RUNNING HEAD: STRATEGY FORMULATION, IMPLEMENTATION AND EVALUATION OF RED
LION HOTELS AND BROWN-FORMAN
Strategy Formulation, Implementation, and Evaluation of Red Lion Hotels and Brown–
Forman
Prepared By: Jason Hotze, Kim-Anh Pham, Jonathan Jones, Johnathan Smith, Kyle
Underwood, Aaron McGregor and Larry Henderson
Prepared for: Dr. Julia Herchen
University of North Texas
Strategic Management 5760
STRATEGY FORMULATION, IMPLEMENTATION AND EVALUATION OF RED LION HOTELS AND
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Introduction
The purpose of this study is to disseminate information and make strategic
recommendations for Red Lion Hotels and Brown-Forman, specifically the North
American portfolios. The two companies evaluated within their respective liquor or
hotel industry require ineluctable strategic counsel. The evaluation of Red Lion Hotels
and Brown-Forman portfolios presents opportunities to gain insight into both industries
and develop new approaches. For each company, a professional recommendation was
developed to guide in strategic performance improvement and implementation. In
summary, the suggested approach for Red Lion Hotels is to embark a concentrated
growth strategy, with emphasis on large, unique properties. Brown-Forman should
expand and differentiate their whiskey segment. The two strategic methods are quite
different as they are tailored to fit the very different companies but similarities can be
found, and will be explored further in the report.
RED LION HOTELS
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The following is a current performance evaluation and strategy manipulation for
Red Lion Hotels. Within the aspect of this report, the focus will be on the North
American market. Red Lion Hotels operates on three tiers of hotels: upscale, midscale
and economy.
Current Performance
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Red Lion Hotels current mission is to become a successful hotelier with a focus
on event-driven, niche market focus, and a subtle deviation from a standard business
traveler atmosphere (Red Lion Hotels Corporation, n.d.). The original parent company
was founded in 1937 and has expanded by internal growth and multiple acquisitions and
mergers. Red Lion seeks to provide a unique, cultural experience within their hotels.
The long-term vision of Red Lion Hotels is to, “grow our brands and profitability
by expanding our hotel network with additional franchised hotels, managing the
operations of hotels partially owned by us through joint venture or minority equity
participation, and managing operations of hotels for hotel owners who have contracted
with us to perform management services” (Red Lion Hotels Corporation, n.d.). This
strategy shows the current methodology is to gain assets and incorporate parent
business practices and culture to provide a profitable model. The strategy is vulnerable
to many economic risks and has a slim margin for profit. Acquiring scores of properties
and brands can be worthwhile but leaves little room for error or mistake. A stated goal
of 100 hotels within 100 weeks shows Red Lion’s objective of capturing significant
market share to increase Revenue per Available Room (RevPAR). The RevPAR increase is
Red Lions primary focus of all revenue factors. Red Lion’s 2015 Annual Report stated
the 100 hotels was an objective for the following fiscal year (Red Lion Hotels
Corporation, 2015). Negatively, the goal could bring undue strain to the management
profile of Red Lion. While the franchising and management strategy is efficient, it must
be taken incrementally. Overburdening a small or under equipped management staff,
or quickly growing this core function, can bring confusion and friction. Red Lion has
over 1,626 hotel employees currently for 124 properties, for a rough translation of 13
full-time employees per property (Red Lion Hotels Corporation, 2015). The addition of
100 properties in less than two years could present issues of having to hire
approximately another 1,311 employees in the same span.
The current strategy is to grow the franchised portion of the hotel industry to
realize profits with a non-capital intensive environment. More specifically, the strategy
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is to utilize the enfranchisement method in large, but heavily saturated, metropolitan
areas throughout the United States. Utilizing mergers and acquisitions is also an
important key to this strategy in order to grow the brand name without the tribulations
of construction. Construction delays were an identified uncertainty in the company
annual report. Bypassing this risk is a formal decision that will directly prevent issues
from new construction assets. It does bring its set of risks such as poor brand
translation to a new market and dilapidated property that will require significant
investment. Overall, the current strategy only partially solves the issues identified in the
previous industry analysis.
Company Analysis
Red Lion Hotels is a publicly traded corporation on the New York Stock Exchange.
They have the typical corporate structure with a CEO and board of directors. They are
organized in a comparable way to many in the industry. Red Lion is a relatively tall
management structure with few separate divisions. They are split into three operating
entities within their headquarters element: company managed hotels, franchised hotels,
and the entertainment sector
1
. These three areas represent the three sectors in which
Red Lion pursues different forms of revenues. Each sector has their own unique asset
structure, as well as revenue distribution. The current strategy has placed emphasis on
growing of the franchised hotel segment. The franchised hotels are operated under
fourteen different brands in which many were acquired during acquisitions over the last
decade. They are currently operated under the parent brand name but utilize Red
Lion’s management and technology infrastructure. The franchise segment only
accounted for 8.4% of the 2015 revenues (Red Lion Hotels Corporation, 2015). The
percentage is from franchise and management fees, but also represents a higher profit
margin than a fully owned hotel property. Compared to the company-owned hotels, the
franchise segment has much less overhead or overall risk prevalent in the hospitality
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For this report, the entertainment section will not be evaluated and treated as a separate industry altogether.
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industry found in the industry analysis.
Red Lion’s strategic resources are not unlike many of the competitors within the
industry. Ultimately, Red Lion Hotel does not hold any highly valuable strategic
resources. They are all easily imitated, and in most cases, the company has merely been
imitating others. Their strategy does not rely on having unique strategic resources, but
simply operating within a segment where they can be profitable with similar business
models. This is the most likely cause for their current stagnation within the market.
Strategic Resource Analysis
Currently, Red Lion’s greatest strategic resource would be the novelty and
uniqueness of their Keystone properties, or their unique and marquee hotel locations.
This is a combination of the organizational resources of brand equity and innovativeness
(De Kluyver et al, 2012). While not totally innovative, the initiation of changes to the
standard hotel experience is a hospitality form of innovation. The company strives for a
unique and non-traditional hotel property environment. While not entirely individual in
this endeavor, they are the largest of hotel firms to attempt this to be their normal. To
evaluate the worth of a company’s strategic resources, four questions must be asked:
How valuable is the resource? Is this a unique resource? Is this strategic resource easy
to imitate and; is the company positioned to exploit the resource (De Kluyver et al,
2012)?
In evaluating Red Lion, it was found that this resource is valuable. For the 2015
reporting year, the Red Lion owned and managed hotel properties resulted in 119
million dollars in revenue (Red Lion Hotels Corporation, 2015). Although the goods and
décor are crucial to the Red Lion theme, they are not the sole proprietor if this income.
Undoubtedly the marketing, technology, management and business practices all had a
part to play in the revenue stream. Clearly, the theme that Red Lion pursues within its
keystone properties is worthwhile for its customer base. Whether this is valuable to an
expanded customer base will be understood in a time to come.
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The keystone properties of Red Lion are not rare. Within the United States, there
are hundreds of uniquely themed and novel hotel properties. Many of these are more
unique and more recognizable, Disney Resorts being an obvious example. However, the
rarity of this resource for any hotel firm would be the same result. Having a unique
hotel property in itself is not rare in the market and economy in North America today.
Following the lack of rarity, the imitation capability of competitors is high.
Competitors would not necessarily pursue the exact, Pacific Northwest look or feel of
the keystone Red Lion hotels, but a unique, regional themed décor and theme of a hotel
property is nothing new in the market. Competitors employ this tactic in almost every
single region in the United States. It is relatively expensive to imitate, however not
significantly costlier than creating a hotel property, regardless of theme.
The organization of this resource is a difficult one to analyze. Currently, the
properties performing the best are located within the high urban areas of the Pacific
Northwest. The exact recipe of the features and décor might not translate to regions in
other portions of North America. The concept of regional theme ties into the nostalgia
of a generation within the area where it is created could be successful. Ultimately, this
resource is not organized. For instance, many of their hotel properties look very like
dozens of other brands. They have not organized this environment into something
tangible for a significant portion of their customer base. Recognizing gains from unique
properties in only a small part of markets will not realize as much revenue or profit as if
this resource was synonymous with all properties.
Red Lion does not have any unique processes within their corporation.
Ultimately, they rely on general business practices that have been successful so far. The
recent transition to a more franchise-oriented strategy has enabled them to streamline
their process of implementing their informational and human resources into the newly
acquired property. This will expedite the process and allow the transition period not to
become a liability that inconveniences customers and affects revenue. Red Lion’s
staffing is the general makeup of most hotel corporations of comparable size. They
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have a CEO and all the applicable executives and directors of standard publicly traded
companies.
The culture of any corporation is difficult to identify from an outside perspective
alone. Red Lion pursues the usual complement of Equal Opportunity and
environmentally familiar concepts. Red Lion utilizes a cultural philosophy slogan of
“ICARE, ICAN.” This is a slight play on words the younger generations can easily
rationalize with in regards to the popular Apple products that are prefaced with “I”
before their names. The philosophy empowers employees at all levels to care about
their work and let the generosity and good will affect those around them. Online
employer rating website Indeed has Red Lion rated at 3.6 out of 4 for a pleasurable
working environment (Indeed, 2017). While anecdotal in most cases, this rating does
show they have an active and healthy corporate culture within their firm.
Red Lion’s ability to acquire smaller companies and liquidate their financials is
