ROAD WARRIORS stepping into one of the new fangled Holiday Inns in America may find that the place they choose to bed down for the night after a hard day of sales pitches and presentations is more reminiscent of an Ikea showroom than a traditional hotel.

Out have gone the stuffy old furniture and the colourful bedspreads, to be replaced by sleek chairs and plain white bedding, while the lobby has been cleared of the endless piles of pamphlets and pro-motional material. The hotel buildings themselves are smaller than normal, with just 150 bedrooms, down from the more traditional 300 or 400.

So far, 40 of these “prototype” Holiday Inns have been opened, and they have been given the thumbs up by America’s travelling salesmen. On average the new Holiday Inns are performing 11% better than their old counterparts, and they mark the first stage in a $1 billion rebranding of the word’s biggest hotel chain.

The plans for wholesale change at Holiday Inn coincide with a number of changes at its rivals, and have led to some observers questioning the future of the whole mid-market segment of the industry.

In recent weeks, Accor, the French hotel giant, has revealed it plans to transform Sofitel from being merely an upmarket chain to a luxury brand. In Britain, the firmly mid-market Golden Tulip business has been acquired by Whitbread, with the leisure group planning to ditch the brand and convert the sites to its budget format Premier Inn. Some big American groups are looking to move away from the hard, branded hotels to sites with a more individual flavour, such as Starwood Hotels & Resorts’ new Aloft concept, which it hopes to bring to Britain after its European launch in Brussels in 2009.

There is little doubt that the mid-market is being squeezed. The inexorable rise of the budget chains – led by Travelodge and Premier Inn in Britain – combined with an increasingly strong performance from luxury hotel operators, has led to a polaris-ation in the market, with mid-market operators struggling to find a raison d’etre.

According to data published this month by the British Hospitality Association, of the 140 hotels that opened in the UK in the year to August 2007, 90 of them were budget hotels. Bob Cotton, chief executive of the association, said: “There is a whole repositioning going on. Why spend £65 or £70 a night for an old-fashioned 3-star hotel when for £45 you can get a modern budget hotel?”

Many mid-market operators get caught in a vicious circle, forced into raising prices to generate money for improvements. But at the higher rates the hotels are deemed to offer poor value, and so fail to attract the income they need. Patrick Dempsey, managing director of Premier Inn, spent £39m last year converting a group of nine old Holiday Inns to the budget brand, since when occupancy has shot up.

And it looks like things are only going to get worse for those in the middle tier. A report published last week by Mintel, the market researcher, predicted that the bud-get-hotel market would grow by 50% over the next five years to reach £1.5 billion. Grant Hearn, chief executive of Travelodge, said that his group and Premier Inn should each be aiming to capture 10% of the overall hospitality market.

The challenge for hotels caught in the middle, if they are not competing on price, is to find some other reason to compel people to stay. It is a battle that is becoming ever harder, with the unbranded Fawlty Towers-type independents first in the line of fire.

Roger Devlin, chairman of Principal Hotels, which is owned by Permira, the buyout firm, said: “The budget chains are very effective competitors when they are up against a somewhat tired mid-market product. Hotel operators need to seek out defensive niches. How we have decided to address that, for example, is to focus on the conference market. We acquired Hayley, a leading five-star conference brand.”

Other groups that have managed to differentiate themselves include the Hotel du Vin and Malmaison chains, which sit comfortably between the budget and the luxury operators.

One problem for larger, established chains is that the quality of the sites can be inconsistent. “You’re only as strong as your weakest product,” said Jonathan Langston, joint managing director of TRI Hospitality, a consultancy firm.

This point has not been lost on Andy Cosslett, chief executive of InterContinental Hotels Group (IHG), the parent company of Holiday Inn. He points out that the company has tried to be ruthless in weeding out sites that do not match up to what is expected from the brand. “If you take a snapshot of what Holiday Inn was like in 1999 and what it will be in 2009, it will be completely different. You will find that 75% of the hotels will no longer be with us. We will have revitalised and replaced the Holiday Inn estate around the world.”

Despite the upheaval, Cosslett is adamant that the brand’s makeover is not designed to take Holiday Inn out of its mid-market comfort zone. What’s more, the IHG boss believes that the mid-market segment of the industry has a bright future.

“We are not in the camp that sees the demise of the mid-market,” he said. “There will be something like 1m new hotel rooms added globally by about 2015 and we think mid-scale properties will deliver the majority of those rooms; something over 75% of them will be mid-market.”

He points to figures from Smith Travel Research, an American consultancy, that show mid-market hotels are growing more strongly than the budget sector in America. The latter, according to these figures, accounts for only 3% of hotels under construction or in the planning stages.

IHG will announce its third-quarter results on Tuesday, when it is also expected to reveal that more than 1,000 Holiday Inns and Holiday Inn Expresses are being built globally. The company has tied its growth prospects to China in particular, which is just starting to embrace branded hotels. IHG argues that the emergent middle-classes will seek out the sort of accommodation they can afford – namely, Holiday Inn.

But too many hotels have failed to move with the times, and this could be their undoing. Roger Smith, an executive at Accor, said: “A generation ago hotels provided facilities that went beyond what most people experienced in their own homes. Over the years, with growing prosperity and with the advent of new technologies, homes have overtaken many hotels. The balance needs to be redressed if mid-market hotels are to retain their appeal.”

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