Creating and operating a business is extremely rewarding but can come with a variety of challenges, especially when it comes to the hospitality and hotel industry. With online ratings, website presence, and positive interactions on social media becoming the metrics for quality of a physical structure, hotels have had to adapt to ensure they are staying competitive in the market.
This can be difficult for some independent owners. An ideal solution for owners seeking further visibility and competitive strength is franchising.
Here, hoteliers can capitalise on the distribution and plethora of resources that come with aligning with a larger, more well-known hotel group or company. Owners are able to maintain control of their day-to-day operations, while having a more positive and successful outlook on hotel operational costs and profitability.
Hospitality is a significant part of Indian culture, which in turn creates guests with higher expectations in terms of product and service, for an independent owner, meeting this type of demand is made easier by adhering to the franchise model to focus on providing exceptional experiences for guests.
Want to know what benefits franchise agreements can provide. Let’s take a look.
BRAND REPUTATION AND RECOGNITION
Reputation and recognition are paramount for any hotel to sustain itself in this competitive market. Conventional business models like independent or management models require investing higher capital in marketing for generating an exemplary reputation.
However, in franchising, hotel owners can start, or maintain, their businesses with the backing of a well-known brand. This automatically raises guest expectations and gives them the confidence that the services offered will be on par with the branded establishment.
For example, in the aftermath of the pandemic, health and hygiene became a top priority for guests. Many travellers sought brands they knew and trusted as they themselves rebuild their confidence to start travelling again. This is when they preferred staying in well-known hotel properties, rather than unfamiliar ones.
OWNER SUPPORT
Franchising allows independent owners to join brands and become sizable players in the market as they can leverage distribution, technologies and booking platforms, sales, marketing, training, and quality audits. While the owner still runs the day-to-day business, franchising enables them to control their destiny regarding hotel operational costs and profitability.
When hotel owners are running businesses under a brand’s name, they will have a vested interest to ensure that the business is thriving. It is in their benefit to coach the hotel owners on the latest techniques and offer comprehensive advice to them on business strategies.
Brands would also support the owner during the lengthy development period with extensive technical services, ensuring that the end product is at par with its standards and competitively designed and delivered within its marketplace. Hotel owners have a more seamless time running their hotel as a resourceful and established franchisor is looking after the backend processes.
Franchise agreements are easier to understand and negotiate. Owners feel more comfortable as their asset’s day-to-day operations and maintenance stay with them, rather than having the condition of their asset and its viability resting in the hands of an operator.
ESTABLISHED VENDOR RELATIONS
Hotels are entirely dependent on the reliability of their vendors. An uninterrupted supply chain is crucial for the sustainability of a hotel.
As part of the franchise agreement, hotel owners inherit the already tested and dependable network of vendors. Franchise contracts still allow the possibility to on-board professional white label management companies forming a great alternative to straight management contracts. This allows increased flexibility and typically a more focused approach to operational costs, significantly reducing their operating costs.
For example, buying a proper mattress in the independent or management hotel model would be a costly venture. But a franchise can use the size of its network to negotiate a more cost-effective price. Moreover, when a franchise is opened in a region, all the hospitality-support businesses benefit greatly, raising the overall economic standards of the region.
BETTER FINANCING OPTIONS
Seed money is crucial for the start of a business. Entrepreneurs often end up paying exorbitant interest rates for meagre capital to procure their seed money. This is primarily because they are unknown commodities, and banks find it challenging to take a chance on their businesses.
However, it is easier to procure more favourable loans when being represented by a well-known franchise as there is a higher guarantee for success. This comes at a reduced acquisition cost (i.e., the cost of a franchise agreement) vis-Ã -vis the management contract, a much-needed saving during low yield periods (like the ones we are going through now due to COVID).
GUARANTEED LONGEVITY
With valuable support from veteran businesses, sound business strategy, recognisable brand, and easy financial support, hotel owners have greater incentive to start their business confidently. The constant support of the franchise is all they need to survive in the harshest of markets.
While franchising is a popular business model in the US and Europe, it is gaining much traction in India and the southern Asian belt. Compared to the more well-known business models of managed and independent hotels, franchised hotels offer business owners more revenue security and support. Most importantly, given the benefits, the hotel business is much more hospitable for new business owners if they prescribe to a franchised model.
