1. Case Overview
Red Roof Inn is in an excellent example of how a company can grow in just 20 years based on a good idea and finding a segment of the market not being fully served. When Jim Trueman started the company in 1973 he wanted to offer a simple 'no frills' room with just the bare necessities to be clean and comfortable. Full service hotels are costly to build and operate, and all of their facilities and services are not always fully used. Red Roof Inns offered something that was then new but it soon won over many customers.
The most customers are now business travelers during Monday to Friday. Most business travellers that stay at Red Roof are sales people. Their incomes range from $15,000 to $60,000, but for many years they and their employers have been very concerned about travelling expenses. This makes the price range of $30-$40 per night offered by Red Roof very attractive.
This was a main reason behind Red Roof being able to grow from its one location in 1973 to 209 in 1993.
Even though Red Roof built up to 209 locations in a short time and fast rate -- averaging 15 new motels per year for many years -- for the last three of four years they have stopped expanding. Many new entrants to the budget motel market have almost created an over-supply of rooms.This will keep pressure on low prices, at the same time as larger hotels like Holiday Inn and Marriott are either trying to regain the business market with lower prices, or setting up low-price budget chains.
Red Roof Inns will face many of these challenges. At the same time, they have succedded in also attracting a steady market of weekend travelers tourists and seniors who...