Franchise community short on mandates, long on ROI

Eleven CEOs took to one stage at the 2017 AAHOA Convention. (Eleven hotel CEOs were on the CEO panel at AAHOA Convention 2017)

SAN ANTONIO, Texas—What happens when 11 hotel CEOs share the same stage? That question was answered during the Asian American Hotel Owners Association’s annual convention, here at the Henry B. Gonzales Convention Center. 

This year’s event was held amid a record-setting 2016 for AAHOA, which is the largest single hotel owner organization in the world with 16,655 members at last count. It also has one of the largest hospitality-related PACs having raised $1,087,725 in 2016.

“Our footprint goes beyond the fact that we own more than half of the hotels in the country,” said AAHOA Chairman Bruce Patel. “We are the voice of America’s hotel owners and it’s our job to turn our economic power into political power.”

It’s also AAHOA’s job to protect the interests of its members, from things like unnecessary brand mandates, and to support members’ return on investment.

The brands are on notice and taking notice. “What we sell is ROI,” said Choice Hotels International CEO Steve Joyce. “Things that aren’t required need to be run through the mandate of what it does to owner ROI.”

Joyce said Choice doesn’t make investments that don’t have ROI connected to it. He mentioned things like keyless entry and mobile check in that, while amenities, are expensive and maybe not the highest yet need of customers. “When you are talking about other people’s money, then it gets real,” he said.

It’s similar to Red Lion Hotels and its CEO, Greg Mount, who said, “When we talk to potential franchisees, it’s never about jamming standards down their throats.”

Andy Alexander, CEO of Red Roof Inn, a privately held company, said that its franchisees give the company insight into what programs make money, and then use properties as test kitchens before rolling out certain initiatives. “We have to balance the needs of the franchise community versus our shareholders,” Alexander said. Red Roof also owns a sliver of its hotels, and Alexander said, unsurprisingly, that rolling out new things that didn’t have a ROI didn’t make sense for Red Roof or its franchisees. 

The same could be said for La Quinta, which owns roughly 40 percent of its portfolio. “There is a heavy correlation between brand standards and driving returns,” Keith Cline, CEO of La Quinta Inns and Suites, said. “We would not roll out a program that would erode profitability.”

Hotel companies that have skin in the game may, in fact, be less inclined to impose heavier brand mandates since, ultimately, they’ll feel the impact as much as franchisees. As hotel companies continue to follow an asset-light strategy, it is essential to watch how that will impact the notion of brand mandates on owners.

One company that doesn’t own its hotels is Magnuson Hotels and its CEO, Tom Magnuson, said the company is “all about the well being of our owners: We won’t add something to negatively impact an owner. Our decisions are made over location, price and uniqueness, not brand. We are a support system.”

Meanwhile, noticeable wherever he goes, and especially on the 11-CEO panel, was Eric Danziger, the CEO of Trump Hotels. The specter of the family name he works for follows Danziger wherever he goes, and it did at the AAHOA convention. 

“We work very hard to separate business and politics. We share the same name but [Trump’s] not involved,” Danziger said. While Danziger currently oversees the Trump and Scion brands, which aren’t focused on the AAHOA franchise community, Danziger, a career franchisor, said he was there because the company is currently bouncing around the idea of launching a three-star franchise brand, though nothing yet has been formalized.

Danziger, joining the brand mandate discussion, said that brands should not have a focus on standards, but rather essences. “The essences of the brand is what a brand promises,” said Danziger. “The job is to do right for all.”

Bruce Patel, chairman of AAHOA, addresses the audience at AAHOA's 2017 convention. 

Distribution Distress

Most CEO panels involve a discussion on distribution and the various channels that customers have at their disposal. While online travel sites like Expedia and Priceline exist, and aren’t going anywhere, hotel companies continue to devise ways to guide customers toward booking direct with the hotel chain, including inducements like discounted rates for loyalty members. If customers do come through an intermediary, it’s up to the hotel to convert that guest to a book-direct customer.

“ is critical,” said Wyndham Hotel Group CEO Geoff Ballotti, pointing to the myriad deceptive practices from spurious and fake websites that take millions of consumers for a ride each year. 

“The bookings that come through direct are the lowest cost of distribution and the most profitable booking you can take,” Ballotti said.

La Quinta’s Cline said that 80 percent of its bookings are already direct. “The other 20 percent that come through another channel that has reach, fine, but you have to then own that emotional connection that brings them back direct and to join the loyalty program,” he said.

The always-blunt Joyce said that OTAs are predicated on a fallacy—“that there are lower rates on them,” he said. “We need to end that lie.”

To combat that, Joyce noted that GMs should be rewarded on gross revenue, not net. “Keep OTAs out of your shop as much as possible,” he told the audience. “You have to have folks incentivized to take the reservation on the least expensive site.”

Tech and Data Driven

New technology and big data constantly assail the hotel industry—in that it’s a constant investment and evolution. But according to Mark Hoplamazian, CEO of Hyatt Hotels Corp., technology only works if it has a human benefit. “You have to design it through the point of view of a central tenet: How does it care for people?” he said. “Our job is to scale care and that informs how you go about technology development.”

Hoplamazian went on to note that many hotel systems are still not user friendly, citing a time when it took some 143 keystrokes to check someone in. It prompted Hyatt to create three touches on an iPad to check someone in. “It’s about the customer relationship,” Hoplamazian said. “Employees can’t interact when tapping away on a keyboard.”

There’s a flip side to data, said Elie Maalouf, IHG’s CEO of The Americas. “Data has given us a lot of power and leverage, but the power resides with consumers,” he said. “Today, they have the power with their devices, where they can discriminate and make choices before experiencing the product. They will decide which brands succeed.”