Choice Hotels: Supplies and Demand

When Choice Hotels International began using the Web in 1999 to steer its hotel owners toward preferred vendors of hotel supplies, it almost immediately eliminated a $100,000-a-year expense—the cost of printed catalogs that were obsolete the day they were sent out.

But the executives leading the initiative at Choice Hotels had a more ambitious goal for the ChoiceBuys.com portal—capturing a bigger piece of the $1.5 billion in annual purchases made by the company's independent franchisee hotel owners. Last year, ChoiceBuys.com fulfilled 5,236 orders for toilet paper, towels and other supplies for more than 1,000 hotels in the franchise.

Now Choice is beginning to resell its hard-won e-commerce expertise to other organizations. Under the PrimarySource.com brand, Choice now offers hotels outside its franchise base access to the same basic Web purchasing system. And in January, Choice announced a deal with VGM Club, a buying group for golf courses and country clubs, to support its sales over the Web.

"I don't feel like we have competition in this space—nobody has what we have," boasts Brad Douglas, vice president of emerging businesses for Choice, the corporate parent to the Comfort Inn, Quality, Clarion, Sleep Inn, Econo Lodge, Rodeway Inn and MainStay Suites franchised hotel chains. In addition to generating new revenue for the corporation, ChoiceBuys.com is helping hotel owners manage better by giving them more control over the procurement process.

By Douglas' count, the Partner Services Division, which includes ChoiceBuys.com, has been growing 20% per year from $6.4 million in 1998 to about $14 million in 2004. An experimental revenue sharing arrangement with Choice's franchisee advisory council, which has been discontinued, shaved more than $1 million from sales, he says, so the reported revenue was lower, at $12.5 million.

As ChoiceBuys.com evolved, though, Douglas and his team learned some tough lessons about the cost of custom software development, as well as the price of failing to adequately customize packaged software.

Nikole Smith, director of partner services technology for Choice, witnessed the pain first-hand. "I came on board in January 2000, and I've been here through three platforms," Smith says.