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Franchisors, Franchisees Take Separate Paths

Sometimes it’s hard to tell that franchisors and franchisees are actually business partners. Two separate general sessions at the recent Midwest Lodging Investors Summit revealed how different the two groups are in their outlooks on the hotel industry and its key issues.

At an opening session on the first day of the three-day event held at the Sheraton Chicago Hotel & Towers sponsored by NREI and Lodging Hospitality magazines, a group of five brand company CEOs focused on global issues affecting the business. Topics ranged from immigration policy and green hotelkeeping to development and marketing in a downturn.

The next day, a discussion among four chiefs of franchisee firms centered on their bread-and-butter issues: franchise fees, impact, amenity creep, data ownership and more. There was little overlap in topics between the two sessions.

While the franchisees took the opportunity to complain about some franchising practices, they ended the session in general agreement that a brand is a great “insurance policy” for a hotel owner. As Fred Cerrone, president and CEO of Hotel Equities, said, “Some owners expect too much from a brand. You’ve got to constantly market your property, but it’s a great way to start your day knowing that the brand has already filled up 50 percent of your hotel.”

Mike Marshall of Marshall Management was particularly tough on his franchisor partners, saying, “Some things they do are difficult to swallow and they’re not always accountable. Some brands will sell you something and then not follow through.”

Amenity creep, or raising of product standards by the brands, also irked Marshall. “The problem is really timing,” he said. “It’s not as much of a problem to add standards when business is on the upswing, but it can be difficult when we’re on a down slope, as the industry is now.”

For Jeff Good, president of Good Hospitality Services, the question of who owns customer data — the brand companies or the property owners — has become a more important issue in recent years. “We need more transparency in the data and how the brands use it,” he said.

Much of the focus of the brand president panel was the current state of hotel development and financing. “There has been a definite slowdown in the planning stages of the development cycle,” noted NYLO Hotels CEO John Russell, “and we don’t know how long it will last. I’m hoping it’s only 12 to 18 months.”

The consensus among the brand CEOs — and most MLIS speakers — is that financing for development and acquisitions is still available but at more stringent terms: loan-to-value ratios not exceeding 65 percent and lenders demanding personal recourse by borrowers. As Wyndham Hotels’ Peter Strebel pointed out, “Mixed-use development is one solution to financing as pre-sales of a residential component can be used to finance the hotel portion of the project. Obviously, mixed-use doesn’t make sense in every situation, however.”

The CEOs agreed the industry needs to do a better job in promoting itself — both to potential tourists from other countries and to young people contemplating a career in hospitality. “The U.S. is on sale right now, but we’re competing with many other countries that promote themselves much better than we do,” said Wyndham’s Strebel. “As an industry and a nation, we need to project a better image.”

And while NYLO’s Russell argued for the need for immigration reform to help solve the labor shortage, he also said we need to look in other directions. “We also need to tell the story to high school students that our industry is a great place to work and is full of opportunities.”

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