The Budget Extended-Stay Hotel Niche: Can Hilton Compete?

Hilton Hotels Corp. launched its new extended-stay hotel, Home2 Suites by Hilton, with an average price of about $100 a night. Hilton is joining other chains in filling the lower-cost, extended-stay niche and the company reported it already had 10 franchise applicants. The first of the hotels is expected to start construction this year with approximately 100 slated to be built by 2012. (Hilton, which is moving operations to Memphis and Washington, D.C.,  already owns Homewood Suites, a tonier extended-stay hotel brand.)

“Home2 Suites will offer developers an opportunity to enter the segment with a comfortable, yet stylish product at a low cost per key,” said Phil Cordell, global head of focused service brands.

The budget extended-stay niche (although I doubt Home2 would call itself that) is growing and among the winners in the niche is Value Place, based in Wichita. The company recently opened its sixth extended-stay hotel in Indiana and has 137 in the rest of the country. Costs per week range from $189 to $239.

Jack DeBoer, the company’s founder and chairman, is well-known in the extended-stay industry. He started (and later sold) Candlewood Suites, Residence Inn and Summerfield Suites to the InterContinental Hotels Group, Marriott and Hyatt.

The no-frills Midwestern company was founded in 2003 and plans 50 new hotels in 2009. Their business model is streamlined — franchisees finance hotels and each property has about four employees. Any frill — including coffeemakers, housekeeping once a week, or dishes — costs extra. The formula seems to be working because the company hosts about 12,000 guests a night.

Value Place usually serves customers paying their own way, families traveling, construction crews or visitors, so it doesn’t rely on business travelers. A good thing when many businesses are cutting back on travel. However, budget extended-stay hotels could benefit from those companies pressuring workers to find cheaper lodging.

Value Place’s future appears rosier than many other extended-stay brands, including financially-troubled Extended Stay America, and since its prime attraction is price — its continued success could hinge on that alone.

Is Home2 Suites’ $100 a night attractive enough to lure hardworking families moving across country? A quick look at Hilton’s Homewood Suites properties in the San Francisco Bay area range from $85 to $139 a night — not much different from the average $100 a night for Home2. Either way, $500 to $700 a week is still pretty high for most families  . . .  and maybe even for the newly cash-strapped business traveler.