RSBA & Associates 
Hospitality Consulting Services
400 Spear Street, Suite 106
San Francisco, CA 94105
Email: [email protected]
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 Solid Management Practices Can 
Improve Franchise Value
By Rick Swig, May 2001

The cost of a hotel franchise is still probably the most expensive line item on a hotelís financial statement other than payroll.  If a franchisee further adds the cost of brand standard operating items, technology costs, and related marketing or distribution overhead, the expense goes higher and higher.  Is all of this expense worth it?  Only if the franchisee makes it so.

The best franchise companies no longer limit their activities to neat advertising slogans, a good-looking logo for signage, and a reservations system.  The best of the best provide multi-tasking tools to provide dynamic support for any hotel operator, however an operator has to be diligent to take advantage.

Some might argue that there are too many franchise companies, as consumers are seemingly hard pressed to keep up with all of the brand names and products.  Between the garden varieties of limited service, mid-scale with or without food and beverage, plus the all-suite categories both extended stay and otherwise, there is certainly opportunity for consumer confusion.

Positioning and geographic coverage are still critical elements to choosing a franchise company.  A brand's positioning and product offerings should also fit the target demand generators of an owner's site.  Additionally, as it was when Kemmons Wilson rolled out Holiday Inn, brand familiarity and consistency are still the security blankets for customers and their decision to buy.

Traditionally, an owner joined a franchise organization for the following business reasons:

  • Reservations system
  • Promotional services
  • Assistance in development planning and opening
  • Operational aids, including manuals, job descriptions, and quality assurance
These and other basics are the same today, except that the franchise companies have taken these elements and expanded their availability and effectiveness.  Technology has played the most important role.  

Where technology ten years ago was focused on evolving property management systems and global distribution systems, today's purchasing is done on the internet, training is completed via CD ROM, and data is collected and collated to be shifted over data lines connecting franchisee, management company, and the individual hotel unit.  
Let's also not forget that the property management systems now include yield management tools, guest history databases, two-way interfaces to central reservations, and accounting programs that have made the phrase "night audit" practically anachronistic.

The process of product distribution is also changing radically.  Although reservations over the internet are still below 3% of total bookings, internet requests for information may be impacting as many as 20% of hotel stays.  Brands must have web friendly programs and a website available through any portal and any internet service provider plus links from city, state, region, or destination locator.  Brands, which have not gone beyond a GDS and telephone reservations format, are in the distribution dark ages.

Even with the high tech distribution revolution, the same basic brand strength qualification criteria still exists:

  • Percentage of room night contribution
  • Strengths in specific market segments, ex. business versus leisure, travel agents versus consumer direct
  • Database and market research capabilities
  • Yield management capabilities
  • Mirror image inventory or inventory update capability
  • Frequent Guest Program
The more advanced questions relate to internet marketing opportunities with the links to online travel agents, such as Travelocity or Expedia, or alternative distribution channels, such as WorldRes or Hotel Reservations Network.  Additionally, GDS marketing tactics, which utilize various advertising or hotel screen positioning activities through TravelCLICK and inventory presentation through inside availability, are also now critical competitive components.

It is no longer enough to consider the traditional questions regarding comparative annual marketing budgets between competitive franchise companies; availability of collateral or other materials for local marketing; or issues related to regional emphasis.  Other marketing functions must be evaluated.

Marketing has become more technologically targeted through improved information gathering, the use of GDS, and internet messaging.  Data can now be requested and delivered instantaneously, which makes program implementation far more efficient and effective with better reaction time and relatively instant impact.

Along with building room night business, hotel franchise support is important for building the physical structure, as well.  Where franchise brands have been historically good at directing new product improvement guidelines to franchisees, they are now increasingly better at supplying the building and equipment solutions to those requirements as well.  

Along with providing design and plan options for major capital improvement projects, franchise companies are also striving to solve the challenges of purchasing and delivery.  New online purchasing services allow franchisees to find suppliers of operating equipment, set specifications, compare pricing, determine delivery times, order, and monitor the process through to delivery.

Franchise firms, such as Cendant, have improved this process even further through the development of "Preferred Alliances" to create high volume purchasing leverage with vendors for a wide variety of products, including food and beverage, daily newspapers, shipping services, and telecommunications.  Franchisees can benefit from the critical mass of the franchise brand to purchase goods at prices far less than any individual unit operator might.

Training tools have also distinctively improved through technology, as expert training can now be imported via CD-ROM and other technology to train human resources.  Although many franchise companies have increased their corporately sponsored training events, the risk of translation from a trained trainer to the employee pupil has now been minimized through upgraded training tools.

Franchises are expensive, but the evolution of franchising companies provides the hotel owner with every opportunity to receive a significant return of their franchise fee investment, if the initiative is taken to maximize the potential of every service offering.  Hotel owners should select their brands both on the promise to deliver more business and the opportunity to manage their operating business better.

RSBA & Associates
400 Spear Street, Suite 106
San Francisco, CA 94105
E:mail:   [email protected]
Tel:  (415) 541-7722
Fax: (415) 541-5333
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