Incorporated: 1972
SIC: 7011 Hotels & Motels
Red Roof Inns, Inc., controlled by the Morgan Stanley Real Estate Fund, was the third largest budget lodging chain in the United States. In 1996, the "rooms only" motel chain owned and operated more than 230 inns in 33 states. Except in a few locations where zoning or building codes interfered, all the motels featured the chain's signature red roofs.
Red Roof Inns was founded in 1972 by James R. Trueman, a native of Cleveland and a developer of apartments, office buildings, and mobile home parks, who anticipated a growing market for budget travel lodging--quality rooms without costly amenities. Trueman opened his first Red Roof Inn in Grove City, a suburb of Columbus, Ohio, in February 1973. The motel was named for the Red Roof Tavern, a steakhouse in Kalamazoo, Michigan.
Trueman, a sportsman who also owned the TrueSports auto racing team, guided Red Roof Inns Inc. for the next 14 years, until his death in 1986, following a two-year battle with cancer. By then, Red Roof Inns, which promoted its motels with the simple slogan "Sleep Cheap," had become the largest privately owned and operated chain of budget motels in the United States, with 180 motels in 30 states and $148 million in annual revenues. Eleven days before his death, Trueman also saw Bobby Rahal drive the TrueSports/Red Roof Inn car to victory in the Indianapolis 500.
Less than a week before he died, Trueman announced a company reorganization that called for William J. Denk, then head of the company's development division and a longtime friend who had helped Trueman found Red Roof Inns, to succeed him as president. He named Richard Bibart, who had joined the company in 1984 as general counsel and vice president of planning, to head the Red Roof Inns Management Co., the new operating arm of the Red Roof Inns. When Trueman died, ownership of the company passed to a trust with his widow, Barbara, as chairman.
Without Trueman at the helm, Red Roof Inns lost its aggressiveness and expansion slowed. In 1987, Denk acknowledged to Ohio Business that life at Red Roof Inns was different without Trueman. "What we lost--and we lost a hell of a lot--was the entrepreneurial spirit that Jim gave to this company. I think it's a classic case of the difference between entrepreneurial management and systems management. Jim owned the majority of this company, and could pretty much do what he wanted with it. My style is, I report to the company's board, and I have to manage with that in mind. As a result, I think I'm more bottom-line oriented than Jim was."
When Denk, at the age of 65, retired as planned in 1988, Bibart was named to head the corporation. That same year Red Roof Inns, targeting the business traveler, became the first budget motel chain to offer copy machines and fax services at all its properties.
The company also hired W.B. Donar & Co., a Detroit-based advertising firm, to create a more sophisticated, aggressive advertising campaign. The result was "Hit the Roof," a series of television commercials featuring actor Martin Mull, who ridiculed high-priced extras at other motels, such as a supposed $27 chocolate mint on the pillow at night and off-key lounge entertainment. The motel chain's first television advertising campaign, "Hit the Roof" received a silver Effie Award from the American Marketing Association.
The following year, Red Roof Inns opened its 200th motel, in Orlando, Florida, which was also the first Red Roof Inn with a swimming pool. Red Roof Inns also broke with its no-frills tradition to add swimming pools to its motels in Tampa and Kissimmee. Although business travelers continued to be the mainstay for Red Roof Inns, management felt swimming pools were critical to compete for families vacationing at the nearby destination resorts, including Disney World. Still, Bibert told Lodging Hospitality, "We must be careful about adding amenities that will increase room rates."
In 1989, Red Roof Inn also announced a major renovation program, updating its guest rooms and lobbies in older motels, many of which had not changed since 1976. The lobbies were expanded to add "warmth," while some rooms were enlarged to offer business travelers more work space. "Business King" rooms were also outfitted with telephone modem jacks for computer hook-ups. Targeting about a dozen motels per year, Red Roof spent an estimated $15 million on renovations between 1989 and 1991.
Early in 1990, Red Roof Inns surprised the industry by announcing that it would develop its first full-service hotel--including restaurant, indoor swimming pool, health club, and conference center--in Columbus, Ohio, near company headquarters. The upscale, 182-room hotel was named the Trueman Club, after the company founder.
Late in 1993, the Morgan Stanley Real Estate Fund, a division of investment banker Morgan Stanley Inc., bought Red Roof Inns for $600 million. The Wall Street Journal reported that Morgan Stanley, known for buying distressed properties, initially approached Red Roof Inns about acquiring a minority interest in the chain, with the infusion of cash fueling long-delayed plans for expansion. After the purchase, analysts following the hospitality industry pointed to the acquisition as evidence that the investment value of hotels and motels, stagnant for several years, was once again on the rise.
Under Morgan Stanley, Red Roof Inns, which had added only The Trueman Club to its list of properties since 1990, acquired more than a motel a month for the next year and a half. Morgan Stanley also brought in a new management team and named Jack Van Fossen, a longtime director, as president and chief executive.
In 1995, Red Roof Inns also added its first new-construction motels in five years, in El Paso, Laredo, Houston, and San Antonio, Texas. The new motels came with a redesigned floor plan, with exterior room entrances in the ground floor, but still avoided costly extras. John Campbell, then chief operating officer, told Hotel & Motel Management that Red Roof Inns would continue to fight "amenity creep," something he said the motel chain had lost sight of in the 1980s. "We don't spend an extra penny if it doesn't add value for guests," Campbell said. "We have to make sure we stay in our niche."
Late in 1995, Morgan Stanley took Red Roof Inns public with a $160 million initial public offering, the 10 million shares representing about 35 percent of all stock in the company. Soon afterwards, Francis "Butch" Cash, a longtime Marriott Corp. executive who had succeeded Van Fossen as president and chief executive, announced that Red Roof Inns would begin a franchising program for the first time in its 23-year history.
Trueman, the entrepreneur, had established the policy against franchising. As Bibart told Lodging Hospitality in 1989, "It was clear to Jim Trueman that Red Roof could grow rapidly. [But he] felt strongly about the ability to control the product and to operate it in a first-class manner." Morgan Stanley had restated that policy and concern about control when it acquired Red Roof Inns in 1993. Peter Krause, then head of Morgan Stanley's lodging and leisure division, told Hotel & Motel Management, "While we have no opposition to franchising, we don't see ourselves getting into that. We like to own and we like to control. You lose control when some third party owns and operates the property."
However, in an interview with the Wall Street Transcript in late 1996, Cash explained, "We think that [Red Roof Inns] should be opening 45 or 50 properties per year and in order to do that, we need to have a very active franchising program." He predicted Red Roof Inns would award about 25 franchises per year. Cash also said the company was looking for joint-venture partners for motels that Red Roof Inns would manage. He told the Columbus Dispatch Business Reporter, "How many inns should we have? A lot closer to 1,000 than 300."
Further Reading
Coulton, Anne, "Red Roof: Beyond Sleep Cheap," Lodging Hospitality, September 1989, p. 26.
Hall, Matthew, "Trueman's Legacy Lives on at Red Roof Inns Inc." Ohio Business, June 1987, p. 11.
Lilly, Stephen, "Red Roof Launching First Upscale Hotel," Business First-Columbus, January 15, 1990, p. 1.
Nozar, Robert A., "Red Roof Plugged Back in for Growth," Hotel & Motel Management, June 5, 1995, p. 1.
Pachelle, Mitchell, and Pauline Yoshihashi, "Morgan Stanley to Buy Red Roof Inns, A Sign 'Vulture Funds' Seek Survivors," Wall Street Journal, November 17, 1993, p. A3.
Troy, Timothy N., "Red Roof Buy Signals Return of Big Money," Hotel & Motel Management, December 13, 1993, p. 1.
— Dean Boyer
