/* This button was generated using CSSButtonGenerator.com */
Home / Articles / Marketing / Franchising: Preferred for Hotel Expansion

Franchising: Preferred for Hotel Expansion

Over half of the world’s hotels are now branded properties, with franchising being the operating model of choice for most of the large hotel operators, according to a new report from hotel consultancy HVS London, writes Linda Pettit.

Five of the largest branded hotel companies (IHG, Accor, Marriott, Hilton and Starwood) make up 30% of the current global branded room supply and 65% of the development pipeline, which demonstrates the increasing shift away from independently operated hotels worldwide.

The report, which examines trends in the way hotels are being operated, identifies the proliferation in the number of players and stakeholders that can be involved in a successful hotel – including brand owners, owners and management companies as well as a combination of operating models and hybrid models.

There is also a geographical difference. Across Europe, where independent hotels are more common, franchises account for 50% of rooms in the large listed hotel companies sampled by HVS, with the owned and leased model making up approximately 30% of room counts, and management contracts around 20%.
This contrasts sharply with the North American market, where 85% of the research sample were franchised, just 13% under management contracts and only 2% were owned and leased properties.

17-Marketing-Franchising-Pie-Chart  Franchising: Preferred for Hotel Expansion 17 Marketing Franchising Pie Chart

Says report co-author Stephen Collins, consulting & valuation analyst with HVS London: “In the US the franchise sector is highly regulated, making it more transparent and easier to compare the results of one brand against another. In Europe franchise regulations differ from one country to another, making it more difficult to compare like-for-like.”

HVS also identifies the growing use of Third Party Operators (TPOs) to operate franchises, bridging the gap between the owner of the hotel and the franchisors who own the brand.

“While many franchisees are owner-operators and have the management expertise to be successful, there remains a gap between owners that are unable or unwilling to control the daily operations of the hotel and the franchisors that provide the brand,” said HVS director Sophie Perret.

“This is where third-party operators have come into prominence. TPOs have allowed companies to sell their flag first and direct their management efforts towards the hotels and brands they deem appropriate, while the owner is able to realise advantages of both franchises and management agreements while avoiding a number of the limitations.

“The franchise model, with or without a third party operator, is expected to carry on gaining momentum in Europe, as it continues to deliver better value for all parties involved,” she added.

The report concludes that in the coming years, franchising will likely continue to gain ground as the preferred operating model for a number of reasons: major chains have placed increasing emphasis on franchising to meet their desired expansion page; TPOs have proven competent in bridging the gap between owners and brand companies; and small independent hotels in secondary locations turn to flexible, less-standardised franchisors to remain competitive.

With that said, there will never be a one-size-fits-all operating model, The experience and risk appetite of the owner, the size and standard of the property, and the suitability and availability of potential brands are but a few of the components that factor into which model is most suitable.

17-Marketing-Franchising-Book-Cover  Franchising: Preferred for Hotel Expansion 17 Marketing Franchising Book CoverTo download the report; Decisions, Decisions: Which hotel operating model is right for you? by Stephen Collins and Sophie Perret, click here.

About HVS: HVS is the world’s leading consulting and services organization focused on the hotel, mixed-use, shared ownership, gaming, and leisure industries. For more information visit www.hvs.com.