How Management Companies Manage Hotels and Franchising

							How Management Companies
     Manage Hotels
     and Franchising

     Chapters 15 and 16
Unique Characteristics of the Hotel
            Industry
• Open 24 hours a day
• Providing many specialized services
• A miniature self-sustaining society

• Why hotel management companies exist
  – to provide needed hotel management
    expertise to inexperienced hotel owners
History of Management Companies
 • real estate investors who built hotels needed
   hotel managers
 • lease arrangements, two-thirds/one-third lease
 • Caribe Hilton Hotel, San Juan, Puerto Rico
 • Inter-Continental Hotel Corporation,
   management contracts, incentive fees
 • Robert M. James, Regal-AIRCOA
 • International Council of Hotel and Motel
   Management Companies
      Hotel Management Contract
              Provisions
•   Operating term
•   Fee structure
•   Reporting requirements
•   Approvals
•   Termination
•   Operator investment
•   Operating expenses
•   Other provisions
        Franchise Definition
• The authorization given by a company to
  another company or an individual to sell its
  unique products and services.
• Types of franchises
  – product or trade-name
  – business format
History of Product or Trade-Name
            Franchising
•   Publicans
•   Revenue collectors in the Middle Ages
•   I. M. Singer & Company
•   Car manufacturers
•   Coca-Cola
     History of Business Format
             Franchising
• Howard Dearing Johnson, Howard
  Johnson restaurants and products
• Kemmons Wilson, Holiday Inn
• Ray Kroc, McDonald's
     How Franchising Works
• An initial franchise fee
• Ongoing fees
• Uniform Franchise Offering Circular
         Why buy a franchise?
•   Self management
•   Financial independence
•   Career advancement
•   New skills/training
•   Long-term investment
Advantages and Disadvantages of
     Franchise Ownership
• Advantages
  – site-selection assistance, credit, construction
    expertise, fixtures and equipment assistance,
    training, opening support, promotional
    assistance, economies of scale, ongoing
    support
• Disadvantages
  – restrictions, unwanted products or
    procedures, unwanted advertising,
    unprotected territories, cancellation,
    inadequate training
               Franchisors
• Advantages for franchisors
  – little or no capital required for expansion,
    quick expansion, franchisees shoulder
    investment risk, owners connected to local
    community
• Disadvantages for franchisors
  – gives up the profits generated by the
    franchise units, gives up some control
     Other Franchising Issues
•   Encroachment
•   Financial violations
•   Contract violations
•   Mature markets
•   Outlets in nontraditional locations