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The Four Safest Hotel Brands for Franchisees

Front desk of TownePlace by Marriott, Santa Clara
The front desk of a TownePlace prototype by Marriott. photo/Marriott

BETHESDA, Md. – New research shows that Marriott's Springhill and Hilton's Homewood have the lowest percentage of franchise terminations. Blue MauMau has worked with FranchiseGrade.com to discover the best and worst rates of franchisee terminations as reported in registered Franchise Disclosure Documents.

The results? Marriott and Hilton hotel chains fill the top four slots of franchisors that are safe havens for franchisees. These are the four franchisors that terminate or kick out their franchise owners the least. The worst of the hotel franchisor terminators, a list which will be published later by this journal, is nearly a thousand times more likely than the safest of these safe havens to terminate a franchisee's hotel.

Springhill by Marriott came out on top, with an annual termination rate from 2010 to 2014 of only 0.09 percent of their total number of hotel owners. That was followed by Homewood by Hilton with 0.17 percent. Hilton Garden Inn came in third at 0.20 percent. Fourth was TownePlace by Marriott at 0.28 percent.

This list of safest hotel franchise systems, which is to say the chains with the lowest terminations of franchises, is the first of its kind.

"I've not seen a list like this before," says Roger Bloss, CEO of Vantage Hospitality, parent company of chains Americas Best Value Inn and Lexington Suites, after being shown the chart below. With nearly 1,200 properties that it works with, Americas Best Value Inn, a membership organization where hotel owners sign one-year agreements, hasn't had to file Franchise Disclosure Documents. It, as well as Best Western, were not considered for this list. Americas Best Value Inn plans to shortly file its first Franchise Disclosure Document, for 2014.

Why would a franchisor terminate a hotel franchise owner?

The reasons to pull down a brand's signs at a hotel property are myriad – e.g., a franchise that does not adhere to brand standards, doesn't pay royalties, or employs illegal aliens. A franchisor can be light handed, as in Springhill's case, or heavy handed, desensitized to the frequency in which it kicks out franchises. For a franchisee, it is not always easy to divine the tea leaves of whether their franchised hotel will be on the receiving end of the boot or not.

Data: FranchiseGrade.com, compiled from franchisors' 2013 Franchise Disclosure Documents

Asked what is so unusual about these four least terminated Marriott and Hilton concepts, hotel consultant Stan Turkel observes that some of the largest chains are over a thousand units while these four brands only have 200 to 500. "Perhaps the answer is that these brands—Springhill, Homewood, Garden Inn, TownePlace—are relatively few in number," says Turkel. "Since Marriott and Hilton are trying to increase their numbers, they are far less stringent in their inspections," he speculates.

Older hotel properties can have antiquated architecture, carpet, equipment and furniture. But the four hotel chains on this list are newer. The oldest of these four safe havens is Homewood Suites, which was founded in 1989 by Promus Hotel Corporation and purchased in 1999 by Hilton. The others were formed in the late '90s. These are relatively new compared to say, Holiday Inn or Motel 6, which were founded in the mid-20th century.

CEO Roger Bloss thinks the age of the hotels is relevant, as is the frequency of their franchisor-required upgrades. If franchisors are clueless on what the market is doing and where the brand needs to go, they can experiment every few years in requiring yet another set of major upgrades. For hotel franchise owners, those frequent changes are expensive. "Sometimes required hotel upgrades are so costly that the hotel operators have no choice but to be terminated because of the extraordinary costs that are incurred," says Bloss. He thinks franchisees look at whether the return on investment for the upgrades justify the costs. If it doesn't, franchisees have a higher tendency not to spend on upgrades, resulting in eventual termination. Vantage is unique in the industry in that it guarantees a positive return on investment to its hotel-owning members.

Methodology

Why do hotel owners want to know which brand terminates the most or which the least? After all, there are other categories of franchise turnover, such as franchises that ceased operations, didn't renew their franchise contracts, were acquired by the franchisor, or sold their hotel property. In compiling this report, this journal has spoken with multiunit hotel owners, hospitality consultants, a franchisor executive and the CEO of a major chain. "For many hotel owners, the transfer rates, non-renewals and acquisition rates that are bundled together into one take considerable thought on the statistical implications," said a franchisee leader about keeping benchmarks clean and simple. The consensus among experts that this journal spoke with was that measuring terminations was the cleanest single benchmark in calculating which hotel chain has been naughty or nice to its franchises.

Data from the beginning of 2010 to the end of 2013 on the terminations of 90 hotel franchise chains was compiled by FranchiseGrade.com. The information was extracted from the most recent 2013 Franchise Disclosure Documents. Other turnover rates, such as franchises that ceased operations, transferred or failed to renew can be purchased by franchise owners and investors from researcher FranchiseGrade.com.

Franchisees that we spoke to were much more interested in the large chains. Moreover, the figures from small chains could swing strongly one way or another by the input from just a few units. For these reasons this list is limited to brands that have over 200 franchised hotel properties.

Here is the formula that was used:

Annual termination rate (percent) = Annual franchise terminations from '10 to '14      X 100
                                                         Avg. total franchise outlets per year during period


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About Don Sniegowski

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Don Sniegowski is editor of Blue MauMau, the daily news journal for franchise & small business owners. Call him at +1 (270) 321-1268, tweet @bluemaumau or email don@bluemaumau.org.