SAN ANTONIO — The opening "Navigating the Dynamics of Ownership and Management" panel discussion held at The Hospitality Show, running this week at the city's convention center, featured two hotel executives discussing a challenging relationship in the hospitality industry. Interweaving personal stories and advice regarding strategies for a successful partnership in today’s multifaceted management climate, the session focused on the relationship between hotel brands and owners, emphasizing the importance of trust and partnership, the value of the franchise model, challenges and reasons for optimism. Chirag Shah, executive vice president, federal and political affairs & counsel, AHLA, moderated.
Importance of the Brand and Owner Relationship
The relationship between the brand and owner is key to shared success. “I don't think Hilton is overly unique in this regard, but I do think having leaders at the top of the company that come from the ownership side helps. We are stewards of their capital, and there is no Hilton success without our owners’ success,” said Kevin Jacobs, CFO and president, global development, Hilton.
The Franchise Model
As his family was one of the first franchisees in the state of Tennessee, Mitch Patel, president and CEO, Vision Hospitality Group, offered his perspective about the brand-owner partnership based on his family’s experience. Patel shared the story of how his father, who immigrated to the U.S. with $8 in his pocket, eventually become a franchisee, with Patel witnessing firsthand the importance of this type of partnership. Today, Patel estimated he has developed over 60 hotels in 25 years. “I could confidently say this: We would not be here today with the success that we've had without this franchise model,” he said.
Jacobs said that about 90 percent of Hiltons worldwide are franchised, with that number approximating 98 percent in the United States. “That is the model that has enabled the industry to grow,” he said. He added that sometimes, people think that brands and franchisees are adversaries, but in reality, the two sides have a symbiotic relationship.
Value Proposition
“This is a partnership," Patel emphasized, "and if it's a partnership at home or a partnership in business, there has to be trust, confidence, mutual respect and, most importantly, constant dialogue,” he said, noting that if owners and franchisees are not successful together, then brand companies cannot grow and be successful.
Ownership Challenges
Though the pandemic sidelined the hospitality industry for a while, it was an opportunity to revisit the franchise business model. “We were having constant dialogue with the brand companies on what do we think needs to be changed. And some things wound up changing, and some wound up going back to normal. This was a balance between brand equity and profitability and of course, guest satisfaction,” Patel said. Still, expenses have gone up, as has labor and cost of insurance, so margins have suffered, and compounding that with the interest rate environment, it becomes even more challenging.
Ideal Partnerships
From an owner perspective, Jacobs touched on what qualities a brand like Hilton looks for in partnerships, which included active listening and flexibility, and he again emphasized the need for good stewardship of the brand. He noted that Hilton’s approach includes listening to owner advisory councils and implementing action plans to improve the business model.
For those owners seeking to align with a certain brand, Patel said that all brands are not created equal. “This is a service business that's layered on top of the real estate business, and that's how you can really differentiate yourself. We've learned pretty quickly that clean rooms and friendly service are going to win at the end of the day, and then you have that power brand that's backing you up. It's going to bring in 50-60 percent contribution to your business. It has worked for us historically, and we're going to continue with that model going forward.”
Patel added that brand hunters should seek empathy, open communication and responsiveness to owner grievances should be factored in.
Looking Ahead
The experts both believed that there were reasons for optimism, as franchising is strong, as is the state of the industry as a whole. Patel said that the ‘experience economy’ has taken over the ‘goods economy,’ with people across generations wanting to spend their dollars on travel more than ever. He noted that this is a cyclical business, with a storm always around the bend, so it is important to partner with the brick house rather than the straw house. “When that storm comes, we're going to be looking for opportunities, as opposed to be fixing internally our challenges,” Patel said.
Jacobs added that while recessions can always be expected, there is a growing middle class who will comprise the next generation of travelers. Jacobs further noted that the world is in a ‘new golden age of travel’ coming out of COVID.