The Pros & Cons of Running a Franchised Hotel

| June 7, 2013 | 0 Comments

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Maybe you are a savvy business operator, with a nice wad of capital in your back pocket. Or perhaps the recession has helped you see that now is the time to join the national tourism industry in enticing people to make vacations in their own country.

However, you may have come to the conclusion that while you would like to run a hotel, there is risk associated with this activity; and if you have little or no experience of hospitality management, then one way of reducing the risk is by taking on a franchised establishment.

So, what are the pros and cons?

Pros

Low-risk investment
A franchise is a reasonably low-risk investment, both of money and of your time and effort. Investors, such as mortgage lenders, have historically seen franchised hotels as reasonably low-risk ventures, especially if the franchise is a well-known, national and successful enterprise. Franchises tend to run into fewer financial problems than independents when it comes to hotels, so provided the brand is strong, mortgage lenders and investors should be reasonably keen.

Friendly advice from the franchise company
The overarching brand company has a vested interest in ensuring certain standards in your hotel. For example, in brand management, marketing, and the maintenance of consistent standards of fixtures and fittings. The company’s brand rep or marketing experts may be able to advise you on many aspects of running your hotel; likewise, seasoned managers and operations experts may be drafted in for the initial period.

Marketing help
Some overarching franchise companies create and develop the marketing material for you, selling the leaflets, branded mugs and embossed towels to your operation, ready made. Marketing a hotel needs to begin before it is even opened, ensuring a strong first night occupancy and positive word of mouth. If help is available for marketing, it should be taken up with gusto, because that way you can spend more time and effort making the product amazing.

Cons

You’re only as good as the last one
Franchised hotels are, sadly, only as good as the last hotel in the chain that a guest visited. If your nicely decorated, clean and tidy hotel is in the same chain as one that has a rocky reputation, poor cleanliness standards and rats in the cellar, then your guests are unfortunately going to expect the worst of yours. And they aren’t going to want to pay more.

Required purchases
Anything you buy, or present, whether it is taps, plates, bedding, furniture, emulsion paint colours or towelling, may be stipulated and governed by the franchise company. Sometimes exorbitantly expensive items (for example, gold taps) may be required purchases, and even the supplier may be specified, due to their business arrangements with the franchise. These can create a strong dent in your initial outlay budget, but there will be no getting around them because consistency of the product (as much as can be arranged) is necessary for most franchises to work.

Royalties and rates
The overarching franchise company will expect a certain percentage return on the renting out of every room in your hotel. It may be as much as 12%. This has to be passed on to your customer, so if you are thinking of investing in a franchise hotel, you must ensure that there is no other offer – particularly no cheaper alternative, or independent hotel – within 15 miles which is laying claim to the same standards as your own. Your room rates will necessarily be slightly greater, and independents are particularly good at undercutting the competition by a few pounds here and there.

No business venture should be rushed into where thousands of pounds are at stake. It helps to have either hospitality or business experience behind you, particularly from the point of view of education and training, as well as an understanding that running a franchised hotel takes investment in time and effort as well as money. Practicality is one of the most useful personality traits a potential franchisee should have.

Michael Palmer is an Oxford based, business graduate and writer. His writing covers many subjects, including business, marketing, HR, fitness, and football.

Image credit – Hilton Hotel Dublin by uggboy on Flickr

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About the Author ()

Alexandra James writes for Christie + Co, which specialises in providing advice to those who are looking to buy a business. She has worked in the business brokerage sector for the past 15 years. She lives in Oxford, UK and blogs in her spare time.