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.