Candlewood Hotel Company, Inc.
Candlewood Hotel Company, Inc.
Sales: $131.2 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: CNDL
NAIC: 111 11 Hotels (Except Casino Hotels) and Motels
Candlewood Hotel Company, Inc. is a leader in the extended-stay segment of the American hotel industry. Its hotels resemble apartment complexes, and guests, most of them business travelers, typically stay for two weeks or more. Candlewood hotels offer studio or one-bedroom suites, each equipped with a kitchen and a large work table, two-line phone, and many other amenities. Unlike other hotels, Candlewood Suites have no attached bar or restaurant, and do not have a front desk staffed all night. Candlewood hotels also operate with a far lower staff-to-guest ratio than most other hotels. The company leases hotels to franchisees and also directly owns and operates facilities. As of 2001 there were close to 90 Candlewood Suites hotels, spread across 30 states, with one under construction in Berlin. Candlewood Hotel Company also runs a sister brand, Cambridge Suites, for the upscale end of the market. Candlewood Hotel Company was founded by Jack DeBoer, recognized in the hotel industry as the father of the extended-stay concept. An approximately 27 percent share in the publicly traded company is owned by hotel company Doubletree Corp.
The Reluctant Hotelier in the 1970s
Candlewood Hotel Company, Inc. was founded by Jack DeBoer, who had made his name in the hotel industry in the 1970s with the Residence Inn chain. DeBoer was raised in Kalamazoo, Michigan, and he earned a business degree from Michigan State University. His family ran a business developing apartments. With a background in apartments, DeBoer got into the hotel business with trepidation. What became the first extended-stay hotel began as a short-term apartment complex, designed for business travelers who would lease a small apartment for a month. DeBoer built the complex in Wichita, Kansas, going into business with a partner, Rolf E. Ruhfus. It opened in 1975. Called the Residence Inn, DeBoer recalled for Hotel & Motel Management (October 2, 2000): “When we built it, I didn’t have a clue what it was.” DeBoer’s building did not include many traditional hotel trappings, such as a laundry operation, because he did not think of it as a hotel. The people who stayed at the Residence Inn were not called “guests,” and they did not “check in.” They were simply tenants who would stay for a minimum of 30 days. DeBoer himself had traveled for his family business for years, and he thought he had an idea what professional people wanted in terms of comfort and privacy. Still, he had only a hazy idea of who his tenants would be and what exactly they needed. He imagined they would be businessmen relocating, who had to have a place to stay until they rented a longer-term apartment or bought a house. So Residence Inn offered televisions, dishes, and other furnishings as extras, for a price. But DeBoer quickly found that his tenants always wanted these things, and the Residence Inn began providing them automatically, folding the cost into the room rate. Residence Inn also soon dispensed with the 30-day minimum stay. DeBoer had rented some rooms to the Boeing Co. for some traveling executives. Boeing liked the Residence Inn, but wanted to bring in other executives for less than the minimum 30 days. So the Residence Inn became a by-the-night arrangement.
DeBoer gradually abandoned the idea that he had a short-term apartment complex on his hands and embraced the extended-stay hotel idea. With the first Wichita hotel, DeBoer’s goal was to charge $17 a night, a fee he at first thought was enormous. But he discovered that he could charge much more than that. The Residence Inn had landscaped walkways, gardens, and a basketball court, and looked more like a group of townhouses than a hotel. He explained to Hotel & Motel Management that no matter how nice the apartments were, “I tell you the rent is $1,800 a month, you would say, ’You can’t get $1,800 a month for this.” Rent at a comparable apartment complex would have been a fraction of that. But asking $60 a night still struck travelers as a moderate price, compared with what other hotels were charging. So the hybrid apartment-hotel was much more profitable if clearly run as a hotel. When DeBoer realized this, he hung up a sign on the Wichita property that read, “Yes, we are a hotel.”
DeBoer developed the Residence Inn into a small chain of hotels, even though experienced hoteliers told him he could not succeed. DeBoer sought out the founder of the Holiday Inn chain, Kemmons Wilson, who told him every hotel had to have a bar. DeBoer was adamant in building his hotels without bars or restaurants, despite Wilson’s advice. DeBoer also dispensed with another hotel staple, service. Although other hotels might offer great customer service by staffing the desk 24 hours, doing daily laundry, and generally being conspicuous and available, the Residence Inn went the opposite route. It offered minimal service, arguing that what the guests really wanted was to be left alone. The Residence Inn in Denver began offering guests a free breakfast buffet, something that soon became standard in other hotels. But eventually the Residence Inn stopped serving breakfast. Guests had to alter their schedules to get to the lobby in time to eat. DeBoer reasoned that stopping the free breakfast was actually restoring peace of mind to the Residence Inn’s guests. Now they would not have to bother with it. Less service was actually more of what customers in the extended-stay niche wanted. As a result, Residence Inns were able to operate with far fewer staff than traditional hotels. This increased their profitability.
Extended-Stay Niche Growing in the 1980s
The Residence Inn chain had only six hotels by 1981. DeBoer sold off the franchising rights that year, only to buy the company back in 1985. By that time, there were 44 Residence Inns in 23 states, with many more under construction. The extended-stay concept had been honed. Although service was minimal, personal touches prevailed. The guest suites had not only a full-service kitchen but a popcorn popper, and holidays were celebrated with parties in the lobby. The extended-stay niche was proven profitable—much more profitable than the hotel industry as a whole. More than half the Residence Inn guests stayed for two weeks or more, with an average stay of more than seven days. The occupancy rate was also high, about 75 percent, compared with about 65 percent for conventional hotels at that time. In addition, although traditional hotels had on average one staff member for every guest, Residence Inn had only one employee per five guests. Revenue for the chain was estimated at near $80 million in the mid-1980s. Although other hotels had copied the Residence Inn’s extended-stay idea, DeBoer’s chain was the market leader. In late 1985, DeBoer told Industry Week (August 5, 1985), a hospitality industry journal, that he planned to add one new property a week to the chain over the next few years and grow by $100 million annually. Yet in 1986 he sold the chain to Marriott Corporation, and ceased running it.
DeBoer had entered into a noncompete agreement with Marriott. But he was not ready to leave the market segment in which he had done so well. In 1988 he and his former business partner Ruhfus launched a new hotel chain, first called Neighborhood Inn. Its difference from Marriott’s Residence Inn was a stringent requirement of a 30-day minimum stay. The first Neighborhood Inn property opened in 1989. But the name was soon changed to Summerfield Suites, for its more dignified sound, and the 30-day minimum stay was dropped. Summer-field offered two-bedroom suites, described by one Summer-field executive to Travel Weekly (June 10, 1993) as “a kind of upscale college dormitory suite.” The two rooms could be billed separately, and the combined price was less than that of two single rooms. Like Residence Inn, Summerfield catered to business travelers. By 1991, Summerfield had sales of around $25 million, with 12 properties across the country. Many other companies had begun building extended-stay hotels. Already in the late 1980s the market niche included Hawthorn Suites, Quality Suites, Homewood Suites, and City Suites of America as major competitors, aside from Summerfield and Marriott’s Residence Inns. These extended-stay hotels represented only 1 percent of the hotel industry, yet the market segment accounted for more than 30 percent of hotel industry revenue.
Candlewood Suites Mission Statement: To create and operate a national brand of value-oriented, business-travel hotels that deliver exceptional value to customers and superior profits to franchisees and investors.
Moving on to Candlewood in the 1990s
Jack DeBoer sold his stake in Summerfield to the Summer-field Hotel Corp. in 1992. Summerfield eventually was bought and run by the giant Wyndham International, Inc., one of the largest hotel companies in the world. DeBoer was well-off financially after the sale of his share of Summerfield. He was an avid pilot and, in fact, held a world jet speed record. He and his wife set off on a three-and-a-half-month trip around the world in his own plane. It was this trip that inspired DeBoer’s next venture, Candlewood. Impressed by the poverty they saw on their travels, DeBoer, at his wife’s urging, went back into the hotel business, with the aim of contributing profits to the charitable DeBoer Family Foundation. The foundation gave loans and support to people and businesses in Burma (now Myanmar). In 1995, DeBoer began approaching possible partners for Candlewood, his new extended-stay hotel chain. He gathered executives from Residence Inns and Summerfield Suites, and got backing from the Doubletree Corp., a Phoenix-based company that ran hotels and resorts. Candlewood Hotel Co. aimed to build a brand of mid-priced extended-stay hotels that would put together everything DeBoer had learned about the industry over the past 20 years. The first hotel opened in May 1996, and in November that year, the firm went public, listing its shares on Nasdaq. Doubletree had invested $15 million in Candlewood and also arranged generous financing to spur the growth of the new venture. By 1997, Candlewood already had about 45 hotels. On average they had 122 rooms, which leased for around $50-$80 a night for a studio and up to $100 a night for a one-bedroom suite. Candlewood continued the less-is-more concept of service that had proved popular with the Residence Inns, and added many special touches to the rooms. Each contained a small kitchen, complete with coffee maker, dishwasher, microwave, and full-sized refrigerator. The living room/office space included a television with a VCR, a desk, clock-radio, CD player, and two phone lines, all designed for the convenience of a traveler spending at least five days. Candlewood built its own properties for the most part, and each cost roughly $5 million to $7 million to construct. The firm saved on operating costs where possible, not using maintenance-heavy features such as exterior paint or landscape shrubbery. Like DeBoer’s earlier Residence Inns, the Candlewood Suites had no bar or restaurant on site.
Extended-stay remained a hot growth area in the hotel industry overall. By the late 1990s, extended-stay had grown slightly as a percentage of available rooms, from around 1 percent a decade earlier to 1.4 percent. Yet extended-stay rooms accounted for some 12 to 14 percent of demand, and Candlewood Suites for the most part had a high occupancy rate. The average Candlewood customer booked a room for 14 days. As Candlewood extended its chain coast to coast, other hotels hoped to get a piece of the profitable niche. When Candlewood moved into key markets like Dallas/Fort Worth, it often found itself flanked by competitors such as Hampton Suites and Inn, Homestead Village, Fairfield Suites, Intown Suites, and even its own cousins Summerfield Suites and Residence Inn. By the late 1990s, Candlewood was opening around 20 hotels a year. Most of them were corporate-owned, but the company hoped to move to a mix of half-owned, half-franchised in coming years. By 1999 the company owned about 85 percent of its hotels.
The growing company did not turn a quarterly profit until 1999. It came up with losses as it continued to invest heavily in building and expansion. But by 2000, the company claimed its finances were healthy. It had about 85 hotels opened, 14 of which were run by franchisees. Five more were joint ventures. In terms of revenue per room, the company was growing in double digits, and Candlewood’s occupancy rate remained much higher than the industry average. In 2000 Candlewood Hotel Co. began promoting a new brand of extended-stay hotels, called Cambridge Suites. Cambridge Suites was meant to capture a more upscale market than the emphatically mid-priced Candlewood. Cambridge offered more amenities than its sister brand, including a continental breakfast and a recreation room. The company also began piloting a smaller Candlewood, meant for smaller markets. Whereas the traditional Candlewood Suites had more than 120 rooms, the small-market hotel was designed with just 60 rooms.
In 2000 Candlewood Hotel Co. also began its first venture abroad, developing a Candlewood Suites hotel in Berlin with the Irish firm Midlantic Hotels Ltd. The agreement with Midlantic, which was ultimately owned by the Swiss conglomerate ERB Group, gave the hotel company exclusive rights to develop Candlewood Suites in Germany and Switzerland. Although the extended-stay concept was booming in the United States, such hotels were rare in Europe. Midlantic planned to build five Candlewood Suites in Europe over the next several years.
Candlewood Suites; Cambridge Suites.
Extended Stay America; Marriott International, Inc.; Hilton Hotels Corp.
- First Residence Inn debuts in Wichita.
- Summerfield chain starts, under the name Neighborhood Inn.
- DeBoer begins third hotel venture, Candlewood.
- Candlewood goes to Europe.
Belden, Tom, “Four Philadelphia-Area Extended-Stay Hotels Planned,” Knight-Ridder/Tribune Business News, May 14, 1997.
“Candlewood Hotel Co., LLC,” Hotel & Motel Management, August 14, 2000, p. 52.
“Candlewood Suites,” Hotel & Motel Management, February 15, 1999, p. 45.
Deady, Tom, “Marriott to Buy Residence Inns,” Travel Weekly, May 7, 1987, p. 1.
“Doubletree to Be Partner in New Long-Stay Brand,” Travel Weekly, October 26, 1995, p. 6.
Fisher, Michelle, “Extended Stay: DeBoer Starting Chain with 30-Day Minimum,” Hotel & Motel Management, April 18, 1988, pp. 1, 102.
Gillette, Bill, “Summerfield Springing into Prominence,” Hotel & Motel Management, September 6, 1993, pp. 4, 7.
Golden, Fran, “Summerfield Markets Its Roomy, Two-Bedroom Alternative,” Travel Weekly, June 10, 1993, p. 21.
Higley, Jeff, “Candlewood Pursues More Partners,” Hotel & Motel Management, June 3, 1999, p. 3.
——, “Newsmaker Jack DeBoer,” Hotel & Motel Management, October 2, 2000, pp. 80–82.
Humphrey, Linda, “Candlewood Brand Appoints Roos Chief Operating Officer,” Travel Weekly, June 23, 1997, p. 45.
Mathis, Karen Brune, “Wichita, Kan., Hotel Venture May Add to Jacksonville, Fla., Room Boom,” Knight-Ridder/Tribune Business News, March 20, 1997.
McLinden, Mike, “Candlewood Plans Arlington, Texas, Hotel,” Knight-Ridder/Tribune Business News, September 30, 1997.
Nelson, Eric, “Summerfield Opens Suites Hotel That Seeks Longer Stays,” San Francisco Business Times, October 26, 1990, p. 12.
Pearce, Dennis, “Wichita, Kan.-Based Business-Hotel Firm Reports First-Ever Profit,” Knight-Ridder/Tribune Business News, November 2, 1999.
——, “Wichita, Kan., Hotel Company Profits Continue to Increase,” Knight-Ridder/Tribune Business News, August 4, 2000.
Verespej, Michael A., “Jack DeBoer’s Sweet Suite Idea,” Industry Week, August 5, 1985, p. 56.
Wolff, Carlo, “Flying the Contrarian Flag,” Lodging Hospitality, November 1998, p. 42.