Wednesday, January 25, 2017

What is the average percentage of business a hotel owner can expect from brand-specific sources? In other words, what percentage of rooms revenue should an individual branded hotel expect the brand itself to contribute?

In most cases, just enough to get you to sign on the dotted line on the last page of the long, long franchise agreement; keep your hotel in their 'chain' for as long as possible, and keep you paying your fees and royalties every month.
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If you're doing any better than that, they'll want to flag another, newer hotel nearby under the same brand and collect the fees and royalties from them, if not the both of you. So I don't really count on 'rez contribution' to be much more than the 8.5 percent of my revenue - my total revenue, not just the business that brand-specific sources send you - that I'd generally pay in franchise fees and royalties, if even that. And I do track it. (As much as I like some Starwood products, I wouldn't pursue a Sheraton, Four Points or aloft because I don't like their 12% royalties: it can't be worth it. And I've negotiated those for other brands down as low as 5.5%.)
If you get more than that out of the relationship, you're blessed. For as long as it lasts.

As long as it stays in the teens or twenties (by my math, not that of the franchise organization that licenses the brand, which will generally have this annoying tendency to feel that GDS and online travel agency reservations are blessings that flow from the franchise organization, not something I could easily procure for myself without them.), I'm happy. If it gets below 12%, my eyes are going to start to rove about in anticipation of my five-year termination option and perhaps a new "date". (Hotel franchise agreements run for twenty years give or take, and most have a termination option every five years upon which either the hotel or the brand can walk away, with no fees or penalties, and no hard feelings; if one side or the other feels it's not working for them. I try to get that negotiated into any franchise agreement. I don't want to run a "Velcro Hotel" [Attack of the Velcro Hotels - The Business Journals ], a hotel that always seems to be changing to a new brand every five to ten years or so . . . but I am anal about having what works best for my hotel.)
Red Lion and LaQuinta Inns are the only brands I know, right off the top of my head, who stick their necks out and claim a figure for average reservation contribution to their hotels. LaQuinta doesn't publish it, but their last brand rep I talked to claimed 42% in some places. Red Lion (a Western U. S. brand that I've come to like) really puts themselves on the line: their brochures and website advertise 48-52%.
To get a figure for each brand that franchises that must be true (as in, they can be held legally accountable if it's not), you'd have to look it up in their Franchise Disclosure Document that the FTC requires them to give you if you're a prospective franchisee. Franchise organizations don't like sharing those around unless you're a serious prospect, with a specific project in mind. I have FDDs for Red Lion, LaQuinta and Cobblestone (we just signed a new Cobblestone Hotel and Suites that will open next year - and it all began when I listed Cobblestone as a brand to avoid if you're building a new hotel! [see What Does It Take To Start A Hotel?] - but that's another story for another time); and FDDs sitting around somewhere for Best Western and Super 8 Motels that aren't current. But I consider branded hotels only when I have a client or investor group that has a specific need for a brand in a hotel they're contemplating.
Unfortunately, the variables kick in after this point - the bigger the brand, the more so.
  • Some brands are just plain stronger, or weaker, than others. If I'm considering a town with no Holiday Inn or Holiday Inn Express, you know that's one of the strongest brands in the business, I know that if I don't put one there, someone else will at some point (and if I put anything besides a Holiday Inn Express there, I'll have competition when that happens), so guess who I'm going to call first?
  • How much should I get from them? Enough to make their royalties and fees plus any other required expenditures, and their rules and regulations (some of which are downright silly -- including such genius ideas such as you must have a full-time, dedicated sales manager employed at that hotel whether you have other hotels in the same town or not, and the general manager's desk in his office must be of better quality than that of anyone else working at the hotel that has a desk [hey, c'mon, I'm quite okay with a desk I picked up secondhand at Habitat by Humanity ReStore, and I run the entire company...]), all worth putting up with — but only because it's Holiday Inn. Beyond that, your mileage may vary by town. It may vary by the number of other Holiday Inn locations in town that are competing for your central reservations feed. Or the number of other InterContinental Hotels-branded locations in town (we'll come back to the significance of that). It may vary based on the age or condition of your hotel (How are your TripAdvisor reviews? A more appropriate question would be, how is the cleanliness, condition, customer care, location and management at your hotel?, but TripAdvisor will answer it for you, with the answers provided by the people whose opinion would matter most — your past guests — to be read by the people who should matter most in the future — your future guests.)
  • Way too much, if not most, of the money made in this business by large companies isn't made from running (or even supporting) hotels, it's from franchising. Choice Hotels owns the Comfort Inn, Comfort Suites, Clarion, Cambria Suites, Quality Inn, Sleep Inn, Econo Lodge, MainStay Suites, Rodeway Inn and Suburban Extended Stay brands - but they own no hotels. Wyndham owns Wyndham, Wingate, Microtel, Days Inn, Ramada, Super 8, Travelodge, Knights Inn, Baymont, Howard Johnsons, Trip, and Night. Hilton owns Hilton, Doubletree, Hampton Inn, Homewood Suites, and Home2 Suites; InterContinental owns Holiday Inn, Crowne Plaza, Staybridge Suites, and Candlewood Suites; and Marriott owns any "by Marriott" brand ( ).
  • The value of any hotel franchise (to an individual hotel) is decline, and will not get any better. More and more business is shifting to online travel agencies (Expedia, Travelocity, | Cheap Hotels, Discounts, Hotel Deals and 444,169 hotels worldwide. Book your hotel now!, etc.) and even TripAdvisor itself. There aren't that many "good" ones - brands upon which a hotel can rely to generate enough business for the hotel to make its fees, royalties, rules, regulations, grief and aggravation worthwhile - left.
    • Holiday Inn is a "good" hotel franchise, although they tend to let a lot of their locations go to seed between remodeling binges every ten years or so. (This affects the rates at all their locations, including my brand new one in pristine condition if I build one. Holiday Inn rooms rent for only 95% of the average room rates for Class A, mid-market hotels.)
    • So is Hampton Inn, although they drives me nuts with that "100% Satisfaction Guarantee" (Michael Forrest Jones' answer to Business Travel: How far should hotels go to please and appease dissatisfied or unhappy guests? ). Hampton Inn’s rooms tend to rate above the average for Class A, mid-market hotels — about 12% higher. But many of their locations lose the revenue on about five percent of the total rooms they rent because of that ‘guarantee’.
    • Best Western has for a long time been my own favorite, although you can't always get it. (Usually, when you can't, it's because your proposed location is in the area of protection had by some outdated Best Western-member roach hotel that should have been kicked out of the system ten years ago, but that is allowed to continue renewing its membership so long as it keeps getting passing scores on its inspections, even though a property of its age and condition would have no hope whatsoever of being admitted to the Best Western system now). You’re on your own with marketing it: the one thing they don’t do well is branding and positioning. (Best Western works so much better as a ’soft brand’ , if people would use it as that — and at one time some thirty years ago, Best Western was trying to more pro-actively encourage that sort of use — but their members don’t do a very good job of branding their own hotels and using Best Western as a soft brand). And I don’t think some of the recent changes in how they go about it are necessarily an improvement. You can have your Best Western member property be a really well-planned, nicely-designed, well-run and well-marketed operation (they’ve actually ventured into some ’lifestyle’ brands, now, like ‘Vib’, and ‘GLo’), and get a rate comparable to competing ‘boutique’ properties in your area. Or, you can run an older property with a “Best Western of Hooterlick (or whatever town you hotel is located in)” flag where you barely pass their inspections and your marketing is static, and your rates will be 74.9% (or, half the time, even lower — that 74.9% figure is an average) of those attained by competing Class A properties.
    • Super 8 Motels still has some life left in it if you have an economy property, or an older Class B property you want to reposition as one.
    • Marriott franchises are among the best if you can get one, but you have to be among the Lord's Anointed and Chosen to get one and thenceforth, the rules and regulations are so "by the numbers" onerous that it's doubtful we'll even try. (When I started my company, I started with no desire at all to ever have Beechmont be a Marriott developer. I've reconsidered once, only because I had one inquiry from a potential client-owner who wanted to develop a big-box Marriott or a Courtyard. Never say never - if you can build one and want to sign us for twenty years to manage it for you, then for you, I suppose I could warm up to running a Marriott-branded property.)
  • With Class B properties, the options aren't good. Microtel doesn't get as good a rate as it should, and Sleep Inn is owned by Choice, which tends to oversell its franchises in many markets. (That's why, in a town where a room at a Hampton Inn will go for $109 per night, chances are you can find just as good a room nearby at a Comfort Suites for $92, or a Comfort Inn for $76.) Baymont for a time looked like a good choice for conversion properties - existing hotels that you want to rebrand - but the Baymont brand getting more and more corrupt because they keep lowering their standards, accepting older, more unattractive properties than they should for conversion, and lowering the perceived value of the brand accordingly. (If the owner of some fleabag property wants to shine it up a bit, get a Baymont franchise, and kid himself he can rent his $60.00 per night rooms for $80.00 per night; even though Travelodge or Howard Johnson might be more appropriate for his property; they'll take his money, and let him have the Baymont franchise and rent his $60.00 rooms for $72.00 until he has to lower them; rather than have him walk away because he doesn't feel that the $60.00 per night Howard Johnson's or Travelodge franchise will improve things for him. It's a crappy thing for Wyndham to do to you if you've invested in a Baymont Inn nearby that you take care to keep up properly and that is actually a good value at $80.00 per night.)
  • Outside those options, you're on your own. If all the 'good' brands are taken for the type of hotel you are building or buying in the area you want to build or buy, then you can't expect little to nothing in terms of reservation referrals from any franchise organization, and your game becomes one of paying as little as possible, and negotiating as favorable terms as possible, for the little-to-nothing you're going to get. You're like the class nerd on prom night: like a favorite client-owner of ours put it, you're looking for a "cheap date", and hoping it doesn't become a high-maintenance relationship.
  • In the math I use to evaluate a franchise, online travel agency (OTA) reservations and global distribution system (GDS) reservations - both of which come through your brand's central reservations feed - don't count. You can get those without a brand with a Check-Inn (Innsoft Inc. ) front desk system that costs $600 give-or-take. My current hotel is a Choice-franchised Quality Inn that pays 8.5% of our revenue in fees and royalties to Choice, other required expenditures bring the total closer to 12%, and we get 12% of our customers from Choice's reservations feed - half of which comes from OTAs and GDS. In other words, we're paying twelve percent of our total revenue for six percent of our business. If it were my decision alone to make, I'd have only one word for Choice the next time the five-year termination option in the franchise agreement comes around: goodbye. But the owners don't want to fund the upgrades and renovations that would be required to convert it to another franchise, the mortgage loan agreement requires that a franchise be in place, and there's no guarantee we'd do better as a Baymont Inn or a Howard Johnson's.
  • The only reason to bother with a hotel franchise at all nowadays is because it's a requirement from most any mortgage lender and/or some other third party that is involved in the development of your hotel insists you must have one. Few of them are a reliable indicator of a hotel's value anymore, and they're an even more unreliable indicator of its management's stability (independent and boutique hotels invariably fare better on TripAdvisor than franchised ones do, both in terms of scores and ratings, and rates). But the mortgage lenders haven't yet come up with a different standard that they can agree upon to evaluate the value and stability of a hotel. When they do come up with such evaluation standards (probably one heavily dependent upon TripAdvisor), we'll be close to the end of hotel franchising, and we'll be ready to market our own brands much more aggressively. A lot of those old, worn-out brands will be discontinued and go the way of Oldsmobile, Pontiac, Plymouth, Mercury, and AMC cars (Best of Seth: Clawing Your Way To The Bottom on WWMD: What Would Mike Do? The hotel blog ); and a lot of old, run-down properties that operate under them will be without a brand affiliation and will disappear without having to wait for a visit from the local fire marshal or health inspector.
Beechmont's Rule One on consumer protection when it comes to franchising: success doesn't come in a 'kit' that you can buy. No matter who the franchise is, you're on your own with it; accept with gratitude any help they give you, but don't count on even Holiday Inn to hand it to you on a plate. If you want 'success' that comes in a 'kit', sign up as an Amway distributor.
And if I'm too dependent upon my franchise, something's not as it should be with my local, in-house marketing. If the reservation contribution by the brand is too high, I'm going to wonder what my managers and salespeople are doing down there. (Likewise, if the percentage of local people, people who live in or around the same town as the hotel, who rent rooms there is too high - and I do track it - I'm going to wonder if someone in that hotel has the wrong kind of people as friends; especially if I'm not getting a decent rate and decent occupancy, or I'm hearing stories or seeing TripAdvisor reviews that tell of bad behavior by other guests, people hanging out in the lobby, noise or security problems [Michael Forrest Jones' answer to What do hotels do with unused guest rooms? | Michael Forrest Jones' answer to I am a hotel owner. I sometimes have guests sneaking in more guests who are not registered . . .].) We need to be developing our own business, not waiting for some franchise organization to do it for us, and not just opening the doors to all takers regardless of its effect upon the hotel.
So, I want my hotel to have a brand that's good for as much reservation contribution as I can get.
But I want that percentage to get lower over time. I'm just weird that way.

Originally appeared on Quora

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