In an industry that is over-built and overpriced, Super 8 Motels Inc. has managed to increase revenues a whopping 2,239% over the past five years. How did they do it? Not with marbled lobbies, fern bars, and trendy restaurants, but with franchised, no-frills roadside motels that can provide a family of four with a room for under $30 a night. The 12-year-old, $24-million company now has 296 motels in 38 states and will build 120 more next year. While low overhead is a factor in its success, chief executive officer Dennis Bale attributes the company's growth largely to "just plain old vertical integration."
Founder Dennis Brown, a South Dakota lawyer, had watched business booming at Motel 6, a California budgethotel chain, and decided to go after his own piece of the limited-service facilities market. So in 1973, he teamed up with ex-banker and independent contractor Ron Rivett in Aberdeen, S. Dak., and founded Super 8 Motels (named for the original price of a single room, $8.88), along with a construction company and a motel-supply company. The idea was to create an operation that could offer franchisees a total turnkey package. "We can do everything from just selling a franchise to giving the franchisee everything right down to the grand opening," says Bale (Brown and Rivett are no longer involved in day-to-day operations). "We have an edge over our competitors in that way." The company eventually added a property-management company and a telephone company as well.
"Franchisees were not beating down our doors in the first few years," Bale admits. "But then local people became involved, and it was a snowball effect." News of Super 8's success spread quickly -- so quickly that the company shunned the use of regional franchise salespeople, preferring to exercise more control over choosing their franchisees. While Super 8 can't require franchisees to use any of its ancillary services, Bale believes that the subsidiary companies are a big selling tool. "We're probably building more motels this year than any other motel chain," he says, adding that 72% of all new development last year came from existing franchisees. Many of these properties are situated in small communities -- markets that Super 8's competitors are not exploiting.
But competition is stiffer than it was at the start. In 1973, there were only 1,500 budget motel rooms; today, there are 230,000. How will Super 8 respond? "We're doing precisely what the founder of Holiday Inn did 30 years ago," says Bale. "But they're pricing themselves out of the market." Super 8 has no intention of following suit.
CORRECTION-DATE: February, 1986
In "Private Lives" (December 1985) the photo credit on page 96 should have read Dick Carlson/Uniphoto.