Principles of Success

Getting the Most out of your hotel franchise investment    (Part 3 of 3)

By Dr. John Hogan CHE CHA MHS               

"You have to learn the rules of the game - and then, you have to play better than anyone else!"     Albert Einstein

Recent economic conditions, as well as the contractions, mergers and acquisitions between hotel companies, have magnified the franchise business model.   When one adds the territorial protection uneasiness and franchising fee concerns expressed by a multitude of members of organizations, taking an overview of franchising was the goal of this three-part article on what is timely and relevant. 

  In the first two segments

1. A recap discussed why and how franchises became an important part of the hospitality industry during the past 35 years. (Part One: Understanding the business model and its evolution).  

2. A series of potential questions identified considerations to be evaluated in the review and analysis period.  (Part Two : Evaluating the franchise business model as a potential franchisee

The final portion of this series will addresses additional marketplace challenges with examples of how to work with your franchisor in positive and proactive ways.

  Part Three - Working with your franchisor for everyone's success

  With the ability of instant global access via the internet, today's hotelier can provide photos of their hotel and area to help potential guests decide on their choice of accommodations.

Part of the decision process on franchise selection should include a detailed analysis of a number of items:

1. The brand perceived identity and image.

A hotel brand implies a certain type of facility along with an expected level of quality. For example, Westin and Hilton are recognized by association executives and meeting planners for their first-class, large group oriented facilities. Hampton Inns, Quality Inns and Holiday Inn Express tend to cater to potentially (by comparison) price sensitive travelers who are not looking for convention facilities.  All of these brands focus on different market segments and all can be profitable if in the right combination of location and competitive set.  The franchise selection process must match the brand to the market segments to your hotel's facilities, pricing  and service level

2.     The market segments to be served

 If your research on franchise selection matches a brand to the market segments of your hotel's facilities, pricing  and service level, you also need to know where your guests are likely to originate from.  If you operate a highway location serving mostly one night travelers, an upscale hotel chain may not be the most advantageous option. If your market is an extended stay focus, your choice might be to strongly consider the leaders in that segment as well as their reservation system delivery statistics

3.     The full cost of the affiliation.

There is usually an entrance fee for becoming part of a franchise organization. Ongoing percentages of revenues (not profits) are paid monthly to the franchisor as a royalty fee, but they are only part of the full cost of affiliation.   There are often ongoing costs to support the reservation system, marketing, internet, quality assurance and frequent guest programs.  Calculate all the expenses that will be incurred over the entire life of the agreement when comparing the cost of one franchise brand with another.

WIN-WIN is essential to everyone's success

Be attentive of the franchisor's perspective and their reason to be in business.

The franchise business model works best when long-term positive relationships can be maintained.  Many, if not most, hotel franchises run for 20 years, which can seem long in changing times for an important business relationship.

Part One of this series gave an overview on how many brands evolved and/or changed ownership, in the past 15 years. With today's continuing  brand consolidation, it is possible  that competing brands could become part of the same chain and start sharing reservation networks, marketing and other initiatives.   This is not necessarily a negative factor for existing franchisees, but it does require study of the trends.  When an investment group likes Blackstone becomes a major player with ownership of Hilton branded franchises as well as La Quinta, additional study is critical.

Part Two offered some recommended questions to reflect on when evaluating franchise comparison.

Working with your franchisor for everyone's success

The following ideas are offered as suggestions as ways to support the franchisor and your own investment:

1.      Determine and support the franchisor's right to assertively manage the brand image by maintaining strong quality assurance and terminating franchisees that will not conform to the standards.

2.      Support the franchisor's need to strengthen and grow the impact of the brand. This should not be at the expense of existing quality franchisees, but if a brand does not improve and get stronger, it runs the risk of erosion or stagnation.

3.      Openly and regularly discuss potential new marketing partnerships, initiatives and brand enhancements that the franchisor can prove probable competitive gain over the other hotels in your market.  Support the programs that will benefit the whole organization.

4.      Recognize the importance of Franchisor and Franchisee becoming transparent in the eye of the end user.  The public views the name on the billboard as representing every location and seldom takes into consideration that many, if not most, branded hotels are actually managed by independent operators.

5.      Realize that being part of a brand as a franchisee may mean dealing with guest perceptions and expectations differently than when your hotel operates as an independent.  This is neither positive or negative, but it is different and one needs to be prepared.

6.      Plan to orient your hotel staff to become engaged and actively "branded" to the franchise concepts, services and products.  Dr. Marc Clark, a well known industry trainer http://www.smartbizzonline.com ,  calls this making people "walking Ambassadors of the Business and the Brand)

7.      Participate in open exchanges of ideas on technology improvements as they evolve.  They will likely cost your hotel some money, but ignoring changing customer requests and preferences will erode business levels.

8.      Engage in open dialogue on how the franchisor will deal with impact issues with seemingly identical product and market segment properties in their portfolio. An imbalanced approach could potentially undermine a quality franchisee with little options for resolution except through the legal system. The leadership of AAHOA has been discussing this and the question of liquidated damage fees should either party want to terminate the affiliation before the term ends.

Working together can allow groups of similarly minded people to set and achieve business goals.  Strong franchise organizations can address issues of technology changes, market specializations, purchasing efficiencies, training consistencies, market penetration and the global marketplace.

Open dialogue in the research and analysis stages is essential in what can easily end up being the most expensive investment of one's business career.

Feel free to share an idea for a column at johnjhogan@yahoo.com anytime or to contact me regarding consulting, customized workshops or speaking engagements.   Autographed copies of LESSONS FROM THE FIELD - a COMMON SENSE APPROACH TO EFFECTIVE HOTEL SALES can be obtained from THE ROOMS CHRONICLE www.roomschronicle.com and other industry sources.

Disclaimer:  the author is not an attorney and is not offering legal advise, but rather is sharing experiences and examples on how to effectively work within the franchise business model

All rights reserved by John Hogan and this column may be included in an upcoming book on hotel management.   The opinions expressed in this article are those of the author and do not necessarily reflect the views of this publication  

John Hogan, a career hotelier and educator, is frequently invited to participate at franchise meetings, management company and hospitality association industry events.  He is a successful senior executive with a record of accomplishment in leading hospitality industry organizations at multiple levels, with demonstrated competencies as a strong leader, relationship builder, problem solver and mentor. He conducts mystery-shopping reviews of quality in operations and marketing, including repositioning of hotels.

He writes weekly columns for a number of global online services (hotel online.com, eHotelier, 4 Hotels, Hotel Resource, etc) and has published more than 400 articles & columns on the hotel industry.  He co-authored (with Howard Feiertag, CHA CMP) LESSONS FROM THE FIELD - a COMMON SENSE APPROACH TO EFFECTIVE HOTEL SALES, which is available from info@smartbizzonline.com, ROOMS CHRONICLE www.roomschronicle.com  and other industry sources.  He resides in Phoenix, Arizona and expects to publish in 2009 his 2nd book based on his dissertation - The Top 100 People of All Time Who Most Dramatically Affected the Hotel Industry.

Hogan's professional experience includes over 35 years in hotel operations, food & beverage, sales & marketing, training, management development and asset management on both a single and multi-property basis, including service as Senior Vice President of Operations in a specialty hotel brand for six years.

He holds a number of industry certifications (CHA, CHE, MHS, ACI) and is a past recipient of the American Hotel & Lodging Association's Pearson Award for Excellence in Lodging Journalism, as well as operational and marketing awards from international brands.  He has served as President of both city and state hotel associations.

John's background includes teaching college level courses as an adjunct professor at three different colleges and universities over a 20-year period, while managing with Sheraton, Hilton, Omni and independent hotels.  He was the principal in an independent training & consulting group for more than 12 years serving associations, management groups, convention & visitors' bureaus, academic institutions and as an expert witness.  He joined Best Western International in spring of 2000, where over the next 8 years he created and developed a blended learning system as the Director of Education & Cultural Diversity for the world's largest hotel chain. 

He has served on several industry boards that deal with education and/or cultural diversity and as brand liaison to the NAACP and the Asian American Hotel Owners' Association with his long-term involvement in the Certified Hotel Owner program.  He has conducted an estimated 3,200 workshops and classes in his career. 

Expertise and Research Interest

·          Sales Management and training

·          Turn-around and revenue management

·          Professional Development & Customer Service

·          Hospitality Leadership and Executive Education

·          Making Cultural Diversity Real

·          Accreditation & Developing Academic Hospitality programs

Service to the Industry and Hospitality Education includes working with the Educational Institute Certification Commission of the AH&LA, the Hospitality Industry Diversity Institute, the AH&LA Multicultural Advisory Council, the Accreditation Commission for Programs in Hospitality Administration, the Commission for Accreditation on Hospitality Management Programs, the AH&LA and AAHOA Education and Training Committees, the Council of Hotel, Restaurant and Institutional Educators (CHRIE), the International Hotel Show and the Certified Hotel Owner program for the Asian American Hotel Owners' Association.