Thomas Magnuson: Franchising trends follow the economy

Thomas Magnuson

Founded in 2003, Magnuson Worldwide has grown into a global chain of nearly 2,000 owner-operated properties. With mostly all conversion properties spanning three sub-brands (the upscale Magnuson Grand, midscale Magnuson Hotels and economy M Star Hotels), the company’s development strategies these days focus on maximizing technology to increase operational efficiencies and find the right guest. CEO Thomas Magnuson shared his insight on the future of franchising with Hotel Management.

1 Can you identify some specific U.S. markets you think are good spots for hotel franchise development over the next few years? 

With regards to targeting specific markets, we follow the demand for our conversion services. All chains prefer the top 25 markets, and we focus on these. However, we also focus extensively on second- and third-tier markets and rural markets where hotel owners need help. Where will the growth be? If the U.S. follows the rest of the world, we will see more concentration in the cities, as we move beyond much of our historic base of agriculture production, timber and mining. Abroad, we continue to have a large focus on the UK, where we have about 100 hotels.

2 The industry is talking about when the U.S. supply/demand balance might shift to a less-favorable scenario. What’s your take on it?

Actually, the entire U.S. is oversupplied, and that’s because since the Great Depression, we have run a national occupancy average of 64 percent, recently down in the 50s. When you look at manufacturing companies such as Toyota with nearly 100-percent-capacity production lines, you have to ask, “How did we ever accept that anything less than 90 percent is good?” New deals may be good for the banks and the builders, but the current state is one of vast oversupply. I know that my contemporaries may challenge this with the old joke that “we are not over-supplied, we are under-demolished.” But try telling that to a small business owner whose life is wrapped around that old hotel. The reality is that the average U.S. midscale hotel has a lifespan of 38 years. So there are a lot of great hotels out there that have much life left on them.

3 In the years since you started Magnuson Hotels, what changes have you noticed in the people and companies that develop your hotels? Do they have different sensibilities than they did five years ago?

The most obvious change industry-wide has been the prolonged lack of economic growth: It’s been six years since the fall of 2008. So while we can’t rely on increasing rate or demand for profits, all our efforts are focused on how we can drive better efficiencies, increase bookings and cut operating costs at the same time, so owners can finally take home some money. Our owners are focused on the fundamentals—providing a good experience at a fair value. And certainly we are all better users of tech than we were a few years before.

4 Hotel developers and brands are all trying to determine what kind of hotel will win business from millennial-age travelers. Most of Magnuson’s hotels are conversions. How are you addressing the millennial traveler, even without new-construction hotels?

Millennial-age travelers want the basics; they want clean, contemporary and authentic. Our most recent market research told us that consumers aged 22-60 preferred Magnuson by a 38-percent margin over Choice, Wyndham and Best Western. These are travelers who are emotionally linked to Apple, Google, Amazon—brands that speak to their needs, not their parents’. It’s important to note that of any top 10 brands, Magnuson Hotels is the first national brand built for Internet travelers, and not the 1950s concept of American freeway travel.