PHOENIX — Since taking over as president of Red Roof six months ago, Zack Gharib has checked off a lot from his to-do list.
One of his main goals when coming in was to get to know his team. He has also met with many of Red Roof’s hotel owners and franchise advisory council owners to get their feedback and insight on what’s working and what’s not, he said.
“It gave me a sense of who we are and where we want to go,” he said.
Red Roof has come a long way in the last six months, Gharib said during an interview at the recent Lodging Conference. The teams have created a new culture, new cultural statement and core values. The company deepened its senior leadership, hiring Tara Henderson as chief financial officer and adding a general counsel.
The company also launched its new Red Roof prototype, a four-story, 80-room flexible model. Owners can choose what aspects they want, such as a lobby, a breakfast area or a fitness center.
What was key in making this prototype was making sure the numbers worked for the owners, he said. The company couldn’t present it to developers and franchisees only to hear them respond that it’s too expensive.
The company also opened its first Hometown Studios extended-stay property in Tampa, Gharib said. Red Roof worked with the ownership and development group, Dhruv Management and Dhruv Development, to get the numbers on the actual cost to build, going through the numbers line by line.
“I think there's a lot of excitement in the franchise community about the look and feel, and hopefully the cost being economical makes it a sound investment, as well,” he said.
Red Roof also celebrated its 700th hotel, the Red Roof Plus+ Jamaica in New York.
Internal changes
On the corporate side, Red Roof’s team is evaluating brand standards and internal processes to make sure they’re elevating those to serve the franchise community better and, in turn, the guests, Gharib said. That includes the way leaders conduct property visits with franchisees, as they will have new focuses on how to drive revenue, sales and consistency.
Driving consistency and quality is a major part of Red Roof’s strategic initiatives, he said. It has laid out a vision and plan to accomplish this, so the next part is going out there and executing on the plan. He will visit hotels with his operations teams to ensure they’re moving in the right direction and helping any hotel owners facing challenges in revenue or sales. Improvements in those areas can then help owners reinvest, which will improve consistency.
Red Roof also signed a new agreement with a guest experience platform to help it better understand guest needs and better connect with them, Gharib said. The company also completed the rollout of a new property management system that will help streamline operations and make training easier, which will in turn make the guest experience better.
“We launched our new website, which has a clean, simple look, and that's going to hopefully drive more clicks and more revenue at our hotels,” he said.
The economy and extended-stay segments
New construction overall has been a challenge for hotel developers, Gharib said. The capital markets aren’t cooperating, and interest rates are still high. It’s not easy to find the right equity partner to get a deal done. The requirements for financing are higher, as hoteliers can’t just put 35% down and get 65% in financing anymore.
That said, with Red Roof’s new prototypes, the cost to build should help hotel owners looking to build in the economy and extended-stay space, he said.
“When we rolled the new Red Roof prototype out, we’re not thinking about the next two months, three months or six months,” he said. “We’re thinking about the future of the organization.”
The Federal Reserve’s decision to cut the federal funds rate by 50 basis points was great, he said, but he’d like to see another 25-basis-point cut in November and December.
“It’s a step in the right direction,” Gharib said, adding he hopes it will spur interest in new-construction deals.
Red Roof is attending different hospitality industry conferences to connect with new brokers and bankers who can help franchisees with better rates, he said.
This past year has been challenging for the economy hotel segment as many guests are feeling squeezed financially, Gharib said. They’re trying to figure out whether it’s better to take a trip or save their money.
People love to take vacations, and they want to take their families on trips, so hopefully the economy hotel segment has already seen the worst of it, he said. While he’s not projecting the segment to start seeing positive performance, Gharib believes the declines will ease and come back to an even point.
Now that Red Roof as integrated its new systems and relaunched its website, that should mean the company will see in 2025 the fruits of its labor from this year, he said.
“I feel we're going be in a better position in the economy segment for 2025 just because we've gone through this transformational year,” he said.
As for extended-stay hotels, all indications show continued strong demand for the segment, Gharib said. The pandemic demonstrated the strength of the segment. People can stay in a hotel and work from there for months at a time.
That demand for extended-stay hotels is met by the demand on the developer side, he said. While construction costs aren’t the cheapest, the operating model, and associated costs, is attractive.
“I think demand on both the guests and developers will continue to grow,” he said.
Growth potential
In light of Oyo's parent company Oravel Stays paying $525 million to acquire G6 Hospitality and its Motel 6 and Studio 6 economy hotel brands, Gharib said mergers and acquisitions are always exciting. The half-point cut by the Fed was a breath of fresh air, and everyone is looking for more. Further rate cuts could drive more hotel transactions or mergers and acquisitions.
“If we continue down that path, I think [mergers and acquisitions] and the appetite for more transactions and more deals is going to increase in our industry,” he said.
All of the hotel brands have an appetite to grow, whether that’s organically or through buying other brands, he said. Red Roof is in the same spot, as it has plans to grow beyond its 710 hotels.
“We’re already a big, iconic brand, but we can grow even more,” he said. “We are definitely interested in growing organically or through other ways, including acquisitions.”