HOTEL FRANCHISE

Hotel franchising is particularly attractive as

a means of supporting international

expansion where equity based strategies

are frequently perceived as a high-risk

foreign market entry mode.

One distinctive feature of hotel franchises is

the frequency with which these might be

allied to a management contact

arrangement

Entry costs to franchising can be high,

particularly for an older, less well

maintained property, but franchisees must

also consider the continuing fees they will

be required to pay under a given franchise

arrangement

Research findings suggest that the modal

form of involvement selected by hotel

groups is directly related to the type of

financial capital available in a given country or region.

Modern, business format hotel franchising

has its origins in America, where in 1954,

Holiday Inn launched its franchising system.

However, the earliest example of any form

of franchising in the hotel industry probably

occurred in 1907, when Cesar Ritz granted

permission for his name to attached to

hotels in New York, Boston , Montreal, Lisbon and Barcelona.

Hotel organization with established brand

names and market reputations use

franchising as a relatively low risk method to

expand their chain system.

It is particularly attractive as a means of

supporting international expansion where

based strategies are frequently perceived as a high risk foreign market entry mode.

One distinctive feature of hotel franchises is

the frequency with which these might be

allied to a management contract

arrangement.

The owner contracts with a franchisor or a

third party management firm to undertake

the day-to-day operation of the franchised property.

A hotel franchise involves an agreement

between a hotel company ( franchisor) and a

hotel owner (franchisee) that enable the latter

party gain access to the use of the former’s

brand name and associated support services

in return for payment of the prescribed fees.

Agreements will normally be for a period of

ten to twenty years, with the franchise

duration often directly linked to the life of any

mortgage applying to the hotel property.

Typically, a franchise agreement will involve

a one-off, up-front payment plus ongoing

fees.

Fundamentally, the existing of business

format franchising is a recognition that

capital intensive assets and knowledge-based assets can be separate.

The franchisee undertakes the necessary

investment in capital assets.

› Hotel building

› Plant

› Furnishing

› Fitting

And then enters into a franchise agreement to access the value-adding services of the

franchisor.

› Brand name

› Reputation

Which facilitate the market positioning of the

property, plus addition services such as

› Operating procedures

› Controls

› Marketing

› Reservation system

The franchise enable the hotel owner to

enhance the return from the investment made

in the capital assets after payroll costs,

franchise fees are typically the largest

operating expense for many hotels.

THANK YOU Credit: Pryn