February 01, 2019

New Year, New Franchise Partner?

Steve  Belmonte

Steve Belmonte
Former CEO/Ramada Franchise Systems & Vimana Franchise Systems

Share This Post

Owners should expect to get a lot more for a lot less from their franchise system in 2018

Are you part of a great franchise? Because in today’s environment, hotel companies need to be great to ensure a return on the owner’s investment. What really makes a franchise great? To start with, a franchisor needs to understand the issues that hotel owners face daily and be understanding of their needs. A great franchise company has a strong infrastructure designed for one purpose — generating revenue and reservations for its owners and doing it at the lowest possible cost. Providing services such as full revenue management, dedicated account management, an effective central reservation system, strong Internet marketing, meta-site listings, customer built vanity website and more needs to be encompassed in the basic fee you are paying; not as add-ons or hidden fees.

In 2018, expect many of the bigger and more mature brands to clean house. If a hotel isn’t pretty enough or the property isn’t trendy enough (exterior vs. interior corridors), a break-up may be inevitable — even if your product is acceptable within your local marketplace. Many franchise companies seem to be adding more costly standards that drain the hotel owner’s bottom-line.

There has been a lot of talk over the years about fair franchising, but it is clear that different brands have different ideas on what that means. As a franchisor, I believe fair franchising means not engaging in unreasonable mandates or putting unnecessary costs on the back of the franchisees that do not provide a return on their investment. I believe it means treating owners respectfully and in an equitable manner to foster growth and build long-term relationships. And it means a franchise agreement structure with low fees and great support services.

Do the Math

Why an owner wouldn’t want to get the biggest bang for the buck is mind-boggling. Many believe they have to be a part of a system with 300 or more hotels. However, if of those 300 hotels, a large percentage are substandard, what good does that affiliation do the hotel owner? He or she could end up alienating a huge percentage of the traveling public who probably had a bad experience with that brand no matter where they stayed. Bigger isn’t always better.

Some franchise companies are actually dangling cash in front of new or struggling hotel operators as an incentive to sign 10- or 15-year license agreements that entail high fees, no windows, and significant physical upgrades. If that’s not bad enough, it normally comes with huge liquidated damages in the event of early termination. Yes, that upfront money is tempting, but you are locked in for a very, very long time even if the brand isn’t producing anything close to what you had hoped.

Common Sense Questions

Before renewing a franchise contract or switching from independent status to branded, ask yourself a few questions:

  • Are the new properties in your area outperforming you physically because your asset is old and tired?
  • Will the changes your franchisor is requiring you to make, including technology, renovations, standards, etc. provide you with a fairly quick return or will it simply drain your bottom-line?
  • Is your franchise company partnering you with great vendors who assure you some of the best pricing in the industry?
  • Does your franchise partner provide training for your employees in each and every category?

We are in the people business, not the hotel business, not the real-estate business. All the advertising and marketing efforts put forth will not give you a full return on your investment until your people are properly trained to serve the traveling public. All of the above must be tied together with a fair agreement — one that gives you low fees and rolling windows in the event you need to move on for whatever reason including a potential property sale.

Breaking Up is NOT Hard to Do

It’s 2018 people. If your hotel is not all that it can be, if your bottom line is not helping, if your relationship with your franchisor is not mutually beneficial, then it’s time to start singing a new song this year . . . 

 

Get those high fees away from me

You put my bottom line in misery

Now I see who’s fooling who

Breaking up’s NOT hard to do.

 

Your contract terms once held me tight

Mediations kept me up all night

Oh, the red-tape you put me through

Breaking up’s NOT hard to do.

 

Yes franchisor, let’s say goodbye

I won’t give your deal another try

It’s now time to start anew

Goodbye. I’m breaking up with you!

Comments? You can contact me directly via my ExecRanks profile.

Share This Post