HotelsMag June 2012 | Page 30

SPECIAL REPORT : FRANCHISING

These are the top 10 franchise hotel companies in the world by number of franchised properties , as of December 31 . A complete ranking of the world ’ s largest hotel companies — the annual HOTELS ’ 325 listing — will be published in the July / August issue .

HOTELS & RESORTS

market reasons to provide some kinds of exceptions ,” Fisher says .

For the members of the IHG Owners Association , navigating the downturn was a matter of prioritizing expenditures that really impacted guest satisfaction , says Bill DeForrest , past chairman of the franchisee organization and CEO of Lane Hospitality , Northbrook , Illinois . To that end , franchisees say they are willing to spend the money on mandated property improvements — but only if the brands can definitively show a business justification . “ Owners are saying , ‘ If you tell me I need to change all of my bedding , tell me why ,’” DeForrest says . “‘ But if you tell me that you want me to do it because everyone else has done it , I may not be supportive .’”

In Europe , because so many existing hotels are adopting brands for the first time , renovations are happening en masse as a condition of adding a flag . These freshly updated properties are motivating market competitors to make similar upgrades to keep pace , meaning franchisors rarely have to push for the PIPs to get done , Roulot says . About one in three hotels already in the Louvre franchise network executed renovations in 2011 , he notes .

Liquidated damages unfreezing Globally , a few large franchisors have reduced liquidated damages fees since 2008 , and collection of the fees has been spotty in recent years . Bob Braun , a lawyer specializing in hotel franchising with Los Angeles-based firm Jeffer Mangels Butler & Mitchell LLP , says that is poised to change as the industry enters a period of relatively few new project openings , leading franchisors to be more forceful about holding franchisees to contractual commitments . “ The brands really want to keep their properties branded because there ’ s not a lot of new stuff out there — not a lot of opportunity to grow — so they ’ re very insistent on keeping their properties , and they use liquidated damages as a lever ,” Braun says .

Franchisors are likewise using the threat of replacement as a lever to get PIPs done . Some markets have an abundance of aging properties that have been expelled from systems for failing to meet brand standards , for which moving downmarket is more cost-effective than renovating to stay with their former flags . Fisher acknowledges a recent uptick in so-called “ shut-and-gut ” renovations entering the Marriott portfolio .

This tactic allows franchisors to order existing properties to shape up or risk being terminated in favor of one of these free-agent hotels . “ More and more , lately , franchisors are getting back into a situation in which they can do this , giving them better leverage ,” Bardoul says . “ This is seen in high-barrier-to-entry markets where select-service hotels do not meet standards and low-barrier-to-entry markets where hotels are being terminated and replaced instead of an option to extend their franchise agreement .”

Cooperation for mutual benefit Franchisors and franchisees generally agree the downturn drove them to find common ground and to work for each other ’ s mutual benefit . “ When you ’ ve got to make some changes to survive , that makes you better ,” Hembree says . “ It ’ s not so much one side yielding to the other as it is both sides working together .”

It remains to be seen whether an improved working relationship remains intact once the hotel industry fully recovers and interests again diverge , but DeForrest believes the two sides have a better understanding of each other ’ s challenges today than four years ago . “ What happened in the downturn was a clear indication of how important we are to each other ,” he says . “ Our business models , while not fully aligned , are completely interdependent , so we learned that we better work together to come up with real plausible solutions to whatever challenges we ’ re facing . If that ’ s something we hold on to , then that may be the only good thing that came out of the downturn .”

“ WE ’ RE TRYING TO BE CONSCIOUS OF GIVING A LITTLE MORE AUTONOMY AND TO RELAX THINGS LIKE HOURS AROUND CONCIERGE , WITHIN REASON , IF THERE ARE MARKET REASONS TO PROVIDE SOME KINDS OF EXCEPTIONS .”

– Jim Fisher , Marriott International

28 HOTELS June 2012 www . hotelsmag . com