Article Aug, 17 2016

All you need to know about Hotel Franchising

Over the years, there has been major transformations throughout various business verticals and similarly the hotel industry has also acquired new trends for the new age hoteliers. In a detailed article lets unveil what it takes to own a hotel.

By Deepankar Hemnani
All you need to know about Hotel Franchising

India is currently on a verge of transformation, and everything is on an upgrading spree towards modernisation and growth, hence there are a lot of opportunities that are blossoming and there are a few sectors which share an evergreen monetary aspect but need long term participation in terms of capital, manpower and patience, as the hotel industry.

Inception of Hotel Franchising

Hotel franchising began in the 1950’s with Kemmons Wilson, who spawned the Holiday Inn chain in the USA, and in France, in the late 60’s, Gérard Pelisson and Paul Dubrule launched the Accor” group.

What is happening?

The hospitality industry, which is also termed as the service industry relies upon a few factors which forms a collective effort towards success of a hotel. In the current scenario, moreover 60-70 per cent of the hotels from the leading brands are managed by leading hospitality firms like Carlson Rezidor Hospitality, Starwood Hotels, IHC, etc. However, there are still are a few players who have the expertise and skill to run a franchised hotel and generate profits as well. These players are not new born entrepreneurs and have been surviving in the hospitality industry from years and hence know the secret traits of running a hotel.

Hardcore Franchising

Operating a franchise of a hotel is not at all an easy task, as it takes years of expertise to understand the demand in the hospitality industry and invent and develop a standardized format and hence operate on the derived structure. India has a lot of potential and an immense capacity of talent which can be used to enhance franchising in hotels and it can be entrusted that the number may be less but there are professionals who still are using franchising as a tool to grow in the hospitality industry.

Deepika Arora, Regional Vice President, Eurasia, Wyndham Hotel Group: “Our franchised hotels are inducted through an International License and Training Agreement along with an International Services and Marketing Agreement. Herein, a franchisee invests to construct a hotel as per our product standards, which on completion operates as per our brand standards.”

Calling the Professionals – Management Agreement

In the current era of cutting edge technology and fast edge learning, there are hotel owners who have evolved with the changing times through adopting new trends and operational techniques while running a business. However there are people, who not only run a hotel, but have other businesses as well, and to fulfil the demand to run operations smoothly, a ‘Hotel Management Agreement’ comes into the picture. A hotel Management Agreement is signed when a hotel owner wants a third party to operate the hotel on his behalf as this will give an assurance to the owner that the operations are in the hands of professionals having in depth experience of the industry.

Raj Rana, CEO, South Asia, Carlson Rezidor Hospitality: “Our 75 per cent of hotels being under the management and we are responsible for the top line and the bottom-line to be delivered to the owner.”

The New Drift - Management Consultancy

Despite running a hotel for a few, owners still need expertise to operate different brands as every brand has its own protocols. Running a hotel under this scenario cannot be more insightful if guided with proper mentorship. Management consultancy is not a management contract because under this liaison, the company only provides guidance to the owner to learn the traits to operate the hotel. There is a very small amount that is charged once to consult the owner to derive a standardized structure for smooth working operations of the hotel and simultaneously learn the process from a team of professionals.

The Evolving Partnership - Manchising

The term ‘Manchising’ has been transitioned by joining the two terms Management and Franchising. There are franchisees that need a proper hand holding to understand the operations, but do not want to take risks at the initial stage and hence sign a contract that allows a third party to manage the hotel for a several years to standardize the structure and generate revenues and after setting up the hotel successfully, the operations are handed over to the franchisee.

Rana, “In a 15 year agreement, for the initial 5 years, the hotel is managed by us and then transferred into a franchised format which allocates that the owner has capital but he don’t want to take risk with his investment and rely upon our expertise.”

Supporting your Partners

Running a hotel is not as simple as running a brick and mortar store; it needs a lot of patience and a servicing attitude. A lot of professional mentorship and dedication is required to adapt the practices that are required to run a hotel successfully. Arora ”We provides virtual and hands-on support including hotel management tools, revenue management, service culture training, access to global sales offices and accounts, strategic sourcing opportunities, on-going operational support and marketing services.”

The mid scale Opportunity

India is still a market which is dominated by domestic customers, and a few years back there was no standardized structure if considered the mid scale hospitality segment in India. However, the times have changed and mid scale is the next big arising sector creating fresh opportunities in the hotel industry.

The Rise of Micro Franchising -OYO

Observing the rise in avid hop scotching and thus creating a demand for budget hotels, Ritesh Agarwal, Founder, OYO Rooms came up with a very interesting concept of aggregating all of the hotels under a single brand name and hence standardize the services related to hygiene, food and other servicing factors that rate a hotel.

Ritesh Agarwal, Founder, OYO Rooms “We don’t exactly consider it micro-franchising since we work very closely with partners. With plans to scale up business, through technology, we are focusing heavily on analytics. We have a dedicated data science team for analytics, to collect and catalogue data of all searches and activity that takes place on our app, online and mobile sites.”

Balancing the Equilibrium

It has been observed by leading hospitality conglomerates that India’s hospitality industry was going through a tough stage as supply was outpacing the demand and hence depreciating the profit generation. However, the hotel industry is observing the shift and rise in the mid scale segment creating a balance between supply and demand proving to be a profitable investment.

Related: Smart investment, smarter profits

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