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Consider joining a hotel franchise, suggests Duff & Phelps

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Now could be a good time for independent hotels to consider becoming part of a franchise, according to global advisory firm, Duff & Phelps.

Being part of a group of hotels that share a recognised brand and provide services such as central reservation systems, marketing and defined operational procedures might mean the difference between financial success and failure in the months to come, the company warned.

Paul Smith, managing director, restructuring advisory at Duff & Phelps, stated: “Hotel occupancy levels are at record lows, with many now closed, staff furloughed and businesses now effectively mothballed. But the challenge many still face is the lack of working capital to cover creditor costs and many may not have enough to survive.” 

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“Arguably now is the time for many to consider becoming part of a bigger family, one based on the franchise model to help prepare the business for the end of the lockdown. There are clear benefits to joining one of the bigger global franchise groups, including access to key money designed to be invested in facilities to get them up to an expected standard, but also to the marketing power of these groups.”

Smith also stressed that joining a franchise does have ‘financial responsibilities’, with a franchise or royalty fee only ‘part of the cost’ of joining a chain.

You will also likely be charged the annual cost of the central reservation system, various marketing and frequent guest programmes, plus a fee if you wish to terminate the affiliation before the term ends.

“But we are in a new paradigm and that means both franchisee and franchisor may see this as a golden opportunity to engage,” added Smith.

“There is no doubt that hoteliers that decide that now is the time to undertake major capital works are brave, but many may see now as the time to access key money from the bigger franchise groups to do just that. For many franchisors this could also be seen as a unique time to offer independents a ‘golden hello’, using that key money to support cash flow as opposed to capital investment in the short term.”

Tags : advicecoronavirusDuff & Phelpshotelsmasterclass
Zoe Monk

The author Zoe Monk

1 Comment

  1. My advise would be to consider all options for sourcing capital if needed before committing to a franchise agreement due to long term implications from lengthy contracts to the high costs as mentioned in the article ( royalty fees, CRS costs etc) . Lack of freedom to express your personality and run your business your way is a huge trade off.

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