Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, April 2, 1995 TAG: 9503310030
SECTION: BUSINESS PAGE: F1 EDITION: METRO
SOURCE: JEFF STURGEON STAFF WRITER
DATELINE: LENGTH: Long
\ DOUBLETREE is digging for diamonds in Roanoke. And it believes it can a mine an improved reputation and begrudging respect from some larger and formidible competitors as well as run the city's landmark hotel.
At the Hotel Roanoke and Conference Center, guests may order venison in the Regency Room - or via 24-hour room service. The hotel company has appointed rooms with just the right bedding and linens and other upper-crust fare.
"The opportunity we have," said General Manager Gary Walton, "is to have a state of elegance, a state of service, that is similar to Ritz-Carlton."
Walton's target: A four-diamond rating in the American Automobile Association TourBook. That hard-to-obtain mark of distinction currently belongs to such well-known resorts and hotels as the Boar's Head Inn & Sports Club in Charlottesville, The Greenbrier in White Sulphur Springs, W.Va. and The Homestead at Hot Springs.
Running hotels is tough. Few know that better than the Doubletree chain, which in 1991 lost $6.3 million - equal to about a quarter of a million dollars at each of the 27 hotels it operated at the time.To be fair, 1991 was the industry's second-worst year in 25 years, and Doubletree was not the only hotel company that lost money. Doubletree went on to post profits of $4.6 million the next year and nearly three times that last year.
A sampling of hospitality industry analysts agreed that Roanoke's beloved former railroad hotel appears to be in expert hands with the decision to have it managed by Doubletree Hotels Corp. of Phoenix.
The analysts call Doubletree a young, aggressive, astutely run hotel management company, well-liked for its service and the chocolate-chip cookies it gives guests as they check in. Though it trails much larger competitors such as Marriott, Doubletree has its name on a growing number of upscale hotels.
"They don't do many things wrong," said Robert Nozar, editor of Hotel & Motel Management, a trade magazine that circulates to 60,000 industry readers.
A lot of money and dreams are riding on the company's performance in Roanoke. The city and Virginia Tech, which owns the hotel through a private foundation, spent $28 million on hotel renovations and put up a $12 million conference center with 63,000 square feet of space for meetings. Doubletree has a contract to run the hotel for 10 years and the conference center for at least five years.
The 332-room hotel's success could channel profits to charities, bolster Virginia Tech programs and enhance the valley's image as a travel destination, proponents said.
As the hotel prepares to open Monday for the first time since 1989, Doubletree's Roanoke team has been hiring 300 employees, nearly enough to satisfy a one-time standard for grand old hotels of one employee per guest room.
A competitor with a lower employee-guest ratio wasn't surprised by that statistic, but predicted that the hotel's employment will taper off.
"You've got to open with a bang," said Gerald Carter, general manager of the Holiday Inn-Tanglewood in Roanoke County.
Guests will stay where they think they receive the most for their money, Carter said.
\ Doubletree officials also see the Roanoke project as an important test for their growing company. Doubletree in its current form is only 15 months ago but it traces its roots to two other companies that date back more than 20 years each.
Operating the adjacent city-owned conference center is unchartered territory for most hotel companies, said Tom Bolman, executive director of the International Association of Conference Centers.
"There's virtually no hotel chain that has vast conference center experience," Bolman said.
Doubletree is accustomed to running hotels, some of which have meeting rooms, but has only one other in its system with a conference center - in St. Louis.
But organizers of the Roanoke project agreed that Doubletree offered the best combination of experience and showed special enthusiasm for the project by lending it $1.3 million. City and Virginia Tech officials got along well with company executives, who made one gesture few insiders have forgotten.
In 1992, once it was promised the Hotel Roanoke management contract, Doubletree executives brought a piece of the real world to Virginia Tech's hotel management program by lecturing to students.
"That to me demonstrated an interest in having a broad sort of relationship with a university. They realized the students were an important aspect of what we were trying to do," said Ray Smoot, Tech's vice president of finance and a key player in the hotel project.
Another plus was that Hotel Roanoke will receive business through a listing on the Doubletree reservation system, which has an international toll-free number. Reservation agents working in Phoenix receive an average of 500 to 800 calls hourly from around the world, depending on the time of year.
Also, the company has a reputation for delivering good service with a memorable touch. As they check into its hotels, guests receive two hulking cookies. The company credits a "small Atlanta bakery" for the recipe, which includes cinnamon, lemon juice and oatmeal and until recently has been kept closely under wraps.
Doubletree bills itself as an upscale chain, a term loosely used by hoteliers, that denotes comfort but doesn't always mean guests will find a robe in the closet and a turned-down bed at sunset.
But then, Doubletree has a vested interest in keeping guests happy and coming back, because it earns a share of every room and restaurant bill at the Roanoke facility. Its agreement provides for 2.5 percent of Hotel Roanoke's revenue and an extra 1 percent for keeping the facility on budget. If the hotel meets projections for $10.8 million in sales, Doubletree takes home a minimum of $270,000 from that operation.
For running the conference center, it will receive an additional flat fee of $60,000 per year. In addition, Doubletree's Roanoke management team is paid - salary and benefits - from the hotel and conference center's operating budget, on top of Doubletree's compensation.
Hotel Roanoke intends to cater to business and leisure travelers and groups that need meeting space for conventions and seminars. Its challenge is to bring in meetings, which often occur during the week, while scheduling enough other events such as weddings to keep the conference center busy on weekends.
\ Doubletree arrived on the scene a stranger to most Roanoke Valley folks. A doubletree is a farm implement for harnessing draft horses to a wagon. But a hotel chain?
Some may ask, how can executives in Phoenix oversee activities in faraway Roanoke, ensuring that front desk attendants smile, room-service food arrives hot and maids wipe that last hair off the bathroom floor?
Tom Storey, executive vice president for sales and marketing, said the answer is simple: Hire the right employees.
Walton, the hotel and conference center's general manager, was named general manager of the year in 1993 by the Doubletree chain.
The company named as sales and marketing director Gary Crizer, who last oversaw sales and marketing for 19 California Doubletrees.
In addition, the company brought in controller David Johnson from the St. Louis Doubletree Hotel and Conference Center for his experience running an operation that must account for meeting-related revenue on top of normal hotel receipts, said Bill Bohde, the St. Louis hotel's sales and marketing director.
At the company's helm are two prominent co-chairmen: Peter Ueberroth and Richard Ferris.
Ueberroth was the sixth Major League Baseball commissioner and chief organizer of the 1984 Olympics in Los Angeles, which earned a $222.7million profit.
Ferris was chief executive officer of UAL Corp. of Chicago when it owned United Airlines, Westin Hotels, Hilton International hotels and Hertz.
Ueberroth and Ferris haven't announced plans to visit Roanoke but nevertheless will shape the hotel's operation.
Few may know if they take a room at Hotel Roanoke. "They are not brass-band guys," said Doubletree spokeswoman Sheila Schofield.
But Doubletree has been tooting its horn. In late February, the company said it would invest $31 million a year in advertising and marketing, an increase of 40 percent over past years.
Those who watch pro sports on TV or read Forbes, Business Week or Life have seen them already. The ad campaign titled "Sweet Dreams" touts the intangibles of a good hotel stay - such as peace of mind - with images of mountains and a coral reef.
Doubletree steers clear of basing its promotions on the physical attributes of its properties, because the hotels the company manages for various owners differ in many respects. The chain can't tout, say, spacious ballrooms if few of its hotels have them, Storey said.
Plus, other upscale hotels all ply guests with pretty much the same special services and amenities, such as fax handling and exercise equipment. Doubletree said it has matched the amenities competitors offer and is focusing on delivering them well.
"It's not a question of what you offer, it's how you offer it," Storey said. "The only way you can differentiate a hotel company is with some kind of an attitude."
This is not to say that Doubletree is ignoring the mechanics of what makes a hotel stay comfortable.
The company is getting expert advice on sleep and dreams. For advice on blankets, lighting, sound and room temperature, Doubletree's advertising agency has been considering signing a consulting contract with William Dement, a psychiatry professor at Stanford University. Dement co-discovered rapid eye movement, the jerky movements of the eyeball under the eyelid during sleep, associated with dreaming.
The company also is studying how to expand on-site business services, and has talked to the owner of Kinko's Service Corp. of Ventura, Calif., about putting miniature "branch offices" equipped with copiers and computers in Doubletree hotels, Storey said.
For its concerns about basic guest comfort as well as innovative features, industry analysts rate Doubletree well.
The hotels "are upscale, high-quality, relatively high-priced ... and offer lots of services and amenities," said industry consultant Geoff Kirkland of Howath Hospitality in Charlotte, N.C.
Other hotels have had success as Doubletrees. A longtime Sheraton hotel in Norfolk converted to the Doubletree chain in September to enhance its image. "We just felt Doubletree was an up-and-coming franchise," said General Manager Jim Kinane, who works for a management company hired by the hotel owners.
The switch was approved by the hotel's owner, J.P Morgan & Co., which is "putting a lot of money into it and felt they would get a better return with Doubletree," Kinane said.
\ The company that so many find praiseworthy has come a long way. It sprang from the merger of Guest Quarters Suite Hotels, formerly a Norfolk-based company that began operations in 1974 in Atlanta and expanded primarily in major East Coast cities, and Doubletree Hotels, founded in 1969 in Scottsdale, Ariz., which expanded in the West and Midwest.
Guests Quarters bought Doubletree and on Dec. 16, 1993, combined the companies into one. The new company took the Doubletree name, but its new logo represents both companies; a stylized G and Q for Guest Quarters are shaped to resemble two trees.
The newly formed Doubletree company started out controlling 40 Guest Quarters Suites-affiliated hotels and 56 Doubletree-affiliated hotels in major and secondary cities across the country.
Hotel company mergers have been in vogue lately. The English brewers of Bass beer, Bass Plc. of London, picked up the world's largest hotel chain, Holiday Inn, in 1990. Marriott International Inc. of Bethesda, Md., said March 6 that it will buy a stake in the Ritz-Carlton Hotel Co.
Industry analysts saw Doubletree and Guest Quarters as good merger candidates. The move provided a needed nationwide presence neither Guest Quarters nor the old Doubletree had achieved on their own.
"The marriage of them seems to be a good geographical marriage. Execution of growth in the '90s will be the challenge for anybody," said Jim Burba, a hotel analyst who advises the hotel management studies program at the University of California, Los Angeles.
The number of hotels in the Doubletree chain grew last year by eight to 104, bringing the number of rooms to 26,500. That's a relatively small chain by industry standards; Doubletree has set a goal of growing to 250 or 300 hotels within five years.
The chain could grow by buying another hotel management company, buying hotels, selling franchises or winning more management contracts, and said it will emphasize new contract acquisition. In a 1994 stock prospectus, the company also said it will try to fold another company into the mix.
Some analysts question whether Doubletree can attain the 300-hotel mark by doing nothing other than adding new contracts. Securities analysts Ladenburg, Thalmann & Co. Inc., which helped underwrite the initial Doubletree's stock offering, predicted a net gain of 18 contracts for Doubletree this year. If that happened, Doubletree would need to nearly triple its rate of acquiring new contracts to 45 per year for four years. Doubletree added 14 properties last year.
Industry analyst Michael Cahill, president of Hospitality Real Estate Counselors Inc. of Thornton, Colo., said Doubletree probably can achieve its goal only by acquiring another company or buying hotels, because competition for contracts is intense.
"You say, I own a hotel and I need someone to manage it. You're going to have a Hyatt guy at your door. You're going to have a Hilton guy at your door. You're going to have a Westin guy at your door. You're going to have a Doubeltree guy at your door. You're going to have a Marriott guy at your door," Cahill said.
That Doubletree representative likely will hail from a glass-faced office tower in Phoenix, which lies across a driveway from a palm tree-studded franchised Doubletree hotel. The company occupies two floors of the tower, using one for its 170-employee reservation center.
After the merger, its executives needed a breather, however, from sunny Phoenix. In spring 1994, the company's general managers met for a convention in Atlanta. They honed their leadership skills during an Outward Bound expedition.
When they returned, the management team was ready for significant work. In July 1994, the company sold its initial offering of 3 million shares of common stock. Trading under the symbol TREE on the Nasdaq market, shares rose from an opening price of $13 to a peak of $22.25 during trading on Nov. 16 and currently are selling at about $19.
Because the stock offering raised $39 million to pay down debt, Doubletree now can afford to give cash or loans to hotel owners to win its management contracts, said Michael Mueller, an analyst at Montgomery Securities in San Francisco, which helped underwrite the stock offering.
"This company is going to end up being one of the leading upper-end hotel chains in the U.S. over the next five years," Mueller said.
At the end of 1994, Doubletree reported net income of $12.5 million on revenue of $76.5 million for the year.
Company officials suggested there is little point in comparing Doubletree profits with those of its competitors, because of the larger size of the other companies. Indeed, Marriott, with 900 hotels, reported earning $200 milllion on revenue of $8.4 billion in 1994.
Storey said Doubletree's true market share is more closely tied to the percentage of upscale hotel users who spend at least some of their traveling time at a Doubletree. That figure is running at about 7 percent for Doubletree,15 percent for Sheraton, Hyatt and Hilton, and 23 percent for Marriott, the leader, he said.
As for AAA's opinion, the auto club gave 47 of 56 Doubletrees rated this year three out of a possible five diamonds in its evaluation of amenities and service. Eight hotels drew four stars, and two drew two stars, spokesman Jerry Cheske said.
Doubletree's score on another measure of corporate performance is hard to judge, as this measure doesn't show up in annual reports or travel industry scorecards. That is corporate giving. Evidence of Doubletree's generosity lines the walls of its lobby. There are framed thank-you notes and plaques from Phoenix Children's Hospital's Children's Cancer Center and the U.S. Marine Corps' Toys for Tots program.
Backers of the Roanoke project also may get some comfort from the lack of severe financial distress in the backgrounds of the two companies that make up Doubletree. Neither has been in bankruptcy, common in the high-risk hospitality industry. During the worst years of the industry's recent downturn, foreclosure took just one Guest Quarters-affiliated hotel, a Santa Clara, Calif., property, because of a partner's default, and none of Doubletree's hotels, company officials said.
Doubletree executives Storey and William Sinclair, vice president new business, describe Hotel Roanoke as a relatively safe venture for their company.
Its fortunes will be tied more closely to the local economy than those of a hotel in a large city, Storey said. "As the economy goes, so goes the hotel," Storey said.
Although executives do not see the project as risky, no one at Doubletree will be surprised if it loses money for two full years, no matter the state of the local economy.
In fact, losses already are built into its budget, just like the cost of new draperies. No one involved will say how much money has been set aside as a loss reserve. Disclosure of that information would help the hotel's competitors, Smoot said.
Hotel Roanoke will appear to most outsiders as a new hotel, because of the extensiveness of its renovation, Sinclair said. New hotels often lose money until they develop regular business, a process that can take two or three years, said Doubletree and Virginia Tech officials.
Hotel Roanoke has little hope of avoiding the break-in period because a large part of its business is forecast to come from groups and associations. These organizations book their meeting space several years before the actual events, meaning they would be unable to patronize Hotel Roanoke this year or next, even if they wanted to.
The retirement of millions of dollars of bank and government debt rides on Doubletree's ability to run the hotel within its loss projections.
Sinclair said the company is up to the challenge.
"This is not just another project for Doubletree," Sinclair said. "We're helping to bring to reality in Roanoke a dream and bring back the myth, if you will, that the community has missed since it's been closed. We take that as a big responsibility."
Keywords:
PROFILE
by CNB