Mr. Goldstein

Franchising

Building and Maintaining First-Rate Relationships Between Franchisors and Franchisees

By Michael Goldstein, President & CEO, Packard Hospitality Group

Increasing profits, running an efficient hotel operation and maintaining prominence are common goals associated with the hotel industry. Because the ongoing relationship between a hotel franchisor and franchisee often affects each of these aspects of day-to-day hotel operations, that relationship is particularly important to ensuring continual new business, a positive work environment and ultimately, a profitable hotel.

The Concept of Fair Franchising

In today's hotel industry, it is becoming increasingly more common for franchisors to realize that when their franchisees are successful, their profits increase. That is, in essence, the theory of fair franchising: that both franchisor and franchisee must work together to create a product that will be of benefit to them both.

Fair franchising is most often the result of honest, frequent communication between the franchisor and franchisee. The concepts of fair franchising should be employed as early as the negotiation and development stages, and should last throughout the remainder of the relationship.

With fair franchising, a franchisor should always treat the franchisee respectfully and employ and encourage the highest ethical standards in dealing with all of their franchisees. Franchisees, in return, will utilize brand-provided programs and systems to increase business and brand awareness.

How to Choose a Flag

Currently, franchisees have many franchise options because of the growing, competitive marketplace. Whether looking at high-end, mid-tier economy - full or select service hotel brands, franchisees should evaluate many different factors before deciding on a brand.

Most importantly, a franchisee should determine which available brands best fit the product and the market. A brand should not necessarily be chosen by who is offering the cheapest fees, but rather by which flag can produce and generate room activity. It is important to know what type of consumer the hotel will tailor to, whether it is leisure or corporate, government or local business, etc.

For example, when we were recently tasked to chose a flag for a full-service hotel in Santa Clarita, Calif., we first studied the market and profiled the hotel. We specifically evaluated the type of business that came to that market, who we wanted the hotel property to attract, and the best means to get them there. We looked at what was working in the Santa Clarita market and what consumer needs were not being met, creating new opportunities.

We then evaluated which flags were available that fit our criteria. We looked at which brands would be able to generate the most activity for the property. Some flags were automatically taken out of consideration because they had other properties in the area and we didn't want to dilute the reservation system. In the end, we decided that the Sheraton flag would make this property the most competitive. This process should be undertaken when choosing a brand for any hotel property.

Roles of Franchisor and Franchisee

For a successful franchise agreement, it is imperative that both parties clearly understand and appreciate their own responsibilities, as well as those of their counterpart. The franchisor, in particular, carries a significant amount of the allocated tasks.

The franchisor is not only responsible for brand growth and finding additional franchisee opportunities, but also for understanding the consumer. While the hotel owners manage and maintain the product, it is the franchisor who is tasked with the research to know what exactly consumers of that particular brand expect.

The franchisor must employ educated staff members who can communicate with franchisees on an ongoing basis so each property's needs are met quickly and efficiently. In addition, franchisors provide support, offering business systems such as training, marketing, a reservations system and field support. Franchisors also assist with measuring performance so that a hotel property can see what they are doing right and areas that need corrective action.

The franchisee must, of course, pay the fees required by the franchisor, as well as maintain brand standards at the property. To really benefit from the relationship, the franchisee should also take advantage of the many business support systems provided to them. Ultimately, it is the franchisee's responsibility to do everything they can to make their property successful.

As both the franchisee and the franchisor live up to their outlined responsibilities and respect and support each other in these roles, the relationship is strengthened and performance is maximized.

Making the Most of Fees

All franchisees are required to pay fees to the franchisor. However, the franchisor is not the only party that benefits from the results of these fees. The fees paid by a hotel property have multiple purposes and will encompass the royalties for using a particular hotel brand, as well as associated marketing fees.

The required fee allows the franchisor to provide a hotel property with an extension of both the sales office and the front office, a luxury that may not make economic sense for independent hotel properties. The franchisor can then assist with all disciplines and also tackle the daunting task of creating local, regional and national brand awareness. If a franchisee just pays the required fee and doesn't make efforts to partner with the brand for marketing purposes, then the franchisee is simply loosing money and valuable opportunities. The franchisor is a tremendous resource that should be tapped frequently.

Marketing programs, revenue management systems, training opportunities and other operating resources provided by the franchisor are what push hotel properties to the next level. A franchisee can not expect to be successful simply sitting and waiting for reservations to be delivered by the CRS or from the Internet. It is imperative the franchisee chose the right brand to assist them in these areas, and then utilize what programs are offered.

Living Up to the Agreement

The best way to maintain a healthy working relationship between franchisors and franchisees is to be in constant communication. Dialog can take place monthly, weekly, or even daily, the important thing is that it does take place.

With an established, mutually beneficial relationship, both parties will feel comfortable discussing the positive features, necessary changes, and potential problems with a hotel. This connection will allow franchisees to ask questions or request additional help that will improve the property.

In essence, if the flag is carefully chosen at the beginning, the relationship is founded on fair and ethical principles and the property and franchise work seamlessly together, the result is a win-win situation for all involved and a hotel property that has the needed tools to be profitable.

Michael Goldstein is president and CEO of Packard Hospitality Group. He has over 25 years of experience in hotel development, including new construction, renovations, franchise negotiations and brokerage. He currently manages more than 24 hotels, resorts, restaurants and multi-family residences throughout the country. He holds a BA in Hotel and Restaurant Management from La Salle University. He is a member of American Hotel and Lodging Association, California Hotel Association and a licensed real estate agent in the state of California. Mr. Goldstein can be contacted at 858-277-4305 or michael@packard-1.com Extended Bio...

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