HVS International’s Latest Franchise Fee Guide Reveals Segment Leaders

MINEOLA, NY— A comparison of fees charged by 83 hotel franchise companies shows the segment leaders in terms of total cost as a percentage of rooms revenue. Days Inn and Travelodge top the list in the economy segment in the 6th Franchise Fees Analysis Guide recently published by HVS International. Comfort Inn is number one in the mid-rate segment and Hilton is the leader in the first-class segment. The guide is a tool for a franchisee or franchisor to compare what the various flags are charging, explained William Lee, associate at HVS International. “Franchise fees are a big part of operating expenses, second only to payroll, and therefore play a big part in the decision-making process behind flagging a hotel,” Lee noted. The total cost as a percentage of rooms revenue is calculated using a formula that takes into account average room rates, occupancy, room counts and growth forecasts, and is adjusted each time the guide is compiled, according to Lee. The new guide reported that, in the economy sector, Days Inns and Travelodge topped the list in total cost as a percentage of rooms revenue in 2000, with 10.3% and 10.1%, respectively. On the flip side, it was reported that Scottish Inns and Red Carpet Inns had the lowest total cost as a percentage of rooms revenue in 2000, with 5.7% and 6.3%, respectively. In the mid-rate sector, Comfort Inn topped the list for total cost as a percentage of room revenue in 2000 with 10.5%. Best Western was the lowest in the mid-rate sector, with total cost as a percentage of rooms revenue of only 2.1%. Hilton took the top spot for first-class hotels, according to the survey, with total cost as a percentage of rooms revenue of 10.1%. Omni came in as the lowest first-class brand in terms of cost as a percentage of rooms revenue at 6.8%. HVS began publishing the guide in 1989, with only about 37 hotel companies participating in the first edition. The report comes out every two years, and both participation in and demand for it has steadily increased over the last decade, according to Lee. Lee attributed the growing popularity of the guide to the changing role of franchising. “Franchising has become a very hot topic over the last couple of years, making the need for information [increasingly]important,” he noted. To compile the report, HVS contacts hotel franchisors to obtain a copy of the company’s UFOC (uniform franchise offering circular), a standard form the FTC requires franchisors fill out. HVS then segments the hotel brands from which it receives UFOC data into three distinct segments: • Economy. • Mid-rate. • First-class. According to Lee, once the brands are divided appropriately, the total 10-year franchise fees cost is calculated, indicating the amount paid by a franchisee to carry a particular flag for a 10-year period. The 18-page report even translates the total 10-year cost into total cost as a percentage of rooms revenue. HVS uses a standard formula to estimate, for each segment, the potential revenue a hotelier is likely to pull-in over a 10-year period. Although the guide provides detailed comparisons of franchise brands, Lee pointed out that the report does not offer judgments about which brand is best to choose. “The guide is meant to be a learning tool to aid an individual or company in narrowing down what type of flag to look at in more detail. The guide also helps franchisors compare their pricing against the other offerings in the market,” said Lee.