If you want to open a hotel, you need expert advice because the sector is going through many changes related to hotel management. Currently, independent hotels are turning to choosing to be a hotel franchise.
The coronavirus has significantly disrupted hotel business and the ways of managing hotels. Companies are moving away from everything that Real Estate implies to focus more on everything related to Hotel Management Agreement.
The hotel franchise business currently covers 30% of the global hotel market and we find fewer and fewer independent hotels because the potential that a franchise offers is much greater.
If you want to learn more about it, we suggest you read our note on Hotel Management Contracts .
What is a hotel franchise?
A franchise allows you to use the franchisor’s brand, tools and knowledge. The owner is the one who bears all risks and losses. It allows the hotelier to control the property and enjoy the technology and services offered by the franchising brand.
If you are looking to expand the public and the profile of hotel guests, use a modern online reservation system and increase the occupancy of the establishment, then thinking about a hotel franchise is a very good idea.
We will detail the advantages and disadvantages below.
Advantages of choosing a hotel franchise
The main advantages of choosing this business system lie in the potential high profits in the future, in addition to having full commercial control and the support of a recognized brand to promote the growth of the hotel. They will also have access to global online reservation systems, loyalty programs and technical support from the same franchise.
Some franchises offer the service of training owners in the business of managing a hotel, this would help in the future to increase the management business for all companies.
Disadvantages of the hotel franchise
The main disadvantages are that greater risks are taken, that often the level of exposure of the brand is not controlled and that it depends exclusively on its marketing.
Steps to choose a good hotel franchise
We must start from the beginning: what type of establishment do we want to have, what standard and quality are we considering, its total size and that of the rooms, its location, etc. Opening a hostel in a town is not the same as opening a luxurious hotel in a capital.
Analyze the brand profile
Searching for information is always key when making any type of decision. Each brand, each company, has a unique profile and style. We must find the one that best suits what we want to do and the message we want to convey.
It is usually recommended to contact other franchisees of the brand to find out what their opinion is about it, if they are satisfied with the services or not.
Study the profile of the guests who will come
The profile of a guest is nationality, age, profession, among other things. Each brand is associated with an image of a person, with an identity in the imaginary, and guests stay in places where they will feel comfortable. That is why it is key to learn about the profile of potential clients in order to offer them the best.
Know the rates and costs of a hotel franchise
There are several costs to consider in this case:
- initial payment to start being part of the franchise, usually calculated based on the rooms built
- annual cost of the brand’s reservation system
- cost for participating in marketing programs and their advertising campaigns
- penalty if the contract is terminated early
- commission for the use of the brand and for participating in the network of franchisees
- cost for distribution and marketing
- commission for the technology used by the franchisor
- cost for license usage, data management, and annual support
- commission for the initial audit, opening and monitoring of the activity
- pay for employee training
- commission for system configurations on hotel computers
- cost for computer security and IT maintenance
More and more hotels are franchised
The hotel strategy of divestment of real estate to focus on management has led to the number of franchised hotels in the world increasing by 80% in 2020. The asset-light strategy is increasingly expanding throughout the world.
The main hotel franchises are all American, namely:
- Marriot International
- Hilton Worldwide
- Wyndham Hotels & Resorts
- Choice Hotels International & Intercontinental Hotels Group
The big business of franchise agreements allows franchising companies to grow and maintain a steady stream of income at the same time.
The three current franchise models
The most used hotel franchise models can be grouped into three main categories.
Soft brands
They are the least intrusive franchise brands in the property, they allow the essence of the establishment to continue and do not require major changes in the furniture. They are the most successful, according to experts, because they do not require large investments by the owner.
The hotel can keep its name, its design and orientation.
Hard brands
In the opposite case, this category forces the hotel to modify its entire essence, furniture and name to fit within the hotel chain. The style of the brand is unique for all the franchised hotels and they must all respond to and reflect the same essence.
The segment of the public to which the brand is directed is well defined, so the new property must adapt to the requirements of the franchise.
Affiliated
The hotel is included in a sales channel, similar to soft brands, but a bit more intrusive. In these cases, it is recommended that the chosen brand be well known and that it concentrates on a particular segment of the market.