What Washington company is the fastest growing lodging chain in the country?
If you guessed Marriott Corp., guess again.
Quality Inns International in Silver Spring claims the honor.
In the first year under new president Robert Hazard and his executive vice president and alter ego Gerald Petitt, Quality Inns added 75 new franchised hotels and motels to its 300 units, a gain of almost 25 percent.
Hired away from Best Western in December of 1980 to revitalize a Quality Inn network that had barely expanded at all in the past decade, Hazard and Petitt set a first year growth goal of 10,000 new rooms.
By Jan. 1, 1982, 10,168 rooms had been added to the chain and owners of 80 more properties with another 10,000 rooms had signed franchise agreements and were in the process of converting to Quality Inns.
The 10,000-room expansion drive was so successful that last month Hazard called in his sales force and gave them the good news:
This year's goal is 15,000 new rooms.
Things are happening fast at Quality Inns headquarters out past the Capital Beltway on Columbia Pike.
A new $2 million computerized reservations system that Petitt calls the most sophisticated in the lodging business went into operation last month.
Finally living up to the "international" in its corporate name, Quality Inns has built nine new hotels in Mexico as a joint venture with a Mexican bank, set up a European marketing venture with an English chain and signed up two hotels in the Philippines as the start of a new Pacific division.
In a few weeks, Quality Inns International will launch its most ambitious television advertising campaign ever with a new company spokesman--the same fast-talking actor who does the Federal Express commercials.
Pulling a bright red Sony dictation machine out of his pocket, Petitt presses his thumb and the voice of John Moschitta blasts out the cities with Quality Inns at a mile-a-minute clip.
When the commercials hit ABC next month--on news programs targeted at the frequent business traveler--the actor will stumble into the pool of the Quality Inn Anaheim, reading aloud a list of locations while a wimpy bean-counter times him with a stop watch.
No time study man is needed to monitor the effectiveness of the new IBM reservation system that is meant to give Quality Inn franchisees a greater percentage of their guests from the central referral system.
Every half hour the computer prints out a record of how many calls each reservationist handles and how long each call takes.
The workers are still high on the slope of the three-week learning curve for the new system, Petitt notes, and are averaging 196 seconds a call.
The goal is to get the average call down to 150 seconds to preserve precious time on the WATS line, he explains. Every second pared off the average call cuts the annual WATS bill by $40,000; half a minute a call means better than a million bucks a year.
Timing reservations requests down to the second and signing up new franchises 10,000 rooms at a time are among the tough new techniques introduced by the new Quality Inn management.
Since he got his MBA 12 years ago, Gerry Petitt has had four jobs, but only one boss--Bob Hazard. The two met while Petitt was still in college and got a summer job at IBM, working under Hazard. "Gerry got the highest score ever on the IBM aptitude test," recalled Hazard. "We checked to be sure he hadn't cheated."
From the first job at IBM to American Express, Best Western and now Quality Inns, Hazard, 47, and Petitt, 36, have moved together, a classic dynamic duo, playing off each others' strengths. Petitt is the detail man, Hazard the creative thinker with more ideas than he knows what to do with. Petitt knows.
"Gerry has the mind of an engineer and the instincts of a businessman. He really gets things done," said Hazard. "I didn't lose one night's sleep over that new reservations system."
"Bob is incredibly creative, he just keeps spewing out ideas, He keeps us all running 110 miles an hour," says Petitt.
At Best Western, Bob and Gerry, as most everyone calls them, turned an 800-unit franchised hotel chain into a 2,500-unit operation in six years, gaining a reputation as the hard chargers of the hotel business--professional managers, not hotel keepers.
The two were lured to Quality Inns in November of 1980 with an offer that Hazard has described as a "chance to become a millionaire."
Their initial contracts called for a $90,000-a-year salary for Petitt, a $112,500-a-year deal for Hazard, annual cost-of-living increases, perquisites including hefty bridge loans to buy new houses and a bonus deal that can boost their salaries as much as 50 percent a year.
On top of that, each got a 10 percent stake in Quality Inns International.
Quality Inns International is one of three principal subsidiaries of Manor Care Inc., the one-time Silver Spring nursing home chain that has turned itself into a conglomerate in the last 18 months.
Manor Care and Quality Inns were separate operations until the summer of 1980. Stewart Bainum was chairman and biggest stockholder of both, owning 41 percent of Manor Care and 33 percent of Quality Inns.
After an unsuccessful effort to take over another nursing home firm, Hillhaven Corp., Bainum arranged a merger of Manor Care and Quality Inns. The idea, Bainum said at the time, was to add "more financial muscle" to Quality Inns so it could expand rapidly.
Manor Care Inc. was reorganized into a holding company. One subsidiary, Manor Healthcare Inc., was set up to run the former Manor Care operations--nursing homes, alcoholic rehabilitation centers and hospitals.
Quality Inns International was established to run the franchised lodging chain. A separate subsidiary, Quality Inns Inc., operates 28 Quality Inns as a franchisee of Quality Inns International. Currently, Manor Care is seeking a president to run its company-owned Quality Inns.
Shortly after the reorganization last year, the health-care subsidiary made an unsuccessful attempt to buy a chain of Pennsylvania nursing homes, but was outbid by Cenco Inc., of Oak Brook, Ill.
No sooner had Cenco taken over the Pennsylvania chain when Cenco found itself the target of an unfriendly takeover bid. Cenco turned to Manor Care to help fend off the attack and Manor Care agreed to play the role of "white knight."
Arranging an extraordinary $191 million credit line, Manor Care agreed to buy Cenco for $207 million. Manor Care Senior Vice President James Rempe likens the transaction to "swallowing a frog."
Manor Care was only a $60 million venture before the merger with Quality turned it into a $115 million operation. Cenco's revenues were $155 million a year. Adding internal growth from all the operations, Manor Care will be a $300 million operation this year, five times its size just two years ago.
As a result of the purchase of Cenco, Manor Care's long-term debt jumped from $84.6 million last May to $299.4 million in November.
The difficulties of digesting Cenco have not distracted Manor Care from its goal of expanding the Quality Inns operation.
"What we told Stewart Bainum was that we had to reinvest to build the business," said Hazard. The new reservations system and a major investment in expanding the system were two of the things Hazard and Petitt insisted upon before they came to Washington. "They said we could take the Japanese approach and build for the long term," Hazard added.
Petitt said the economics of a big franchised lodging chain are such that it costs little more to operate a group of 3,000 hotels than it does a group of 300 hotels.
The immediate target for Quality Inns is a 75,000-room system by 1985. Right now the room count is just under 46,000. Counting last year's additions to the system, there are now 382 properties in operation and 76 more in the pipeline--new properties under construction and new franchises in the process of converting to Quality Inns.
"The essence of good management is to say what you're going to do and do it," says Hazard, whose dedication to the management-by-objective concept produced a set of three objectives for 1981:
* "Add 100 licensees and/or 10,000 rooms to the system.
* "Develop and install the world's finest and most advanced computerized reservations and marketing system.
* "Make Quality Inns system the most recognized, respected and admired lodging system in the world."
With the computer in place and the first year growth goal accomplished, the priorities for 1982 have changed.
Number one now, Hazard said, handing out a sheet that sets the company's agenda, is to "strengthen the property's profitability" and "deliver more measurable room nights sales and more measurable occupancy."
What he calls the image and identity objective now is number two and system growth is in third place, because the plan for expansion has been set in motion and is on track. The recession is helping the expansion push, Hazard noted, because when times are tough independent motel operators need the advertising and reservations system of a franchise network to bring in business.
The two executives concede that "Quality Inns has to eliminate its image of inconsistency," which has made potential customers dubious about the kind of accommodations they will get when they make a reservation.
Typical of the Hazard-Petitt emphasis on quantifiable performance is the technique for tightening up on the physical condition and operations of the franchised properties.
The check list formerly used when franchise directors made their quarterly call on local owners has been replaced by a scorecard. A perfect rating is 1,000. A passing grade is 800.
"Now we can compare the scores," explains Petitt. "We use a lot of peer pressure" to encourage franchisees to get their grades up.
After flunking their semester exams last year, 30 franchised motels with 3,900 rooms were "terminated" last year. Petitt said weeding out the bottom 8 percent to 10 percent of the franchises will continue for another year or two, because "you have to tighten the screws."
"The problem with all lodging chains is your reluctance to terminate the guy when he's paying you fifty, sixty or seventy thousand a year," admits Hazard. "But if you don't, you lose customers."
Quality Inns is also cracking down financially on its franchise holders, ending dozens of special deals that allowed many local owners to escape paying their full franchise fee of 3 percent of gross sales. Before the new management came in, the actual yield on the fee was only 2.05 percent.
The parent company also charges fees for advertising and operating the reservations system. The franchise holders agreed to boost the ad fee from 0.6 percent of sales to 1 percent and to boost the reservation charge from .8 percent to 1 percent plus 25 cents for every reservation supplied by the new system.
With the fee hike, Quality Inns is now in line with the other big franchise chains--Howard Johnson, Holiday Inns, Ramada, Best Western, etc.--the two executives said. The reservation fee will help buy the $2.1 million computer system and pay for its operation.
Set up in a new building just completed next door to the original headquarters, the reservations center is staffed by 200-plus workers, including 96 new hires.
They all wear Quality Inn uniforms, though they never meet a customer face-to-face. "We put them in uniforms to make them more professional," explained Petitt.
Among the 18 people from Best Western who followed Petitt and Hazard to Quality Inn were a batch of computer types who had developed Best's system and before that the Holiday Inn network.
The computerized reservation room is the heart of the whole Quality system, pumping out guests to fill up the rooms. "The difference between the rooms is pretty much minimal," Petitt says; "the reservations system can make the difference."
To meet this year's goal of providing customers with "more measurable business," the company is counting on increasing the share of each local motel's units booked through the central computer from the current 8 percent or 9 percent to 13 percent to 15 percent within 18 months, Petitt said. A revamped group sales operation is aiming for a 50 percent growth in that business this year, to give the average Quality Inn about 7 percent of its guests in groups.
"If we can provide them with 20 percent of their occupancy, they ought to be able to get 50 percent on their own," says Hazard.
Hazard's other strategy for building business has been to segment the company into three kinds of Quality Inns.
A new budget chain of Comfort Inns started signing up existing motels last summer to compete with Days Inn, Motel Six and the like; seven are operating, another 23 are in the works and Hazard hints of a plan to build 300 Comfort Inns from scratch, a billion-dollar plus expansion.
At the opposite end of the scale, the first Quality Royale opened in Georgetown this month. Washington attorney and Dutch Inn owner Al Wheeler calls his $18 million project on M Street the Marbury House, and will cater to the guests who regularly spend nights at a Marriott, Hilton or the Georgetown Inn.
With rooms starting about $75 a night and jumping to twice that for a two-story suite with a loft bedroom, Quality Royale boasts a swimming pool, a raw bar and two restaurants, one of which is the first hors d'oeuvre eatery in Washington.
Quality Royale puts Quality Inns into the rapidly-growing de luxe lodging field, but Hazard says the future of the company is in its traditional area, which he calls the "luxury budget market."
Despite the vast lead that Holiday Inns, Howard Johnson, Ramada Inns, Travellodge and Best Western enjoy in this field, Hazard says he's not just blowing smoke with his announced objective of making Quality Inns "the most recognized, respected and admired lodging system in the world."
Holiday Inns is trying to push itself into the luxury market, he explains; HoJo's is floundering under foreign ownership. Best Western? Well, Hazard won't badmouth his old bosses, but his smile suggests that the company's momentum was not helped when he and Petitt and 18 others split for Quality Inns.
"A good leader can emerge in that market," Hazard said. "We think we have as good a shot as anybody."