European hoteliers don’t expect franchises to sweep across Europe without some pushback from owners.
LONDON—While franchising is gaining further momentum across Europe, hoteliers don’t expect a repeat performance of its sweep across the United States, according to sources.
What’s more likely is franchising will gain a foothold in Europe on a case-by-case basis, or due to a firm’s own strategy, according to Martin Creydt, SVP and director of property management, international, at Pandox.
“Challenges have arisen because (franchising) is a model adopted from the U.S. but being worked into a market (Europe) that is totally different and fragmented,” Creydt said on a panel titled “Challenge the status quo” at the recent Hotel Operations Conference. “There will be a lot of drama in the next five years as there is so much sophistication on all sides.”
Vivek Chadha, managing director of Nine Hotel Group, urged hotel companies to take their time when making a decision.
“Franchising is not for everyone, and the important thing is to know what you want to achieve,” said Chadha, who added his main criteria in considering franchising—after desiring a specific location—is that the brand possesses strong loyalty.
Adam Butler, business development manager and hotel sales and revenue analyst at Magnuson Hotels, said it was an industry given that 30% of bookings came to franchisees from loyalty but the effect of costs and fees on owners is a concern. Magnuson oversees approximately 1,000 hotels via brands and independents, as well as through partnerships with hotel firms such as Louvre Hotels Group and Jin Jiang International.
“I think that comfort can move owners away from operational excellence,” Butler said, who added in Magnuson’s favored ground of secondary and tertiary markets, sales often came down to local marketing.
Creydt said owners were also becoming bored by the generic slogans from brands.
“A warm welcome? Well, I hope a hotel would offer that, and I hope (owners) are not paying for this,” he said. “I hope you are paying for incremental business you would not have otherwise got.”
Creydt said such a generalist approach is why boutique owners have quit the brands and gone their own way.
“And with increased revenue,” Creydt added.
Moderator Babette Märzheuser-Wood, partner at legal firm Dentons, said when contracts dropped in her to-do tray, her concern was that the contract terms were too long in length and did not contain much ability to terminate.
That also was a concern brought up earlier in the conference by executives from third-party (white-label) management companies.
“Benchmarking on brand delivery might be one way to offset fees?” Märzheuser-Wood said.
“A partnership should not be a prison sentence with no chance of parole. Performance testing should be standard. Put your money where your mouth is,” Butler said, who added Magnuson’s business model is to have three- to five-year terms underpinned by performance clauses.
Chadha, whose company has an ownership portfolio of 18 hotels, agreed that lengthy terms would soon be a thing of the past.
“I think 25 years is far too long,” he said. “Owners look five years, maybe 10 years ahead, and we have no idea what that brand will look like after that time period. And, obviously, unencumbered assets have more value at the sale.
“As for fees, I have not seen any disruption from brands, and that is something I would like to see. Accor does have a pay-as-you-go option for its (global distribution system), so that is a little disruption.”
Chadha said that move by the French hotel giant, in his opinion, was a welcome development.
“The fact that they are going down that path I think means they understand where things are going,” Chadha said.
Pandox’s Creydt said franchising makes sense in Europe if the franchisor has a specific need in a specific location in a specific point of their cycle.
“It is a win-win situation, and I have been a franchisor, franchisee and now an owner. … Adding a brand brings up your average daily rate,” Creydt said, whose portfolio now numbers 48 assets.
Chadha expressed skepticism about franchising.
“Brands brought us distribution, but I do not believe they bring that as much anymore,” he said. “(Online travel agencies) do, so why pay two sets of fees?”