Hotel brand franchise affiliation vs the independent alternative

It’s probably more or less impossible to 100% evaluate the benefits of one hotel brand franchise affiliation to another and also compare it to going the independent route and get it 100% right taking into account numerous aspects including perception in the market of one brand or franchise to an other.

It’s complicated, difficult, and challenging.

300 odd franchise/brand/chain management options in the market make this a real headache. Then how to decide between the one chosen as your 1st preference and going the independent route.

Yet, a certain owner I recently met, new to the UK, was more focused on asking me for advice as to “ what brand would you choose” as if I had the answer out of a hat! He liked my idea on one with the comment “ yes, I know owners who think highly of them”.

It’s not about past performance with others, it’s what best fits your unique circumstance. That circumstance being highly technical, re investment, location, positioning etc etc etc.

Assuming one has a preference, how to address the independent alternative as an option?

In the past being or not being associated with a franchise has involved, as the primary focus, understanding how much business has been or could be driven through brand reservation systems and the online presence. Trouble is one can’t estimate how much business a property could have achieved by being a stand-alone, by itself, if it was an independent for comparisons sake.

One has to also figure out the comparison in the cost of booking aspects from a brand/franchise to being an independent. How much is an owner paying for all those guest promotional programs, the advertising, and its contribution to a central reservation system? Complicated, just look at group and other business that is driven at property level and then possibly added into the affiliation reservation system count.

In brief, franchise management fees can be as a % of revenue 7% to 10%, with 9% that’s 45% of one’s net operating profit if a hotel generates a 20% NOP, which is about average.

45%!

Now lets assume 25% of one’s rooms generated business has been through the affiliation, the other 75% through the hotel’s direct efforts. Taking the 9% as above the actual bottom line effective cost of rooms achieved by affiliation association is 36%. That’s the ratio of affiliation fees paid on rooms revenue to the % of business this affiliation has in rooms income terms benefited a property.

Not cheap is it!

Where do we break even in this circumstance? How much business is needed to break even with a 9% fee cost to owner? How much additional business does this affiliation need to generate that one could not have achieved by being an independent operator?

With a 100 roomed hotel achieving 70% occupancy with a ADR of $100 the fees equate to $229,950. With a department profit of 75% that’s 3066 room nights required, or an 8.4% in real term increase in occupancy.

Brands and franchise affiliations do work, a lot has to be said for going that route, however not for all, and in my view not for many that have this relationship.

With the modern world changing, with ecommerce evolving at break neck speeds and with so many options for independent properties to take advantage of the more than 60% of hotel bookings on average influenced through the web, according to some experts, owners would do well to think through very exactly what benefits going the independent route can offer.

Greater flexibility in pricing and positioning, more precise control, more control and options to choose service levels, in design, in marketing, more influence on management, more flexible use of capital to meet positioning standards. Probably easier to sell and exist the investment. That’s a very simplified view.

For advice on the independent route and putting a business plan and operation in place to take advantage of today’s ecommerce, non franchised/chain reservation systems, putting a sales team together, and a marketing program for a stand-alone resort, that would not cost that 9% annually, contact me via mark@turnerlodgingco.com.

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