Michael’s Monday Consumer Column

A Pioneer in Trading Down Hotels

Formule 1 is a perfect example of what trading down is all about. Its hotels deliver the essentials of an overnight stay—easy check-in, a clean room, a shower, a simple breakfast—for a rock-bottom price of as little as €27 (about $34). When you consider that a Formule 1 room can accommodate three people and that the buffet breakfast costs about €3.40 ($4.25) for all the breads and pastries, butter and jam, coffee, and orange juice you can consume—that is one hell of a good lodging deal.

Formule 1 was created in 1985 by Accor, the hospitality giant that operates some 4,000 properties worldwide with such well-known brand names as Sofitel, Novotel, Mercure, Red Roof, and Motel 6. At the time, the company saw an enormous hole in the market: there was no hotel chain that offered both economy and quality. You could certainly find a cheap room, but there was no guarantee that it would have a decent bed, a TV, an acceptable bathroom, or any food available.

Accor decided to change all that and established a strict set of criteria that every Formule 1 room would have to meet. It would cost less than 100 French francs per night (about $29), be operated with superior hygiene and cleanliness, and offer a comfortable bed, soundproof walls, and a color TV (in 1985!) Today, there are 380 Formule 1 hotels in twelve countries around the world.

To deliver on the formula of economy and quality, Accor developed a number of processes to reduce the cost of hotel development, construction, and management. Hotels are located on the outskirts of cities where property can be purchased cheaply. Every hotel is designed with standardized room layouts, so there are no architect's fees. The hotels are built with prefabricated components and can be snapped together like Lego blocks, which reduces the time and cost of construction. Each room has a double bed and a bunk above, so it can accommodate three people in a small area. Showers and toilets, which are expensive to build, are shared by several rooms. The reception desk is staffed for three hours in the morning and three hours in the evening; at other times, guests can check in or out using a credit card. Most of the hotels are owned by their managers, so that Accor carries only a few central costs.

A room at a Formule 1 may not measure up to a suite at a Four Seasons, but, for a lot of travelers, a good night's sleep and a self-serve breakfast are all that's necessary. With the money they save on two-star lodging they can afford to buy the entire family a five-star meal in the center of town!

Can you imagine a Formula 1 in your business? Imagine that blueprint. Low cost. Reliable. Consistent. Breakthrough price point.