Guest, franchisee demographics force franchising evolution

(International Franchise Association 2017)

The franchise industry is expected to grow by $36 billion in 2017, through both business and job additions, according to the International Franchise Association’s annual Franchise Business Economic Outlook. But the report’s projections for the lodging franchise sector are somewhat less optimistic as the segment’s employment growth slowed 0.6 percent in 2016, half of what it was in 2015. However, the group expects franchise employment in lodging to jump 1.3 percent in 2017 and output growth in the sector to increase 4.9 percent this year.

Increasing Revenue

But for lodging franchises, these numbers aren’t necessarily a measure of success; revenue is what counts and Pat Pacious, president and COO at Choice Hotels International, told HOTEL MANAGEMENT that the brand is focused on helping franchisees increase profitability for strong revenue-per-available-room results. “Domestic systemwide RevPAR increased 3.9 percent in 2016,” he said. “This is the ninth consecutive month and nine of the last 10 quarters that Choice’s RevPAR performance growth outperformed the industry.” He attributes the growth to the company’s SmartRates proprietary pricing-optimization system and the relaunched loyalty program Choice Privileges.

It would seem that franchisees have been taking notice of Choice’s RevPAR gains—the company also signed agreements for 650 new franchise hotels in 2016, representing approximately 50,000 guestrooms. Moreover, about a third of the new agreements are for new-build properties, which is 16-percent more new construction than in 2015. Choice’s domestic pipeline increased 19 percent as of Dec. 31 compared with the same time the year before.

Franchise Decision

Still, the upcoming Global Lodging Forum in Paris will include a roundtable discussion on the franchise model. Panelists, including Philippe Bijaoui, Wyndham Hotel Group’s chief development officer, EMEA, and Gilles Larrivé, general director of franchise business at AccorHotels France, will examine if the franchise model can continue in the current context as franchise owners question the value of the brand on which they pay royalties while also paying online travel agency commissions.

But Bruce Patel, chairman of the Asian American Hotel Owners Association, said that franchisees can’t ignore other considerations, like consumer demands, markets and economic conditions, which are each in an eternal state of change. “Decisions on whether to invest in a franchise or operate independently will change with these factors,” he said. “Franchise properties remain a strong investment in almost all areas. Inherent benefits of branded properties like consumer loyalty, brand recognition, operational support and increased valuation remain strong considerations for investors.”

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Changing Demographics 

Change, however, has come quickly to the franchise model, as it has to the hotel industry at large. Technology and social media influence travelers’ purchasing patterns just as better access to consumer data shapes hoteliers’ decisions. Patel also said that changing guest demographics and the rise of the millennial are also significant developments causing “hoteliers to respond more quickly to the evolving market to serve ever-changing guest expectations.”

Franchisees themselves also have changing expectations as far as how brands work with them, according to Phil Hugh, chief development officer for Red Roof Inn. He said that much as some hotel brands track certain guest preferences, Red Roof’s corporate office has begun tracking its franchisees’ preferred means of communication. “Some want an email, some want a text and some want a phone call and I think that’s because of the different ages and demographics that are now joining the brand,” he said. “Business can also become very much about emails and it’s amazing what can be solved in short order with a phone call.”

Product Evolution

Franchisees are also responding to evolving guest demographics and the subsequent demands that come with that. Red Roof announced the opening of its 50th Red Roof Plus property earlier this year. The brand’s premium product was born of a franchisee’s idea and in response to guest demand for more amenities and more benefits. “Our consumers were looking for an extension of more for less,” Hugh said.

Similarly, the popularity of the all-suite product earned Embassy Suites by Hilton, Homewood Suites by Hilton and Home2 Suites by Hilton their own category at Hilton Inc. last year, leveraging the value-proposition that these suites products offer across all three brands.

“It made it kind of a slam dunk for us in terms of how we work with our franchisees, many of whom specialize in our all-suites products," said Bill Duncan, the category’s global head. "So this helps us to support them—from a development approach and sales efforts to operations and leveraging purchasing power—more efficiently and effectively.”