Holiday Inn's ultimatum to shabby hotels: Renovate or the Holiday's over

For Holiday Inn franchise owners, 2010 is starting to look a little bleak. At its annual meeting on Thursday, the chain's owner, Intercontinental Hotels Group (IHG), told its American franchisees that, recession or no, they need to renovate. At the very least, every outlet has to install new lighting and signs, renovate its lobby, and buy new pillows, towels, and bedclothes. For older hotels, the changes will be more extensive.

Most of Holiday Inn's 3,300 hotels have already undergone these changes, but the owners of 300 have been dragging their feet. One large reason for their procrastination arises from the cost: The $150,000 to $250,000 renovations have to be financed by the individual outlets. In today's tight credit market, many franchisees are having a hard time raising the money.
The Holiday Inn renovations are part of a larger IHG strategy that is aimed at expanding the chain and creating 140,000 new hotel jobs in the next few years.

In general, it's a tough time for the hospitality industry. Recession miseries have convinced many consumers to cancel vacations, and anemic finances have pushed companies to cut back on lodging expenses. In fact, according to a recent study by PricewaterhouseCoopers, 2009 hotel occupancy will come in at 55.5%, leading to a revenue drop of more than 16%; in 2010, the consulting company expects a modest increase to 56.1%, which will not be enough to significantly raise the industry's revenue.

While this might seem to be a good time for hotels to keep a tight grip on their purse strings, Holiday Inn isn't the only chain that has chosen to embark on a major upgrade. Over the past two years, Sheraton has undergone a $6 billion renovation and, on Oct. 23, unveiled its new look by inviting 2,100 customers to spend a free night in its hotels.

In Holiday Inn's case, the renovations have already caught the public's eye. While public response to the chain's new signs has been mixed, there is no doubt that the company continues to be a valuable property: According to the company, nine out of 10 travelers have stayed at a Holiday Inn, and it is the preferred chain of under-30 consumers. What's more, the renovations are, apparently, impressing many longtime customers.

With the battle for hotel customers heating up, Holiday Inn's decision to join the rebranding battle makes sense. And, with finances stretched tight, it's hardly surprising that they have chosen to pass the bill on to their franchisees. The question is, however, whether a $200,000 renovation is worth it for the chain's last holdouts, or if their owners will decide that the recession is the perfect time to rebrand as independent hotels.
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