ONCE A GRAND EXPERIMENT , HOTEL FRANCHISING HAS PROVEN TO BE A WINNING BUSINESS MODEL
In the mid-1950s , when Howard Johnson and Holiday Inn spearheaded the movement toward hotel franchising , few could have predicted that the experimental business model would enjoy such enduring success . Today , franchisees own about half of the hotels in the United States , and industry experts expect the business model to continue to benefit both franchisor and franchisee in the long term .
“ I think the future of franchising is very bright ,” said Rajiv Trivedi , executive vice president and chief development officer for La Quinta . “ Who would have thought that 40 years ago , when one or two brand names were prominent , that almost everything today would be franchised ?
“ A hotel that has a franchise brand name generally has a higher valuation than a hotel that is independently operated , unless it is a boutique hotel in a highly desirable loca-tion . Franchised hotels generally produce higher revenue and higher margins than non-franchised hotels as well . And in most cases , to get financing to build a hotel , you have to have a franchise brand , and that tells you that the future of franchising is exceptionally bright for both the franchisee and the franchisor .”
Through the second quarter of 2016 , La Quinta had 889 open hotels in the United States , 11 more than in the corresponding quarter of 2015 , Trivedi said . Of those , 553 were franchised , 335 were company-owned and one was a joint venture .
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The business model allows the franchisor to expand its business without incurring the considerable costs of open-ing and running a hotel , and the franchisee gets to buy into an established brand with a wealth of resources to help hoteliers . It ’ s a win-win . But franchising wasn ’ t always so commonplace .
According to the American Hotel and Lodging Association , Howard Johnson became the first U . S . company to franchise a hotel , a motor lodge in Savannah , Georgia , in 1954 . By 1961 , when the company went public , there were 88 franchised Howard Johnson motor lodges in 32 states and the Bahamas . Holiday Inn quickly followed suit , franchising its first hotel in 1957 and eventually opening its 1,000th hotel in San Antonio in 1968 .
“ I think the model works and is very successful , and that ’ s evidenced by the rapid growth ,” said Scott Joslove , president and CEO of the Texas Hotel and Lodging Association .
“ Initially , hotels were very closely connected , with small ownership groups . The individuals who owned the brand , owned the hotels . As success became more formulaic , hotel brands realized there would be a market for franchises : Use our model , follow our rules , and you too can have a career and a successful investment . The model has been so successful that many hotel brands that used to be exclusively brand-owned are now almost exclusively franchisee-owned , and those that retain ownership have a very active and growing franchise presence .”
RECIPE FOR SUCCESS
Joslove said the most successful hotel franchisors have sev-eral key attributes to brag about : a higher profit margin for participants , lower entry and ongoing participation costs , reasonable brand standard requirements for new and conver-sion properties , a strong support staff and problem-solving system for franchisees , and strong booking , reservation and customer-loyalty programs .
“ It comes down to , what is your elevator pitch ?” Joslove said . “ Franchisors who do well have a good elevator pitch on each of these items : ‘ If you come with us , we ’ re going to make you more money , it ’ s going to cost you less to come over , our standards are reasonable , we ’ re going to take care of you – when we have a relationship , we take care of our own . And you ’ re going to find our
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