Is now the time to join a hotel franchise?

With the COVID-19 pandemic far from over, now could be the time for independents to consider if they should become part of a franchise. This is according to Duff & Phelps, the global advisor that protects, restores and maximises value for clients.

Being part of a group of hotels that share a recognised brand and provide services such as central reservation systems, marketing and defined operational procedures might mean the difference between financial success and failure in the months to come.

Paul Smith, Managing Director, Restructuring Advisory at Duff & Phelps, stated: “Hotel occupancy levels are at record lows, with many now closed, staff furloughed and businesses now effectively mothballed. But the challenge many still face is the lack of working capital to cover creditor costs and many may not have enough to survive.”

“Arguably now is the time for many to consider becoming part of a bigger family, one based on the franchise model to help prepare the business for the end of the lockdown. There are clear benefits to joining one of the bigger global franchise groups, including access to key money designed to be invested in facilities to get them up to an expected standard, but also to the marketing power of these groups.”

The benefits of becoming part of a hotel franchise network include key money, marketing and other financial support and being associated with a global brand, creating an instant identity which will attract customers to properties.

“Joining a franchise does come with financial responsibilities. A franchise or royalty fee is only part of the cost of becoming part of a hotel chain. You will probably also be charged an initial fee for joining the chain, an annual cost of the reservation system, various marketing and frequent guest programmes, and a fee should you wish to terminate the affiliation before the term ends. But we are in a new paradigm and that means both franchisee and franchisor may see this as a golden opportunity to engage,” added Smith.

“There is no doubt that hoteliers that decide that now is the time to undertake major capital works are brave, but many may see now as the time to access key money from the bigger franchise groups to do just that. For many franchisors this could also be seen as a unique time to offer independents a ‘golden hello’, using that key money to support cash flow as opposed to capital investment in the short term.”

There are several hotel franchise operators in the UK. Peter Till, Managing Director, Choice Hotels UK, commented: “When choosing a franchise partner, owners should look to the brand’s history as far as fees go. Now is the time to see who is offering key money and what that could be used for; who is offering better ramp up; you look at the central reservation system and the loyalty programme as well as the power of that hotel brand.”

Smith continued: “The primary benefit of a hotel franchise affiliation is the brand’s ability to generate additional occupancy and this will never be more important as the UK leaves lockdown. Working with a franchisor who can prove their competitive advantage over the other hotels in your market could deliver a critical boost once the current crisis comes to an end.”

Duff & Phelps has a trained team of experts to support both independents and hotel chains through potential franchise negotiations. Duff & Phelps can also help businesses establish best practices across the entire value chain, including assistance with a range of transformational human resources initiatives, accessing emergency funding, maximising cash flow management, Time To Pay arrangements in the context of HMRC tax commitments and proactively ensuring all suppliers and creditors are properly managed.