While
undoubtedly a growth sector in the Australian hotel environment – with over 750
hotels under franchise currently – industry experts at the Hotel Franchise
World conference in Sydney suggested there was still a long way to go before
Australia matched America and Europe.
Tony Ryan,
Principal of Ryan Lawyers, recalled that in the 1970s and 1980s, when he was growing
up in Wagga Wagga, he travelled past a motel with prominent Quality Inn signage on a regular basis, only to
discover subsequently that the motel hadn’t actually been in the Quality Inn
network for 15 years. At the time, however, there was little interest in – and even
less regulation of – the franchise sector, because management companies ruled
the hotel roost.
The arrival
of online travel agencies (OTAs), making distribution easier for smaller and
independent hotels, meant that the franchise model became more attractive for
hotel owners, who didn’t have to rely so heavily on the established management
companies to build business for their hotels.
The key issue
for most franchisors and franchisees at the Hotel Franchise World conference appeared to
be brand integrity. How do franchisors ensure that their franchisees maintain
the brand standards that are more easily imposed on hotels under management
contracts?
Penny
Eccleston, a multi franchisee of Best Western hotels, said that brand aspects
such as signage were crucial if a franchisee is to maximise the potential of a
franchise arrangement. She estimated that a third of her business came from the
Best Western connection, and there were still plenty who simply stopped on
their way through a town because of Best Western’s brand reputation.
But it wasn’t
always that way. Robert Anderson, CEO of Best Western, said that in 2007, the company parted ways with some 1000 properties because they weren’t up to
standard. Since then Best Western’s Net pPomoter Score (of satisfaction) had
doubled.
Panellists
all agreed that it was up to both parties – franchisors and franchisees – to maintain
standards.
Franchising
had been far more successful in America because banks generally didn’t fund
hotels unless they were aligned to one of the major companies, and many of the
franchisees owned multiple properties. That is rarer in Australia, where motels
are often owned by “dad and mum” operators who don’t have the capital and
resources to constantly upgrade their properties.
Tony Ryan
highlighted that in America institutional investors were firmly involved in the
franchise sector, but they had largely ignored the Australian industry.
One of the
reasons cited for this was the low returns for franchisors. While there was
disagreement about what franchisors were able to charge their franchisee, StayWell’s Simon Wan suggested it was as little as 2 – 3% per revenue generated
(in America it is up 10%), which made many franchise contracts unviable.
This had
led companies such as Quest to look at different funding models to build their
networks, with Quest having the advantage of developing most of their
properties from ground up, which also ensured more uniform standards.
Where as
franchised hotels were a feature of most American city CBDs, in Australia
franchised hotels have largely been restricted to regional and suburban areas.
However, Roland Jegge, VP Asia Pacific of Worldhotels, believed that there was a
place for high-end independently operated city hotels joining a franchise
network because consumers increasingly want hotels with individual style and character. However,
it was essential that franchisors provide training and constant auditing
through processes such as mystery shopping to ensure standards were maintained.
The
inaugural Hotel Franchise World conference ended with general optimism about
the sector, though recognising that the drivers that had made franchising so
popular in America still needed to be developed further and refined in Australia.
