HVS International

07/18/2001 

HVS’ 2001 Franchise Fees Ana lysis Guide:
Designed to Assist the Hotel Owner

Stephen Rushmore, president and founder of HVS International, the leading global hospitality consulting and hotel appraisal firm, has recently published the 2001 Franchise Fees Analysis Guide - a survey of the fees charged by the major hotel franchisors in the economy, mid-rate, and first-class market segments. This guide enables hotel owners to easily compare the total cost of one hotel franchise with that of another.

"The purpose of the hotel franchise fees guide is to provide a comparative analysis of various hotel franchise companies, based on the fees they charge," states Rushmore. "The selection of an appropriate franchise affiliation affects a property's ability to compete in the local market, generate profits, achieve a certain image or market orientation, and benefit from referral business. Because the success of a hotel is primarily based on the cash flow it generates, owners and lenders must weigh the benefits and services of a national affiliation against the total cost of such a commitment."

"Our analysis shows the total franchise fee a property would pay over a ten-year period and then demonstrates what percentage of rooms revenue that represents," explains William Lee, Consulting and Valuation Analyst at HVS International, who co-authored the study with Rushmore.  "Armed with this information, an owner can determine the overall cost of affiliation, and directly compare the estimated costs of different franchises.  While the cost of a franchise can vary dramatically between brands, should the owner opt for a Best Western at 2.1% of rooms revenue, or spring for a Comfort Inn affiliation at 10.5%?"

"Most hotel lenders believe that in order to be competitive in today's hotel market, a strong franchise affiliation is essential, and therefore, the selection of a chain affiliation should be evaluated carefully," he continues. "Hotel lenders also typically insist on a franchise affiliation of some type because it reduces the perceived investment risk."

A total of 83 franchise groups, including 29 economy, 31 mid-rate, and 23 first-class franchisors, participated in the analysis. The trend toward continued franchise expansion and segmentation was exhibited by an 11.4% increase in the number of study participants from 1998 to 2000.

The Best Western organization led this year’s analysis, with only 2.1% of its projected ten-year revenue going toward expenses related to franchise fees. Other organizations achieving low percentages included Master Host Inns at 4.4%, Guesthouse Inns at 5.3%, and Key West Inn at 5.4%. Study results showed that rooms revenue ranged from 5.3% to 10.4% in the economy category, 2.1% to 10.5% in the mid-rate category, and 6.8% to 11.3% in the first-class category. Guesthouse Inns, Best Western, and Omni were the respective category leaders in low percentage, at 5.3%, 2.1%, and 6.8%, respectively. The overall range was a low of 2.1% to a high of 11.3%, with a median of 8.3%.

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