So You're Not Happy with Your Franchise

So you are not happy with your franchise and you are thinking about changing flags? Really??? It is a conversation and a personalized reality check that I have with many clients each and every year.Often times, hotel owners are quick to pull the trigger proclaiming the brand isn’t working for us!  Well, that may be true, but more often than not it’s not so simple.  I have been giving my clients the same advice for years.

How do you know? Many clients I talk to honestly don’t have a grasp on their competitive set and their local market.  What is their yield and penetration compared to other comparable properties? Do you have a good handle on that?  With a little research you may find out that the brand isn’t performing as poorly as you think  based on poor market conditions that exist in your own back yard.

Is the property being professionally managed? Is the product competitive? And, just as important, is the franchise owner/manager maximizing all the revenue generating opportunities, plans and programs offered by the franchise company? Most of the larger reputable franchise companies have a multitude of wonderful and effective marketing support that when properly implemented by property management results in the generation of significant room nights. All too often franchisees fail to utilize the tools that they are paying for. 

What’s the real cost involved in changing flags? Most franchisees don’t look at the total picture. I try to remind them that changing franchises is very expensive, much more so than meets the eye. For example, you may well have liquidated damages, legal costs, the new brand will certainly require initial fees, a product improvement plan, new signage, replacement of logoed and proprietary items, not to mention that whenever you switch from Brand A to Brand B there is a significant lull in business until that property is properly uploaded into the new brand’s marketing and distribution systems. Even a 100 room property that requires only light renovation can be looking at a real cost of approximately $400,000.00 plus at the end of the day.  So the key question would be – how much new business will the new brand create to generate a profit of $400,000.00 plus? At 25% profit, the new brand will need to create about one million six hundred thousand dollars ($1,600,000.00) of added business to pay off the $400,000.00 cost. Once you do the math and have a realistic handle on the numbers, it then becomes a business decision.

What is your alternative? Well, I always tell my clients to take a hard look at making the relationship work.  I find most of the major reputable franchise companies are willing to listen and assist. If property management is genuinely participating in all of the marketing programs, exercising good management along with the competitive product, and for some reason the property is still performing under its competitive set, these companies will step up and assistant in the form of possible fee relief, sometimes forgiven – other times with an accrual and a pay back during better times – certainly with property analysis, additional marketing focus and support, perhaps organizing a sales blitz to get the property jump started, a review of the Reservation System, inventories, etc. etc. to find out what the problem is and fix it.  Identifying the problem and fixing it is always more cost effective than making an arbitrary decision to change flags.

Finally, at the end of the day, you’re going to have to make a solid business decision. That decision should only be made after proper realistic and honest evaluations have been made.  Don’t point fingers – work together to fix the problem and everyone emerges better for it.

About the author: Steven Belmonte is president & CEO of Hospitality Solutions LLC. He is the former president & CEO of Ramada Hotels and executive vice president of the Cendant Hotel Division. Hospitality Solutions provides nationwide assistance to hotel, restaurant and quick-serve restaurant owners for "all things franchise."