultants, auditors, construction crews, film crews, sales representatives, doctors, government officials, military personnel, or individuals attending multi-day training sessions. However, not all guests at these properties are traveling employees. Personal purposes account for 10-25% of occupancy: vacationers, people in the midst of relocation, home renovations, marital changes, or visiting family or friends for several days (leisure travelers).

Visualization - One-Bedroom Suite at Homewood Suites Property

The segment of guests staying for longer periods has its characteristic features that distinguish them from other hotel guests. Even the most seasoned travelers feel alienated and uncomfortable when business or other matters take them away from home for more than a few days or weeks. They primarily need quick acclimatization to the new environment, which is why they prefer properties with a more "residential" character. Extended stay hotels are designed in such a way that through the external appearance of the building, offered amenities, and prevailing atmosphere, guests feel truly at home. Erika Alexander, vice president of TownPlace Suites, even claims that for this reason, "extended stay hotels highlight the true essence of hospitality more than other properties" (5). The most significant benefit for guests provided by extended stay hotels is the size of the room, which significantly exceeds the standard hotel room (ranging from 20 square meters to 80 square meters depending on the brand and class of the hotel). These are usually spacious studios or apartments consisting of a living room equipped with a kitchen and one or two bedrooms (each with a separate bathroom). Guests appreciate ample space in the room. This is confirmed by research commissioned by Residence Inn by Marriott, according to which 75% of guests feel more comfortable and relaxed with more space, while too small a room causes a decrease in productivity or insomnia for 54% of travelers and a loss of concentration for 34% (6). It should be noted that the impression of more space is achieved not only through the size of the room itself but also through the proper arrangement of its interior. In economy and mid-range extended stay hotels, most furniture (such as dressers, desks, or beds) is against the walls, while in higher-end properties, they are freestanding and can be easily moved due to the larger space. Staybridge Suites even encourages guests to rearrange the furniture layout of the apartment according to their preferences to make it more comfortable.

Due to the fact that guests of extended stay hotels spend a significant portion of their time in the room, it must be not only spacious but above all functional. While the bedroom is a typical place for relaxation, the spacious living room combines features of both a lounge area, where one can unwind and relax, and a small office with suitable conditions for work (ergonomic desk and chair, proper lighting, telephone, and internet connections). It can easily serve as a dining area or a small meeting room for hosting guests or colleagues. What also distinguishes extended stay hotels from others is the presence of a kitchen or kitchenette in each room. Fully equipped with basic appliances (refrigerator, microwave, oven, coffee maker, kettle) as well as kitchenware and tableware, it gives guests the opportunity to prepare their own meals. Hoteliers assume that although guests may not use the kitchen every day, it is an excellent way to keep some money in their pockets and save valuable time by not dining out.

Unlike customers of traditional hotels who enjoy being "pampered" by staff, guests of extended stay hotels prefer to be left alone. They value peace and privacy and want to be independent. Jack DeBoer explains this behavior: "Every day on my desk, I find over 150 cards with various notes from guests. The most common comments can be summed up in two words - Great Service. And yet, we don't offer such a large staff. It's because guests don't want intrusive staff bothering them" (7).

Operational activity

The concept of extended stay hotels is based on two fundamental assumptions.

1. Many travelers (especially those on business trips) do not want or need all the services provided in full-service hotels. Therefore, extended stay hotels do not offer services such as porter services, conference facilities, banquet services, dining options, entertainment, etc. Amenities such as breakfast rooms, small conference rooms, pools, recreational facilities, or laundries are only available in higher-end properties and depending on demand.

2. Guests staying for longer periods place greater importance on the room itself rather than on the facilities within the property. Creating spacious apartments with functional amenities in extended stay hotels is always at the expense of common areas that do not generate revenue, such as corridors, lobbies, reception areas, or administrative facilities.

Thus, an extended stay hotel is essentially a combination of an all-suite apartment hotel and a limited-service hotel. It represents the most advantageous option for guests staying for extended periods in terms of price-to-quality ratio because it provides maximum comfort in the room while offering attractive prices, often up to 50% lower compared to traditional hotels in the same class.

Maintaining such price levels is the result of an appropriate cost-cutting policy implemented by the hotel's operational management. This primarily involves lower labor costs due to limited service and reduced frequency of service provision. The longer the stay in the hotel, the lower the cost of room maintenance. For example, room cleaning is done only once or twice a week, although some properties only do it upon request or upon checkout. Additionally, due to lower guest turnover, there is a reduced check-in and check-out frequency, so reception services are typically provided only during the day. In the evening or at night, the receptionist is replaced by an automated system issuing room keys based on reservations and pre-assigned codes.

The high operational efficiency is also influenced by the flexibility and versatility of hotel staff. Properly trained and motivated front desk personnel not only perform their basic duties such as guest check-in and check-out, billing, call handling, and providing information but also take on many additional tasks as per guests' requests. These tasks may include delivering newspapers and mail, laundry services, shopping at nearby stores, meal deliveries from restaurants, secretarial services, and more. With such organized work, an extended stay hotel with, for example, 100 residential units, employs only 8 to 13 employees, whereas a typical limited-service property employs around 25 staff members. The wage-to-total-cost ratio in the extended stay segment is 20%, which is 10% lower than the industry average in the United States. (8)

Meeting high guest demands for accommodation quality while maintaining low costs and reduced prices allows extended stay hotels to achieve significantly better results in the long term compared to the industry average. According to The Highland Group report, room occupancy in such properties reached 74% in 2001, compared to the overall hotel average of 60%. Seasonality in the hospitality industry also plays a significant role in these metrics. However, the extended stay segment does not experience significant fluctuations in demand typically observed by conventional hotels, thus it is not forced to adjust average prices depending on the season. Additionally, it can fill occupancy gaps by attracting both transient and long-term guests with competitive prices and comfort. The ideal proportion is 30/70 (30% short-term and 70% long-term stays), which maximizes revenue. Significant deviations from this rule, such as accommodating a larger number of transient guests, increase operational costs. In such cases, the extended stay hotel loses its primary attribute and becomes more like a traditional property.

The growing population, high employment rate, development of high-tech industries, and significant internal migration have led to a substantial increase in demand for this type of accommodation in the American market over the past decade. It has also been successfully adopted in Australia and Asia, although it is often referred to as serviced apartments in those regions. The situation in Europe, however, is different, where the extended stay product is still underdeveloped, mainly due to relatively low social mobility and shorter business trips. Nevertheless, the increasing presence of extended stay hotels in larger cities poses a significant competitive threat to other properties. Jim Roos from Candlewood Suites boldly suggests that "once guests become familiar with this product, they tend to move away from traditional hotels." Are these words a harbinger of another evolutionary change in the global hospitality industry? Or will market forces compel operators to make extended stay projects the industry standard? Only time will tell.

Robert Woliński

Sources:
1. Jeff Higley, “Jack DeBoer – Adventurer, philanthropist, entrepreneur”, Hotel & Motel Management, October 2, 2002, www.candlewoodsuites.com
2. „The 2002 U.S. Extended-Stay Lodging Report”, The Highland Group, www.highland-group.net
3. www.extendedstay.com
4. “Extended Stay America, Inc. Becomes Fastest Growing Lodging Chain” January 22, 1998, www.hospitalitynet.org
5. Lisa Leavitt, The Economy Extended Stay Market... Here To Stay?, Menneger Summer 1999”, www.hotel-online.com
6. “A Closer Look at Life on the Road: Extended Stay Travelers Prefer More Space” – November 17, 1997 – www.hotel-online.com
7. Bill Gillette, “The Spirits of Independence”, Lodging Magazine 5/2001, www.lodgingnews.com
8. Jeff Higley, “Slower Supply Growth Propels Occupancy”, March 5, 2001, www.hotelmotel.com
9. „The 2002 U.S. Extended-Stay Lodging Report”, The Highland Group, www.highland-group.net
10. Glenn Hausman, “Fast-Growing Ex-Stay Segment Appeals To Owners”, April 11, 2001, www.ehotelier.com

This article, significantly abridged, appeared in the magazine Hotelarz issue No. 3/2003 under the title "Zostać dłużej" (eng. Stay longer)

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