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Advantages and Disadvantages of Franchise Hotel

by Fabiha Bushra

In the hospitality business, a franchise hotel can be broadly likened to a chain because it is a management agreement that provides certain services (brand, reservation system, support, etc.) in exchange for adhering to particular rules and procedures. Alternatively said, other hotel owners also use the hotel’s name. A franchise (or franchising) is a method of product or service distribution where a franchisor creates the brand’s trademark or trade name and a business system and a franchisee pays a royalty and frequently an upfront cost in exchange for the ability to use the franchisor’s brand and operating procedures. An enterprise that provides short-term lodging (often one or more nights) in a bedroom to guests for a price, as well as, in some situations, one or more meals in a restaurant or communal eating area housed inside the building, is known as a hotel or commercial lodging. The hotel offers rooms that guests can rent or reserve in advance.

What is Franchise Hotel?

An agreement between a franchisee, who owns the business, and the franchisor, who owns the brand, is known as a hotel franchise. The franchisor’s name, intellectual property, reservation system, and operational support resources are made available to the business owner—whether they are the landlord or the tenant—in exchange for a franchise fee.

Unless the owner chooses to appoint a third party operator to manage the property on his behalf, the owner maintains control of the property and is responsible for all business-related obligations. Similar to how he is responsible for adhering to brand guidelines because he manages the hotel under the brand name, the owner has no power to approve modifications to the brand.

An organization that “gives” a third party a license to operate a business under its trademark is known as a franchisor. The goods and services that must be provided are specified. A franchisee is a firm that, in accordance with the terms and circumstances of the franchise agreement, “uses” the franchisor’s permission to conduct business under his trade name. To put it another way, it indicates that the parent Hotel Franchise Company has granted the local owner permission to utilize the parent company’s name (brand) and goods. It is possible to own a franchise as a corporation, sole proprietorship, limited liability company, or another type of business entity.

In the case of a hotel franchise, the franchisor will be a hotel chain, for example, Hyatt, Hampton, or Sheraton.

The Agreement of Franchise Hotel

A franchise agreement is a contract between the owner of a hotel brand (the franchisor) and the owner of a hotel asset (the franchisee), and it allows the franchisee to rent out the right to run a hotel under the franchisor’s name in return for fees. The franchisee must accept and sign a franchise agreement before they can start a hotel franchise. This document outlines the entire procedure, financial obligations, and operating guidelines that the franchisee and franchisor must adhere to. The franchisor will receive initial and recurring franchise fees from the franchisee in addition to the franchise agreement. These franchise fees will cover the initial outlay as well as further and in addition

  • Smaller costs for marketing,
  • Brand adherence and
  • Quality control.

A franchise hotel can be an option to take into consideration if you’re wanting to invest in the hospitality sector. Franchise hotels are establishments that are a part of a more established hotel chain, like Hilton or Marriott. They provide access to a reputable brand name, well-established business systems and processes, and franchisor assistance, among many other advantages. They do, however, have several shortcomings and restrictions. The advantages and disadvantages of operating a franchise hotel will be discussed in more detail in this article.

Advantages of Franchise Hotel

Brand Recognition: Having access to a well-known brand name is the largest benefit of owning a franchise hotel. This may help draw clients who are aware of the business and respect its reputation. Also, it can make you stand out in a crowded market.

Established Business Systems and Processes: Business systems and processes, including as reservation and booking systems, marketing plans, and operational procedures, are frequently present in franchise hotels. This might assist you in swiftly and effectively getting up and running.

Support from the Franchisor: Franchise hotels often provide support from the franchisor in the form of continuous operational support, marketing assistance, and training. If you are new to the hotel sector, you may find this to be especially helpful.

Consistent Quality Standards: Franchise hotels must adhere to strict quality requirements that have been established by the franchisor. This guarantees that, irrespective of the hotel they stay at, visitors can anticipate a constant level of quality and service. This may encourage patronage and repeat business.

Disadvantages of Franchise Hotel

Limited Autonomy: The fact that you won’t have much freedom when running a franchise hotel is one of its main disadvantages. You’ll be forced to follow the franchisor’s regulations and procedures, which may restrict the choices you can make and the modifications you can make.

Royalty and Advertising Fees: Often, franchise hotels demand that you pay continuing royalties and advertising costs. Your gains may be reduced by these fees, which will make it harder to reach your financial objectives.

Initial Investment: Franchise hotel ownership might involve a sizable upfront investment. These can include the costs associated with joining the franchise, getting a house or refurbishing one, and buying tools and materials.

Limited Flexibility: Franchise hotels frequently have to follow the franchisor’s strict guidelines for decor and style. This may restrict your capacity to alter your property to suit your own or your visitors’ preferences

Bottom Line

Franchise hotel ownership can be a successful and gratifying investment, but it’s vital to weigh the advantages and disadvantages before deciding. A franchise hotel can be an excellent option if you’re searching for a tested business model with existing procedures and assistance. Owning a standalone hotel, though, can be a better choice if you’re searching for more freedom or flexibility. Prior to choosing a choice, make sure to thoroughly investigate your possibilities.

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