The franchise game is fraught with challenges and rich with advantages, and finding the balance between the two is the crux of the daily grind for owners/operators. Still, all of the respondents to the HOTEL BUSINESS® franchise report were sure the franchise business model outstripped being an independent in terms of advantages. “The costs associated with franchising are getting greater and greater between all the fees that you pay and the encroachment of the third-party intermediaries that we’re paying enormous commissions on,” said Peabody Hotel Group’s David Shamoian. If franchisors do not do something about the TPIs soon, the brands are going to become irrelevant, “and I could be an independent hotel by Expedia, by hotels.com,” he said. Jaspers Enterprises Founder/ President, Keith Jaspers, concurred with Shamoian, noting, “The franchisors need to be concerned with how many hidden costs they can lay on the franchisees when the reservations aren’t increasing. Our costs have gone up the last three years, but our results from them have not; results have gone down. That can be a negative. All of the brands seem to be trying to hit you with more hidden costs and direct costs to protect their revenue, so the cost of booking reservations through the airlines increases, there’s hidden costs.” On the plus side for Jaspers were name recognition and the association with other successful entrepreneurs “so that when someone sees your flag they associate you with a modern, updated successful group of hotels.” Leroy Lail, multibrand owner/ operator and chairman of InterContinental Hotel Group’s IAHI, said the challenge is maximizing ROI while paying fees and running them to drive revenue and minimize costs. “And to fulfill all the brand standards, which costs money, while at the same time trying to get that revenue up to the top line so it can come to the bottom line. Of course, if you can do that you can make more money.” Laid suggested it would be very difficult to be an independent “unless you’re specially placed or a destination people will come to anyway.” Defining value vis-à-vis costs for increasingly mandated brand standards is also a concern. Coming At A Cost “The challenge is the ivory tower mentality most of the franchisors have when it comes to new amenities. Each amenity does have a cost, it will undoubtedly be quickly matched by competitors and in the end will simply be an added cost without being a unique added value. The result is reminiscent of the Cold War— an arms race where the winner has to outspend everyone else— and that means a reduction in ROI,” said Gerald Petitt, president/CEO of Creative Hospitality Advisor, who with CHA’s Chairman Bob Hazard, formerly headed franchisor Choice Hotels International. The franchise advantage, said Petitt, is “buying a recognized name and, hopefully, a bit of marketing, when we buy a franchise. We are less interested in the franchisor’s design innovations, training or purchasing support, because those other offerings are too often self-serving profit centers or development gimmicks.” Buggsi Hospitality Group’s President/CEO Buggsi Patel said, “ROI is becoming a big measurement for us and harder to justify,” and cited the Internet as “definitely a challenge.” He said he is focused on franchising for its “consistency and loyalty.” “The toughest thing in our industry is to drive trial,” said Rodger Forni, Co-CEO, Pacific Inns, LLC, adding if there is an advantage, “It’s the power of the franchise…That’s what the traveling public is looking for; they’re creatures of habit…the power of the franchise gives [them]that sense of security, that sense of value.”
