Accor's CEO Discusses Working With Franchise Owners and the Future
BMM: Accor, which includes Motel 6 and Studio 6, is listed as the fairest hotel franchisor in a Progress Report that the very large and influential Asian American Hotel Association issued last week. The rankings are based on a lengthy and complex process of measuring the merits of hotel franchise chains against AAHOA’s 12 Points of Fair Franchising. Why have you put such considerable effort into meeting the standards of an independent franchisee association?
Poirot: We have worked with them for years to not only help establish those guidelines but also to get closer to what they want to see franchisors do. We have been able to demonstrate that we care about transparency. We worked very hard with AAHOA to get there.
On some of AAHOA’s 12 points [of Fair Franchising] I think it is difficult for us to comply. For example, if we want to sell a new brand, we have to go to our franchise owners first to get their permission. However, we own most of our properties. So that won’t work.
But every time we do something major to the brand, like the recent prototype Motel 6 launched two weeks ago, our franchise community will be involved with that [the forming of the new concept].
Because we own such a large part of our network we can do to ourselves first what we eventually will ask our franchisees to do. That goes a long way in terms of getting the recognition.
We look at our franchisees as business partners. They carry our flag. We set strict rules, quality guidelines and product definitions. We want franchisees to be successful with those guidelines. We look at the relationship with our franchisees as being a transparent relationship where we listen to criticisms and the feedback we get from them.
BMM: Is this practice of accommodating franchise owners and their independent franchisee association a profitable one for Accor?
Poirot: Ultimately in the long term working with our franchisees helps Accor be more profitable. This is also a good general business practice. We have been conducting business this way for 40 years now. It is a win-win proposal because if we have successful franchisees, not only do we have happy customers [hotel guests] but we also have franchise owners who are likely to replicate their business model and raise our overall performance by doing more with us.
That recognition [of fair franchising standards by AAHOA] is helpful to us because not only are we coming to the market right now with a new prototype but also more importantly we are resuming development. We’ve been doing 12 to 15 franchised properties per year as long as we can remember. But last year we did 37. This year we are shooting for over 50 properties. We are trying to get to 1200 properties for Motel 6 and Studio 6 by the end of 2010. That is an important benchmark for us, putting us at about 1100 properties for the U.S. and Canada. After that we will probably take the brand to new countries, for example, Mexico. Franchises will be an important part of our development there as well.
BMM: Will most of your new hotels be largely through franchising?
Poirot: Most of our development in the U.S. will be franchised properties.
Whenever we can do [property] acquisitions in the U.S. that makes sense for us, we probably will as well. We just finished in mid-February our first property acquisition in eight years. Acquisitions probably won’t be the bulk of openings but it will be something like 5 to 10 a year.
BMM: According to PKF Hospitality Research, room revenues for economy hotels are projected to increase by 1.2 percent next year compared to 3 percent for all hotels. Where do you think the economy lodging market is heading and where does Motel 6 fit?
Poirot: From what we have seen in the last six months or so, everyone is losing a little bit of occupancy. All the growth from all the segments is coming from ADR (average daily rate of a room), not occupancy. That typically means we are at the high end of the [business] cycle. The economy does look uncertain but we are not worried.
Motel 6 typically has outperformed the competition by ten to fifteen points of occupancy. Economy brands are more resilient than the other segments during a downturn. In 2001 everyone went through a blood bath during the last quarter. The gains of the previous 3 to 4 years in ADR and occupancy growth evaporated. But Motel 6 was the only brand in the U.S. market to have a positive growth in 2001. If the market truly comes down, which it has not right now, that will be a true test of the value of our brand.
BMM: Why did you sell Red Roof Inn last year?
Poirot: We sold the brand in spite of the fact that the brand was doing extremely well. It was competing in the same environment as Motel 6, even though they were on different ends of the spectrum of the economy hotel segment. From a management and resources stand-point, the two brands were competing with each other because they had become so integrated. So Red Roof, which accounts for a third of the numbers of Motel 6, had become a distraction from managing Motel 6.
Accor did not want to have too much investment all in the same segment.
BMM: Does Accor plan to bring any new brands into the North American market?
Poirot: Accor plans to expand the brand more in the upper end of the hotel spectrum than the lower. By that, I mean we want to continue to develop Sofitel, going from 10 to about 20 properties. We think that is probably the maximum point in the U.S. and Canada. Accor at some stage will bring in Pullman. Pullman is the next level down from Sofitel’s, which we are positioning as a luxury product. We do not have a timeline for that yet.
Those concepts are very unlikely to be franchised. The preferred method of development is management contracts with equity participation. That is the way Sofitel is in North America with every single one of them is a managed property. And in most of those properties, wherever we can, we have a 25% equity stake.
BMM: What do you think are some of things that a franchise buyer should be looking at when considering buying a hotel?
Poirot: For any franchisee coming into the market, the key is to choose the right location. In today’s environment we caution people about being able to raise finances. The environment has tightened in the past six months but we haven’t seen a dramatic impact on the number of potential franchisees but we know that there are franchisee candidates who are struggling to secure financing.
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Related readings:
- Motel 6 Unveils New Prototype
- Accor Sells Red Roof Inn
- Hotels Weighed on Fair Franchising Practices
- Fair Franchising Is Not An Oxymoron, AAHOA's 12 Points of Fair Franchising
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