News & Updates

28 Jun, 2020
“Now and then, we get a glimpse of what things may look like after we start reopening, and something that concerns me is breakfast,” said Rajesh Patel . “It’s hard to see how trying to deliver anything close to a pre-COVID-19 breakfast buffet can happen without costing us more money.” Many hoteliers are currently deciding if providing a free breakfast to guests is sustainable once they reopen their doors. The previously popular — and expected — free breakfast buffet at limited-service and economy hotels is suddenly less appealing. The model no longer attends to the needs of guests or the industry. Hotel Breakfast Safety Concerns Buffets can do little to minimize contamination. Utensils and handles get touched by multiple people before being cleaned and sterilized, and there are minimal barriers between the individual and the food. Precautions that were sufficient before, no longer are. Will people still want self-serve eggs and waffles? If so, hotels may need to give each guest their own set of disposable tongs to remove items from the chafing dishes. Or will staff need to be hired to serve at buffets instead of allowing guests to help themselves? Both options come with added operational fees. Additionally, serving a pre-COVID-19 style breakfast buffet is likely to come with added liability. That risk comes paired with increased insurance premiums that hardly make it worth the while. In the least, sanitizing wipes and gloves will need to be made readily available for guest use. And in all likelihood, prepackaged meals may be the best alternative. Grab and go breakfasts – muffins, granola bars, and yogurts — with optional additions from the kitchen. Whether those grab-and-go items carry a price tag for the guest is up for discussion. The Financials of Hotel Breakfast Owners at limited-service hotels need the ability to pass on breakfast costs to guests. Optional amenities and upcharges may become the new standard. Before recent events, the cost of breakfast was already a large expense item on hotel financials. The added costs of serving free breakfast amidst the new normal are not sustainable for future business. “If we go back to the pre-COVID-19 breakfast programs, our costs will go up due to the additional equipment, labor, and products necessary to mitigate potential transfer and exposure,” explains Alkesh Patel. The difference between limited- and full-service hotels revolves around breakfast options and room service and guest amenities. With the removal of free breakfast, the market becomes imbalanced, and the distinction between the two styles of stay are blurred. Most hotel companies have both limited- and full-service brands in their portfolio. Corporations will need to question if it makes sense to continue offering products with little difference, one with a higher price tag. If guests need to pay for breakfast at both, what other changes will brands need to make to maintain the distinction? Breakfast or no breakfast is a decision that falls on both the hotel brand and the franchisee. Brands may dictate wide-spread changes to dining options, or hotel owners may be left to make the call themselves. If owners are left to make the call on their own, locations will suffer from a lack of continuity. Shared experiences among locations become an added issue. Without knowing what to expect, guests may be left disappointed as they travel. Just as important as safety and financials, franchisees must consider the impacts on guest satisfaction. Breakfast options have forever been an expectation. If removed, what will the response be? While some people will appreciate and understand the shift, others will be angered. The industry needs to be prepared with a response. Leaving Hotel Breakfast Behind Heightened scrutiny will undoubtedly come on the backside of this pandemic, and costly challenges will be faced. “I feel like we are driving down the Interstate trying to avoid one fiery crash after another. From worrying about our families and staff to the devastating financial impact this is having on all of us. It’s a crazy time,” Anil Patel FFI Chairman concludes. Brands and franchise owners need to think creatively, and collectively so hotels can still offer great service to guests at costs that are achievable to all parties. Upholding the free breakfast model is not feasible for the industry moving forward, and flexible solutions must be required. There is one positive consideration if hotels walk away from serving. It opens the door for our brethren at surrounding restaurateurs to earn traffic. Local dinners and breakfast destinations can benefit significantly from the boost in business and leisure customers. — Become a member of the Fair Franchising Initiative (FFI) to connect with fellow hoteliers and collectively navigate these unprecedented times. We are an independent, advocacy group of franchised hotel owners, highlighting the most crucial issues of our time – sustainable hotel franchising, profitability growth, and well-being of hospitality ecosystem.
07 Apr, 2020
**** Press Release **** April 6, 2020 RE: Fair Franchising Initiative Announces Leadership Team Contact: Keith Miller, kmiller@franchiseeadvocacy.com , (530) 906-3988 Fair Franchising Initiative (FFI) has announced its leadership team to guide the organization through its formative period. Prakash Shah will serve as President and Anil Patel will serve as Chair. The Board of Trustees will oversee the organization. The full list of leadership and trustees can be found here . FFI held its kickoff event on March 5 in Edison, NJ, and had over 300 attendees, including franchisees, franchise lawyers, and elected representatives. FFI is also the lead organization on New Jersey bill, A2682, sponsored by representatives Raj Murkherji, Robert Karabinchak, and Ronald Dancer. The bill has multiple provisions to protect local hospitality franchisees. FFI President, Prakash Shah, “We are pleased to put together a strong team of experienced franchise owners that have vast experience as leaders in many organizations. Our kickoff event was an overwhelming success, and while the Covid-19 pandemic has slowed ongoing meetings, we will continue our efforts with laser sharp focus on issues to protect our membership”. FFI Chair, Anil Patel, “I am excited to work with our distinguished trustees to further the cause of fair franchising. Franchisees are the investors in this industry, and we need to work to ensure their investment creates wealth and security for them. We will focus on legislative efforts so that the laws and regulations protect these local small businesses.” ************************* About Fair Franchising Initiative: Fair Franchising Initiative is an independent, advocacy group of franchised hotel owners, highlighting most crucial issues of our time – sustainable hotel franchising, profitability growth and well-being of hospitality eco-system. Our Vision is to collaborate with other hotel ownership associations, industry associations, franchise advisory councils, and policy makers to positively impact the system for the benefit of the industry, hospitality employees, and customers while vigorously safeguarding the interest of hotel owners.
04 Apr, 2020
Top Hotel Franchising Issues and Post COVID-19 Reality Hotel ownership is a rewarding but often challenging road. Recent trends and cost structures deemed by overarching brands have made operations expensive and left franchisees vulnerable. These hotel franchising issues are particularly present during times of crisis like current COVID-19 events. “Many people don’t know this, but most hotels are independently owned and operated. We’re just small business owners, just franchisees, of these big multibillion-dollar hotel corporations,” said Sawan Patel in a post on LinkedIn where he called on hotel brands to provide immediate financial relief to franchisees. With occupancy rates dropping and cancelations increasing, there is little to no revenue coming in for these small business owners. Operating expenses, franchise royalties, mortgages, payroll, and other costs continue to accumulate. So, we ask, what are the major hotel franchising issues and cost vulnerabilities, and how should brands step in to help amidst the new COVID-19 reality? Burdens from Hotel Property Improvement Plans Property improvement plans (PIP) are a required element of branded hotel ownership. When corporations undergo ‘brand refreshes,’ the responsibility falls on franchisees to bring their properties in compliance with new standards. These updates can entail extensive and expensive renovations. Owners must handle everything from revamped marketing materials, websites, and signage to new room fixtures, structural alterations, and buildouts. A growing number of hotel owners feel that PIPs are firmly in the interests of the chains and not their franchisees. Owners have unprecedented capital expenditures for brand upgrades that often feel nominal or unnecessary. Franchisees are often left weak due to the increased cost of operations. Thomas Magnuson , Co-founder & CEO of Magnuson Hotels, states that big brands such as Choice, Holiday Inn, Wyndham, and Best Western, often use PIPs to push hoteliers out of a market to benefit corporate expansion strategies. Regardless of opinions, franchisees have no choice. Failing to stay up-to-date with even the smallest aspect of a PIP can result in hefty fines, or extreme cases, termination as a franchisee altogether. Owners require a long-term solution that offers affordable access to the tools necessary to maintain and promote the larger hotel brand. Brand Response to COVID-19 Hotel Franchisees Issues Some brands have rolled out relief initiatives for franchisees, helping to shoulder the burden during current economic conditions caused by COVID-19 disruptions. But the majority of hotel owners think the steps taken aren’t adequate. Fair Franchising Initiative (FFI) surveyed hotel owners, and an overwhelming number of franchisees give shallow marks to the relief efforts from their brand partners, expect for Best Western owners. Survey participant and hotelier Sagar Shah shared, “We are grateful to our brand partners at Best Western for demonstrating exemplary leadership with the utmost compassion towards their membership during this crisis. While most franchisors were waiting for their peers to take action, CEO David Kong and the executive leadership team took unprecedented steps including reducing most member fees by half, taking a 50% compensation cut, and pledging their corporate sponsored 401K plans to the company as it also navigates through uncharted territory.” Shah continues, “While we face dark times ahead as an industry, Best Western has differentiated itself as a class-act, torchbearer organization whose interests are clearly aligned with those of their hotel owners. Their decisive crisis management steps and consideration for the welfare of small business owners will not be forgotten when we expand our portfolio in the years to come.” Lodging Magazine reports that other hotel brands have responded to the COVID-19 pandemic in various ways—from temporarily suspending brand standards to cutting franchise fees. While these steps temporarily lessen hotel franchising issues, the brands that go above and beyond to help their owners during these difficult times will see long-term benefits and success. Oversaturation of Hotel Brands Overbuilding and the explosion of new hotel brands have made the industry more vulnerable. Companies are going after every segment, launching multiple chains for luxury, boutique, select service, and budget/economy. Portfolios often include various brands in the same category, with little to no differentiation. Marriot has 32 brands Hilton has 18 brands IHG has 12 brands Choice Hotels has 13 brands Hyatt has 20 brands Angela Roper’s 2017 book , “Vertical Disintegration in the Corporate Hotel Industry: The End of Business as Usual,” goes in-depth on the issue. And the New York Times recently reported on the “bewildering array of choices” of hotel options now available. Most of the brands are linked together by a reward club or loyalty program that tries to lock in travelers to one portfolio. But the benefits and perks aren’t enough to compete with the price war caused by hotel brand proliferation. Online booking has created a race for low price options, and consumers often don’t care where they stay, as long as the chain fits their needs. Intense competition is now affecting the industry, commoditizing hotels. Efforts are needed to create a more sustainable model for hoteliers. Anil Patel, hotelier in New Jersey and FFI Chairman, states that “More brands mean less cashflow for hoteliers to spend on core guest needs and upgrades and subsequently reduced quality of standards for the hotel guests.” Consolidating the number of brands would be beneficial to franchisees who are paying for brand recognition. With no limit to the number of hotel brand variations, the existing franchise business becomes diluted. Lower the Cost of Hotel Booking To effectively promote hotel room availability and expand reach, owners must connect to a multitude of online systems. Each of which takes a percentage or charge a fee for bookings. GDS and OTA fees are the most prolific. They include hefty setup fees and investments in technology systems, monthly connection fees, pass-through charges, and reservation commissions. That’s on top of the fees paid to the hotel brand itself. Franchisees pay upwards of 11 percent of their rooms’ revenue through royalty fees, sales fees, marketing fees, loyalty fees, miscellaneous fees, and initial startup fees. A Global Distribution System (GDS) is a worldwide computer network that passes inventory and rates for hotels, flights, and car rentals to travel agents and travel sites, allowing for automated transactions and reservations. Franchisees pay both monthly connection and contract fees and either flat or percentage-based fees for each booking. Not to mention, commission to travel agents. Online travel agencies (OTAs) like Booking.com and Expedia charge commissions. The OTAs receive income (generally between 10 percent and 30 percent ) on bookings made via their sites. On top of the OTA commission charges, hotel brands charge hotel connection fees since they control the channel. While these systems are valuable channels for sales, the current cost structures are not sustainable for the hotel industry. Owners will suffer in the future unless the fee model changes. A solution is necessary to lessen hotel franchising issues. Self-Commission Fees from Hotel Brands Continue to Climb An alarming trend lies in the commission fees charged by brands on franchise owners for business generated on a brand’s website. Recently, Hotels brands have introduced new commissions that are charged on the bookings generated via their own channels. These commissions are on top of the marketing fees charged by the brands on regular franchise invoices. These new costs have burdened hoteliers tremendously by increasing expenditures without meaningful increase, or sometimes no increase, in revenue. “One of the key reasons we want to have franchise branded hotel is so that we don’t have to pay OTA commissions,” explains Rajesh Patel hotel owner and FFI member. “If brands act like OTA they are conveying that the model is not working.” Brands are trending towards acting like travel agents, and the model is becoming too expensive for hotel franchisees to maintain. Lessening Hotel Franchising Issues During Times of Peril While franchisees can expect some aid from the CARE Act and Economic Stabilization emergency loans, hotel franchising issues are still dire. Brands must rethink their business models to help owners remain sustainable during and after these trying times. The burden of delivery cannot remain on hotel franchisees alone. As many independent franchise hotel owners struggle, brands will need to step in and offer new forms of aid. David Eisen of Hotel Management says it well , “…a more equitable relationship can and should be reached that benefits both sides because one thing is clear: Brands don’t get built without developers and developers can’t build more hotels without brands.” The government has stepped up to help small businesses, and hotel brands need to rise to the challenge of helping the owners who have built their brands. The post-COVID-19 world for the hospitality industry will look much different than before. The franchising model will have to change to adapt to a new reality. — Fair Franchising Initiative (FFI) is an independent, advocacy group of franchised hotel owners, highlighting the most crucial issues of our time – sustainable hotel franchising, profitability growth, and well-being of hospitality ecosystem. See our membership benefits and levels here .

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