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More Hoteliers Consider Flying Own Flag; 
Difficult to Justify the Enormous Franchise
and Royalty Fees
By Kevin Harlin, Times Union, Albany, N.Y.
Knight Ridder/Tribune Business News 

Feb. 9, 2004 - LaQuinta or Cocca's? Sheraton or Prime? Super 8 or Franklin Square? 

When it comes to choosing between the national chain name or the unaffiliated inn, it's not just weary travelers making the choice. 

Increasingly, hoteliers throughout the country are asking whether they need the name brand to fill their rooms. While the brands offer a national marketing reach and a powerful reservation network, they also charge high franchise fees. 

Here in the Capital Region at least, more hotel operators are opting for independence. 

"There's a real question today whether hotel brands add the kind of value to hotel owners that they once did, and enough value to justify the enormous franchise and royalty fees that they charge," said Chekitan Dev, a marketing professor at the Cornell University School of Hotel Administration in Ithaca. 

The number of independent hotels grew 11.5 percent over the past three years in the Capital Region, according to industry tracker Smith Travel Research. Hotels flying a national chain's flag declined 1.6 percent in that period. That runs counter to the national picture, where chain properties grew 6.8 percent, versus just 0.6 percent growth in independents. 

The costs of affiliating with a national hotel name can reach 10 percent or 15 percent of a property's total revenue, Dev said. But he and other industry watchers say the rise of Internet hotel-booking sites and savvy marketing efforts among some independents allow more owners to sever the ties. 

"It's definitely a gamble. You do lose that 800-number and the name recognition," said Michael Fusco, president of the 65-room Franklin Square Inn & Suites hotel in Troy, which until two years ago was a Super 8 Motel. 

Fusco said he and his partner, Michael Cocca, bought the hotel on Fourth Street for about $1.5 million in 2001 and wanted to renovate and upgrade it to cater to the wedding parties that book their Franklin Plaza Ballroom across the street. 

But operating under a flag means conforming to standards outlined by the national company -- a list of guidelines and rules the size of a phone book, Fusco said. They couldn't change the soap in the bathroom without Super 8 approval. And the bar they eventually installed in the lobby did not conform to Super 8 guidelines. 

So Fusco and Cocca now are experimenting without a flag, and Fusco said reservations have increased. Meanwhile, the hotel saves about $100,000 a year that it would have paid in various franchise fees. 

"For us, it was worth taking the risk and not paying that bill because we're already $100,000 ahead, and that's the way we looked at it," Fusco said. 

In Schenectady, the independent Parker Inn was opened downtown on State Street in 2002, the same year that the operators of Mallozzi's restaurant in Rotterdam unveiled their independent Mallozzi's Belvedere Hotel. 

In Saratoga Springs, New Jersey-based Prime Hospitality Corp. dropped the Sheraton Hotels & Resorts flag from its Broadway property a year ago, renaming it Prime Hotel & Conference Center. At the time, Prime said the cachet of Saratoga Springs was as powerful a brand as Sheraton, so it didn't need the flag to lure business. 

"Part of it was a financial decision, because we don't want to pay the royalties," said Jim Gard, vice president of marketing services for the company. "Another is that we felt we weren't getting anything in particular from the brand at several of our hotels that warranted the royalties and the long-term commitments." 

So the company -- which owns or operates 25 hotels under brands such as Hilton, Radisson, Holiday Inn, Crowne Plaza and Sheraton -- is creating its own Prime Hotels & Resorts brand. Saratoga is the first, though the company expects to have about 15 hotels under the brand by later this year, mostly through acquiring and renaming a slew of Wyndham Hotels, Gard said. 

Whether the shift away from large brand names in the region is a long-term trend or merely a blip is unclear. Hendersonville, Tenn.-based Smith Travel Research tracks hotels with 20 or more rooms, so many of the smallest mom-and-pop motels and inns slip through its net. That leaves the six-county Capital Region with a relatively small sample size -- just 114 hotels in 2000 and 119 in 2003. 

But Cornell's Dev said he is seeing more hoteliers consider independence, thanks in part to the Internet. 

More than 64 million travelers in the U.S. shopped for or booked travel online last year, according to the Travel Industry Association of America, a Washington, D.C.-based trade group -- a number that is climbing fast. 

Companies like Smith Travel are supplying increasingly sophisticated data for owners and operators, and Dev said hoteliers are using the information more wisely to get their names in front of travelers. 

Dev and a researcher at the University of Chicago Graduate School of Business soon expect to start industry-funded research to quantify the benefits of a chain. 

But not all hotel operators chafe under franchise standards and fees. That phone-book-thick list of rules ensures that every hotel in the chain's network looks and feels similar, which is what attracts many of the loyal customers. 

And in exchange for those franchise fees, the flags often drive 20 percent of a property's bookings. 

Eric King, president of the Colonie-based development firm Equinox Cos., said the Courtyard by Marriott name over the 145-room hotel his company is building on Excelsior Avenue in Saratoga Springs -- near the city's Prime Hotel -- will help generate bookings during the off-season. 

"It's a well-respected name and we don't think we could do as well without it," he said. 

And even some independent hoteliers in the region don't discount that value. 

Rocky Cocca -- cousin of Franklin Square's Michael Cocca -- wants to open the region's first LaQuinta Inn & Suites in Latham, next to one of his family's independent Cocca's Inn & Suites. 

"The flag brings national attention and curb appeal," he said. "People like to recognize something and know what they're getting." 

The proposed $3.5 million LaQuinta now is under Colonie Planning Board review. In the meantime, Cocca said he is realizing how exacting the standards are for building a new hotel -- that dictate minutia down to the type of tiles and countertop surfaces in the bathrooms. 

"If I was building this under my own name, I could do it for a lot less," he said. "But I'm not sure that I could get the same return back." 

And banks are more friendly to borrowers who come with the backing of a recognized name, said Gary Smith, who for 14 years managed The Desmond Hotel & Conference Center in Colonie -- one of the region's oldest and most successful independents. 

Smith left The Desmond in 2000 and started his own hotel consulting firm. Now he and his partners -- developer George Shannon and attorney Daniel Sleasman -- are trying to open a boutique hotel on State Street in Albany. 

The original plan was to operate as an independent, but Smith said they have taken on a flag to make the project more appealing to potential lenders. Though he said he couldn't identify the flag yet, he said it is one that will allow the developers to create their own unique identity. 

"The business is increasingly sophisticated and increasingly competitive," Smith said. "But in building a new hotel, it's almost imperative that you have a franchise, if you want to get a significant mortgage." 

-----To see more of the Times Union, or to subscribe to the newspaper, go to 

(c) 2004, Times Union, Albany, N.Y. Distributed by Knight Ridder/Tribune Business News. HOT, CD, PDQ, HLT, IHG, WBR, 


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