Holiday Inns ANNOYED BY THE INFLEXIBLE PRICING AT AMERICA'S MOTELS, KEMMONS WILSON LODGED HIS BUSINESS AT THE INTERSECTION WHERE THE BABY BOOM MET THE OPEN ROAD.
(FORTUNE Small Business) – In most respects it was a typical family getaway. In the summer of 1951, a 38-year-old Memphis homebuilder named Kemmons Wilson decided to take his wife and five kids on a trip to Washington, D.C. They packed into the Oldsmobile, and off they went. Says Spence Wilson, the oldest son, who was 9 at the time: "I remember the luggage flying off the roof, telling Dad, and then having him not believe me." Of course, it wasn't typical at all. It turned out to be, as author David Halberstam recounted in his book The Fifties, "the vacation that changed the face of the American road."
The Wilsons stopped at several motels on their way to D.C., and Kemmons Wilson was annoyed by the inconsistency of the accommodations--some were pleasant, others filthy. "We'd all want to stay someplace with a swimming pool--we didn't have a pool at home--and it was very, very hard to find a place with one," Spence recalls. "I remember Dad being frustrated about that and the fact that we'd have to drive a few miles down the road to eat dinner." But what really galled him was that the motor courts all charged an extra $2 a head for children. Since standard room fees were only $8 to $10 in those days, that meant Wilson's kids were doubling his lodging costs. As he saw it, he was essentially being penalized for bringing his family along on his vacation.
By the time the family reached Washington, Kemmons had grown so agitated that he made his wife a promise: He would go into the motel business and make a point of never charging extra for children. He didn't even wait to return home to get started--on the way back, he studied the motels where they stayed and measured the rooms, familiarizing himself with the industry's standards. When they got back to Memphis, he knew exactly what he wanted to do.
The advent of Holiday Inns is one of those business developments that seem inevitable--in retrospect, anyway. As America began moving toward prosperity in the wake of World War II, several interrelated factors pointed toward an opportunity for a new kind of hostelry business model: the baby boom; the rise of the suburban middle class; the increasing American love affair with the automobile and the open road; and the explosion of chain brands in the service sector. Kemmons Wilson wasn't necessarily thinking about all (or any) of these societal shifts at the time."All I ever wanted to do was to bring standardization to the hotel industry so people would know exactly what to expect," he told FSB shortly before his death two months ago at age 90. Wilson's fresh approach and freewheeling entrepreneurial style let him accomplish far more than his initial dream of 400 hotels.
Back in Memphis, Wilson prepared some specifications, turned them over to a draftsman named Eddie Bluestein, and asked him to draw up plans. Bluestein delivered his renderings a few days later. In one of those too-perfect junctures that transcend anecdote and enter the realm of legend, across the top of the drawings he'd written Holiday Inn, the title of a Bing Crosby movie he'd seen the previous night. Wilson liked the name, and the renderings too. He picked a site on the road leading into town from Nashville, the first indication of how he picked locations. "Wilson literally developed the concept of having places at various intersections around and leading into cities," says Dr. Ronald Nykiel, chairman of the Hospitality Industry Hall of Honor and a former Holiday Inn employee in the 1970s. Wilson then took out a $325,000 loan to cover costs--too much, as it turned out, as he came in $45,000 under budget--and in August 1952, exactly a year after the Washington trip, the first Holiday Inn opened.
If that all seems rather quick, well, Kemmons Wilson was someone who got things done. A classic self-made American go-getter, he was a high school dropout with a thick Southern drawl and a knack for entrepreneurship (see box below). At age 17 he'd persuaded a Memphis movie theater manager to let him set up a popcorn concession, which turned out to be so successful that the manager bought him out (popcorn remained a lifelong favorite snack). Wilson used the proceeds to buy pinball machines, used the profits from those to buy himself a house, and then borrowed against the house to buy a Wurlitzer jukebox distributorship. He was enthusiastic about that business--so much so, in fact, that he took his wife to a Wurlitzer convention on their honeymoon--but he was intrigued by how simple it had been to use the house for financing. The big money, he determined, was in real estate and homebuilding. By the eve of World War II, he was among the top builders in Memphis, a position he solidified after the war ended, when the countless GIs returning home spurred a housing boom.
This combination of business instinct, building acumen, and sheer will made Wilson the ideal figure to reimagine American hostelry, which at the time broke down into two primary divisions. First were the large urban hotels, which were expensive and in many cases beginning to show their age. At the other end of the spectrum were the mom-and-pop motor courts that had sprung up along the growing American highway system. They were more affordable but were a crapshoot in terms of quality--most folks wouldn't dare stay in one without checking the room first.
Wilson aimed to create something in between. "Travelers would receive a clean room, a comfortable bed, an on-site restaurant, lounge, swimming pool, laundry, free ice machines--and oh, yes, kids would stay free if they slept in the same room as their parents," Kemmons said, ticking off all the amenities that travelers now take for granted but were atypical at the time (he forgot to mention that every room also had a TV, a phone, and an air conditioner, and that soda machines sat right beside the free ice in the hall). Wilson saw all this as common sense, born of his own experience. As he once put it, "I like to think that I'm so damn normal that anything I like, everybody else is going to like too. The idea that my instincts are out of line just doesn't occur to me." While those instincts occasionally failed him--an early policy of putting a fly swatter in every room sent the wrong message--for the most part they served him well.
Wilson built three more Holiday Inns in 1953 and 11 in 1954, and then began franchising the brand to carefully screened applicants (a typical deal called for the franchisee to pay for the land and construction, plus a $10,000 fee and a 2.5% royalty on gross revenue). The start of the Interstate Highway System in 1956 was a gift-wrapped present for roadside chains like Holiday Inns, spurring faster growth--the 50th Holiday Inn opened in 1958, the 100th in 1959, and the 500th in 1964. Profits and revenues grew equally fast: The company earned just $180,000 on $1.8 million in sales in 1958 but checked in a $2.9 million profit on revenues of $57.1 million by 1964. Its mandatory training programs and four surprise inspections a year helped ensure uniformly high-quality service, making Holiday Inn the trusted name Wilson had always intended.
And to help that name stand out on the highway, Wilson used what became known as the Great Sign: a 50-foot orange-and-green monolith whose design owed as much to movie marquees as it did to previous motel signage. As Holiday Inns spread across the travel landscape, the Great Sign became as much of an icon as the Golden Arches. Interestingly, one thing the Great Sign lacked was the VACANCY/NO VACANCY indicator used by most motels. Wilson saw this as addition by subtraction. As he explained, "If someone wants a room, I want him to come in. If we're sold out, we'll help him find the best available room somewhere else. That way, we make two friends."
By 1965, Wilson automated this Miracle on 34th Street philosophy with the Holidex reservation system, at the time the largest civilian computer network in the world. Anchored by a pair of IBM mainframes in Memphis, with connection lines running to every Holiday Inns outlet, it allowed desk clerks to access the entire chain, which in turn let customers at one Holiday Inn book rooms anywhere else in the system. "Because of Wilson and Holiday Inns' success with technology, Memphis was attractive to other topnotch businesses that depended on that type of technological infrastructure. FedEx occupies the old Holiday Inns Communications Building," says Clifford Stockton of the Memphis Regional Chamber. "Companies like these wanted to tap into what Holiday Inns had already set out."
Wilson also revolutionized the motel-supply business, creating subsidiary companies that proved so successful they became the standard in the industry. Holiday Containers provided corrugated packaging, Holiday Industries made the furniture, Holiday Press handled all the printing, and so forth. These companies moved the chain toward vertical integration and created additional revenue by serving outside clients. In fact, by 1972, 40% of their customers were franchisees of competing hotel chains like Ramada Inn and Sheraton.
In the late 1960s, Wilson's insatiable enthusiasm for land and building led him to expand internationally. "Looking for land is like going on an Easter egg hunt, and sometimes you find the golden egg," he told Time magazine in 1972, which found him tirelessly tramping through Brazil in search of motel locations while a reporter 30 years his junior struggled to keep up. At that time, "The World's Innkeeper," as the company called itself, opened a new motel every three days on average, and the chain had a total of 209,000 rooms, more than three times the number of its closest competitor, Ramada.
Not everyone approved of Wilson's revolution. Critics pointed to Holiday Inns as a key culprit in the cookie-cutter homogenization of American culture, so devoted to its brand formula that it stifled individuality. A 1971 New York Times article, decrying the "garish commercial strips" sprouting across the nation, had one family vacationer resignedly sighing, "We went the cardboard route" when discussing his Holiday Inns bookings. When viewed in this context, the chain's mid-1970s ad slogan, "The best surprise is no surprise," cuts both ways. Ultimately, though, such cavils really just amount to criticizing Holiday Inns for being too successful.
The 1970s were not as kind to Holiday Inns, nor especially to Kemmons Wilson. The recession and the oil crisis early in the decade were a nasty one-two punch for the travel business, and so many competitors had imitated Wilson's formula that the market was oversaturated. As Holiday Inns brought in professional managers to address these problems, his entrepreneurial style made him feel out of place. "Everything was run by committees," Kemmons grumbled. "I always made up my mind, and we went." Compounding matters, Wilson, whose personal stake in Holiday Inns in 1972 was worth $56 million, lost much of his fortune propping up a real estate development company, Alodex, until its eventual shuttering in 1976. He retired as Holiday Inns' CEO that same year. He resigned as company chairman in 1979 when he opposed management's acquisition of the Perkins Cake & Steak restaurant chain. From his hospital bed, while recovering from heart bypass surgery, Wilson called board members to encourage them to vote no, but they approved it anyway. "When the vote ended up being for it, he figured it was time to move on," says Spence. When Wilson turned in his keys, at age 66, his stake in the business was worth $7.3 million. (Wilson, by the way, turned out to be right: Despite a makeover and a plan to pair Perkins restaurants with Hampton Inns, the fit was never quite right, and Holiday Inns sold most of its stake in Perkins in 1985.)
Holiday Inns were never the same after he left. The brand lost a bit of its character in 1982 when the board of directors retired the Great Sign (a move Wilson once described as the "worst mistake they ever made"). In 1990 the London-based Bass Hotels & Resorts--now Six Continents Hotels--acquired Holiday Inns for $2.2 billion. Although Six Continents is a $5.7 billion business today, Holiday Inns is no longer the world's largest hostelry brand (that's Marriott). And Holiday Inns' image has changed somewhat over the years as it now caters more to business travelers than to family vacationers.
After leaving Holiday Inns, Kemmons Wilson maintained elder-statesman status in the lodging biz while at the same time remaining an entrepreneur. The Kemmons Wilson Cos., run by his three sons today, focus mostly on real estate, including Wilson Inns (which offer free popcorn for guests). And last year the Kemmons Wilson School of Hospitality and Resort Management opened at the University of Memphis, featuring a fully functioning hotel so that students can learn by doing just the way Kemmons himself did. "I always think of Dad as being very, very curious," says Spence Wilson. "He always started a new venture because he thought there was a better way to do something. Then once he started, he would never take no for an answer."