The New Roles of Franchising
By Steven Belmonte CEO, Vimana Franchise Systems LLC | November 30, 1999
In today's trying economic times, all businesses are taking a hit - especially the lodging sector. As the environment gets more competitive, hotel executives are forced to become more creative business people. After making their mortgage payments, the next biggest expense hotel owners are dishing out are the fees to their franchise company. And that's causing them to take pause and reassess their business plans. In a play of a slight role reversal, the franchisees are now interviewing franchisors to decide which one has a better plan for their property.
This shift in focus has allowed emerging brands like the Lexington Hotels (full disclosure - I'm the President, CEO & Partner of this company) to take front and center stage in the minds of hoteliers because of our solid infrastructure, comprehensive resources, and lower franchising fees. In a nutshell, hoteliers are asking what measures they can implement during these hard economic times besides just reducing energy costs and payroll. They are re-evaluating their franchising contracts and looking to get involved with one that allows more freedom, has lower costs, have less binding contracts, and a Freestyle model.
In addition to the new hotel owner-friendly brands that are becoming more attractive to the staid and antiquated franchise model of yesteryear, the advent of new technologies and social networking sites has played a large role in franchising as well. Unlike a decade ago when size and name recognition really did matter in generating brand recognition that led to reservations - the Internet has offered a viable alternative to smaller brands and independent hotels - thus leveling the proverbial playing field for smaller and newer hotels. More importantly, the Internet has also created a shift in the booking habits of leisure and business travelers.
Nowadays smaller brands can create the same exposure and booking capabilities as the larger brands. When travelers go online to book accommodations they are no longer calling up the websites of a hotel chain but going instead to general booking sites like Travelocity, Expedia, HotWire, Orbitz, Priceline, and many others. The initial query is based on location and the second is for a price range. Once the online shopper has plugged in those two requests, they shop around and narrow down their choices by looking at property photos, customer reviews, and amenities offered. These are all tools that have allowed smaller brands to chip away at the dominance once held by the larger chains.
Changes are taking place inside the franchises' executive offices as well. Quickly disappearing are the days where the 'one size fits all' mentality was the norm in franchising. The standardized rulebook that each franchising company has been using across the board from New York City to Des Moines can no longer be justified. The amenities needed in New York City to be competitive in that very viable and fast-paced market are completely different from the ones needed in the Des Moines market to remain competitive. While it may be convenient for the franchisor to have one rulebook but it's unjust for the franchisee.
An example of the crazy inequity that has been happening over the years can be found in the loyalty programs. The basic premise of these programs was to build brand loyalty. Over the years, franchisors were trying to outdo the loyalty programs of other chains and eventually it got out of control, costing millions of dollars in liabilities and tens of thousands of dollars in program fees for franchisees. Sadly, the programs received lukewarm success, if any at all, as customers were growing frustrated at having accumulated points but unable to use them due to blackout dates. Interestingly enough, customers would have been loyal to the hotel even without a loyalty program because of the location and price.