Franchise or independent hotel?


Franchise or independent hotel?

This a question that often bothers investors. The answer to this question depends on many factors such as location, micro-location, supply and demand, the presence of certain brands on the market, the size of the hotel, the facilities, the availability of qualified labor, and finally, the way the hotel is managed after opening.

If you decide on a branded hotel, you will benefit from the previous experience of the brand gathered through years of work and experience, and you will be less exposed to common mistakes and omissions at the beginning of the business. By choosing one of the franchises, your initial position for obtaining a loan from one of the banks will be much easier than getting a loan for an independent, stand-alone hotel, which can be a great advantage when starting your project.

No solid evidence can convince us that franchise hotel have better financial results than independent hotels. Still, independent hotels have to take more significant risks doing everything independently without the support of resources and guidance of an experienced and successful franchisor.

The hotel franchise is tied to the parent brand. The parent company decides the name, design, marketing, website, and certain financial elements. Before any investment in architectural projects, it is necessary to consult with the parent company. This option is tempting for beginners in the hotel industry who have no previous experience in this industry.

One of the advantages is that the brands have a shared purchasing power regarding furniture, fixtures, inventory, and other hotel supplies. By joining the brand, you can enjoy better prices (depending on the market in which you are opening the hotel) and reduce project costs. Through bulk procurement, franchise hotels have more bargaining power and can deal directly with large suppliers to reduce procurement costs. These elements will help them keep prices relatively low and increase their return on investment.

Being part of a larger company is very helpful. The parent company will provide you with training and assistance with site selection, design, construction, financing, and grand opening of the facility. A brand will also immediately attract the best, most experienced employees, whereas you may need to spend time building a reputation before hiring the best of the best when opening an independent hotel. This is especially pronounced on the territory of the Balkans.

Branded hotels

Franchised hotels often enjoy the incredible advantage of brand recognition. A franchisee could leverage the brand’s proven success in advertising, marketing resources, and customer loyalty to win over guests quickly. Once the franchise brand is recognized, guaranteed quality in the stay experience and services will gain customers’ trust and encourage them to want to stay with the same brand whenever they travel to a foreign place.

Disadvantages of the franchise model:

  • There is no complete control over the operation of the hotel
  • You are required to follow the norms and standards dictated by the brand
  • Payment of franchise fees
  • Revenue sharing with the franchise
  • The risk of losing the franchise and building a brand from scratch

Advantages of a hotel franchise:

  • Support and help from experienced and qualified experts
  • Instant brand recognition
  • The possibility of increasing income and profit in a short period
  • Marketing and technical knowledge, along with software tools
  • Ability to connect to global distribution and internet services to increase the exposure of your hotel and increase the occupancy rate

Independent hotels

Unlike a branded hotel, independent hotel owners have more freedom for creativity and customization of services, as complete control over name, design, marketing, finance, and all other areas. It can be particularly interesting for hoteliers with a specific vision of the offer they want to provide to their guests.
The capacity of the hotel is one of the crucial factors that can influence the investor not to be able to talk to one of the franchises. It is undoubtedly a better option for family-run or boutique hotels to build their independent brand. This way, they can use their local culture, create uniqueness, and differentiate themselves from other facilities. With greater flexibility, they can adapt more quickly to new trends without being bound by franchise policies and have complete control over their business, but also take risks based on their trust in their vision.

Independent hotels can focus more on service and guest experiences than franchise hotels’ once-limited offerings. This means they can decide on the hotel entirely based on the guests. While brand standards are based on years of experience and, as such, exist to ensure a positive guest experience at each location, they cannot be sensitive to your specific area or more specialized target audience.

Guidance and advice can be beneficial, but privacy is also essential regarding financial statements and decisions. Independent hoteliers have far more control over budget and consumption, and apart from tax institutions, they are not obliged to report their activities to anyone.
The independent path generally means a smaller investment and no fees when opening an independent hotel. Opening a branded hotel comes with less risk, and you are likely to start making profits earlier, but of course, these benefits are not free as you have to pay an initial lump sum to the franchise and ongoing payments of other fees. If your independent hotel is doing well, it could become more profitable without a franchise.

Advantages of independent hotels:

  • You are in charge – you don’t have to answer to anyone and submit reports and plans
  • You don’t have to follow any rules or restrictions imposed by others
  • You can save money from franchise fees and use it to develop your hotel and grow your business
  • Total revenue and profit are yours, and you don’t have to give anyone a part of it

Disadvantages of independent hotels:

  • You face all the challenges and fight all the battles alone. There is no one else to guide and advise you
  • Complete marketing and brand building is up to you
  • Limited resources and budget. You will have to operate within those constraints
  • It usually takes years to build a brand and position your hotel high among the competition

Amer Coric

Dubos Consulting

/ Blog

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