As franchising becomes a priority tool for global hotel growth, PricewaterhouseCoopers asks, can you trust your franchisee?
Franchising is a quick way to grow the numbers without eroding capital earmarked for investment in must-have destinations or opportunistic deals. Major hotel groups are increasing the proportion of their portfolios under franchising both as part of expansion of their networks and conversion of existing owned or managed properties.
Andrew Cosslett, CEO of InterContinental Hotel Group (IHG), the world's largest hotel group, wants IHG to grow and he wants it to grow fast, adding between 50,000 and 60,000 net new rooms to the worldwide IHG 'system' by the end of 2008. Coslett has acknowledged that the future lies in managing hotels on behalf of property owners and in franchising its brands to others.
PricewaterhouseCoopers estimates that existing franchisees will account for roughly two-thirds of the project pipelines for franchisors in the United States over the next two years, a figure most chains confirm. In Europe franchising has less penetration but is becoming more important.
Higher returns but higher risks
While franchising offers higher returns than direct control as well as reduced capital requirements, the franchisor's exposure to risk is increased. The key to successful franchising programmes includes selecting the right properties and business partners, on-going relationship management with those business partners, strong agreement terms and conditions and a commitment to enforcing the franchising rights. Franchisors need proactive monitoring programmes to ensure that quality is maintained to protect the brand and minimise financial risks such as revenue leakage.
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