The strategic plan seeks to improve the Company's competitive position through new revenue-generating and productivity programs and by providing franchisees the tools necessary to improve their RevPAR performance.

Two key action plans for this plank include building immediately on the Company's success with strategic vendor partnerships and implementing property management systems in every Quality, Comfort, Clarion, Sleep Inn and MainStay Suites hotel by the year 2000.

   The Power of Strategic Partnerships

Choice's franchise system of 3,344 hotels worldwide and the more than 90 million guests it serves annually provide a powerful attraction to other major consumer organizations looking to work together for mutual benefit.

Choice enjoys partnerships with a wide spectrum of companies including AT&T, Visa, American Express, Pizza Hut, Nortel, Lucent Technologies, H&R Block and Kodak, among others.

Choice this year created a new department, the Partner Services Group, charged with establishing high-yield partnerships with outside companies to provide products and services to both Choice and its franchisees.

Operating under a philosophy dubbed "4-Win," the new department seeks to develop alliances and partnerships that seek benefits for 1) franchisees, 2) corporate partners, 3) Choice, and 4) guests at Choice-brand hotels.

The 4-Win approach is illustrated in a partnership negotiated this year with Maxwell House. The deal locked in extremely competitive prices, protecting franchisees from the explosion in coffee prices during the year.

At the same time, Maxwell House won access to thousands of franchisees as potential new customers, hotel guests gained a trusted product and Choice benefitted by association with a major national brand.

Similarly, Choice's partnership with AT&T for in-room long distance telephone service, Visa for bank card services and Serta for the exclusive Quality Sleeper mattress each have provided four-way wins.

   A Major Partnership With Disney

In the spring of 1997, Choice signed an unprecedented partnership with the Walt Disney Company to promote the Comfort, Quality and Econo Lodge brands using clips and characters from Disney's new animated feature film, Hercules.

Choice's partnership with Disney marks the first time the entertainment giant has entered into an alliance with a hotel company and the first time it has allowed its characters to perform in another company's commercials.

In another first, Choice entered into an agreement to cross-sell the Walt Disney World theme park by transferring callers directly to park sales agents from Choice reservations centers.

   A Hotel-Level Initiative to Improve Profitability

Following months of intense research and development, the Company launched the most far-reaching and important technological initiative in its history: a proprietary property management system named Profit Manager by Choice Hotels.

The state-of-the-art system is designed to help franchisees maximize profitability and compete more effectively by managing their rooms inventory, rates and reservations.

Among its key benefits, the Profit Manager system synchronizes each hotel's inventory with the CHOICE 2001 reservation system, giving Choice reservation sales agents the ability to sell every last room at every hotel.

The system also provides Choice and its franchisees with a sophisticated revenue management function that calculates and suggests optimum rates and length of stays based on each hotel's past performance and projected occupancy.

   The Profit Manager System's Multiple Benefits

The Profit Manager system also captures important information about each guest, which will speed registration of frequent travelers and enable Choice to compile a systemwide database of guest histories and demographic information.

The resulting database will allow Choice and its franchisees to craft highly targeted marketing campaigns designed to build repeat business. To outside potential partners and vendors, it will enhance the value of a partnership with Choice.

In addition to its property management functions, the Profit Manager system includes an automated training component that will teach line-level employees about every aspect of hotel operations and reduce the need for off-site training.

It is expected that Profit Manager systems will be installed in every Quality, Comfort, Clarion, Sleep Inn and MainStay Suites hotel by Jan. 1, 2000.

Because the Profit Manager system requires a full-time link with the CHOICE 2001 reservation system, Choice negotiated an agreement on behalf of its franchisees to provide satellite communications for each hotel at a low monthly cost.

In the long term, every franchisee is expected to reap significant savings from the satellite system because it eliminates expensive conventional telephone costs for CHOICE 2001 connections and credit card transactions.

   Choice Launches New Internet Site

Expanding on the successful operation of its consumer-oriented Internet site, Choice introduced a new site specifically designed to encourage travel agents to book more rooms and thereby drive more revenue to franchisees.

The site, named Travel Agent City, automatically calculates commission payments, offers detailed information on special discounts and provides tips for travel agents to improve their profitability.

As a measure of their importance to the Choice system, travel agents this year contributed $358 million to Choice franchises worldwide, a 24 percent increase over fiscal year 1996. Travel agents account for nearly 38 percent of all bookings made through the CHOICE 2001 reservation system.

   Internet Usage Climbs

Meanwhile, more Internet users than ever visited Choice's World Wide Web consumer site -- -- and used it to make online bookings. The Internet site produced 24,346 room night sales worth $1.5 million in gross room revenue during the year.

Choice christened its home page "On the Road Online" during the year and introduced lively new graphics featuring suitcase celebrities featured in the Company's television commercials.

A planned enhancement will allow users to map trips from the front door of their homes to the front doors of each hotel.


  A Year of Firsts     Financial Highlights     Letter to Our Stockholders     Focusing on the Franchisees     Optimizing the Brand Portfolio     Increasing Market Penetration     Improving Margins     Growing Overseas Operations     Leveraging the Spinoff of Franchise Operations