Joining a chain—franchisors/franchisees speak out

By Colleen Isherwood
Editor

There’s no magical formula that determines whether a franchisor/franchisee relationship is a good one or fraught with conflict, but there are things to look for, and tips of the trade that can help improve the relationship’s chance of sucess.  Canadian Lodging News interviewed 10 franchisors and two franchisees to get their views on what makes a successful franchise.

FRANCHISORS

What should franchisees look for when they are shopping for a brand?

“Franchisees should look for brand power, and that means a brand they can trust, a brand that is growing, and a brand that is relevant to consumer needs,” says Brian Leon of Choice Hotels Canada, Canada’s largest hotel franchisor, with more than 280 economy to mid-scale hotels across the country . “High standards are also a very important factor, as is ensuring there is a strong corporate team on board committed to providing owners with a support system for success.

Glen Blake of Oakville, Ontario-based Full House, franchisors of Howard Johnson and Knight’s Inn in Canada, agrees that franchisees should look for a brand that has integrity, and opportunities for growth. They should also choose a brand that aligns very well with their own personal and business plans. 

Irwin Prince, president and COO of Realstar, Canadian master franchisors of Days Inn, Motel 6 and Studio 6, says brand fit is crucial.  “Owners need a realistic evaluation of the fit between what the owner has and what the brand can deliver.”  If the fit is not right, Prince says he would be better off telling the owner that and recommending another brand.  “It’s like selling you the wrong size of shoe.  The shoes may look good, but two days later you’re unhappy because it’s the wrong fit.”

“The brand should have household familiarity and be geared for the desired market,” says Mark Williams, VP North American Development for Best Western. “It must not only drive the requisite rate but attract the type of guests that spell long-term success for the hotel. In addition, a potential franchisee should investigate a brand’s corporate culture: Does the franchisor exist to service the franchisee, or do franchisees merely kick revenue upstairs to bolster the share price of a parent company?  Lastly, the fee structure and contract terms must favor  franchisee success.”

While all these factors are important, the most important question to ask is, “Do they have a loyalty program,” says Nancy Johnson, chief development officer for Carlson Hotels Worldwide. “This has become one of the tables stakes—you almost have to have one now to be relevant.”

Raj Trividi of La Quinta advises potential franchisees to get testimonials—look closely at franchisor/franchisee relations before deciding on a brand.

Mark Hope, executive director brand development of BC-based Coast Hotels says there has to be a comfort level on both sides of the transaction—“comfort both with me and my brand and [the franchisee] and their asset.”

Philippe Gadbois of Atlific Hotels & Resorts has a unique perspective. As a management company, Atlific is frequently retained by ownership prior to selection of a brand, making them somewhat neutral to the selection process. Third-party consultants such as PKF, and HVS also provide this service. 

“There is no easy answer—basically the highest and best branding in the marketplace where the developer is looking to build something.  It can be a five-star or a one-star brand, but it must be the appropriate brand to ensure that the property being developed is successful,”says Gadbois.

2. How can franchisees determine that all-important  “brand fit”?

“Franchisees should research the hotels in the brand’s system, and  visit those in their area,” says Best Western’s Williams. “On an operational level, franchisees should review the standards, product, and rates of each chain to make an honest assessment of whether they can maintain a property appropriate to a given system.”

“Franchisees need to ensure they have a high level of comfort with the franchisor before making a decision to move forward,” says Choice’s Leon. “The qualification process to consider any franchisor should answer any questions a future owner would have, and should put future franchisees at ease with this important decision.”

Several franchisors noted that location and the marketplace opportunities that exist in that location should be a big part of the equation.

Coast Hotels is strictly a Western Canadian chain. “If someone wants a hotel in Niagara Falls, I don’t have a network to plug into Niagara Falls.  I’m honest with people—I’ve actually told people not to build a hotel in saturated markets,” says Hope.

Be realistic about your expectations from the brand and the attractiveness of your opportunity to the brand, says Scott Duff, Starwood’s senior director, development for Canada. “Ensure that the costs to develop are consistent with the business opportunity that the franchisee can sustain. For example, a full service, upper-upscale hotel may cost upwards of $250k / room to develop before land costs, and a franchisee needs to know whether they can sustain those costs.  At 200 rooms, this translates into a hefty investment so it isn’t going to work in an industrial park or most secondary markets.”

“Look for a brand that focuses on service and support,” says Full House’s Blake. “It’s most important to look not only at the brand name, but at the people behind the brand.  Do they want to work with these people?”

“Everyone is looking for some for more exclusivity and protection of their market, and the brands themselves want to give you less and less protection,” says Gadbois.  “It’s important to look at exclusivity of territory – how long and how much geographical protection do they promise before another property with the same branding comes in?”

3. How can franchisees research various brands?  Where can they find that information? 

“It is important for future franchisees to use every available tool to help with the brand research process,” says Choice’s Leon. “Reading trade magazines like Canadian Lodging News is an important first step. I would also suggest attending franchisee and hospitality industry trade shows, approaching franchisee associations, and visiting the web sites of several hotel brands to gain an understanding of brand positioning, corporate ownership and company standards.

All of the above are important according to Prince, but one of the best ways to get information is to talk to existing owners and franchisees.  Word of mouth is the best generator of demand. Prospective franchisees should talk to owners who have been with the brand for a short period of time, and also to someone who has been there for a long period of time to get an accurate picture of the franchise.

Start with a brand’s website, says Williams, then request the Uniform Franchise Offering Circular and visit hotels in the brand  to  talk to owners. Attend major industry conferences and trade shows to listen to executives from the brands that pique your interest.

Carlson’s Johnson recommends looking at STR trend reports, going to other licensees of the brand and asking questions.

Best Western actively courts franchisees, or other independent hoteliers that may be interested in joining a chain. “We do mass mailings to regions, specific developers, and conference attendees. We maintain active relationships with our current member hotels to ensure they think of us when they want to develop another hotel, and to encourage them to serve as source of leads and referrals,” Williams says.

When researching various brands, the brand website gives you links to brand sales or franchise development people. But Gadbois sounds a cautionary note, “Remember, they are sales people!” he says.

4. What are the main qualities the brand is looking for in a franchisee?  How can a franchisee improve their chances of successfully landing a franchise?  How do they get their “ducks in a row”?

All brands seek strong operational skills including adherence to standards, financial stability,  and a willingness to work within brand guidelines, says Williams. “In addition, Best Western seeks member owners who want to participate in the development of the brand.”

Gadbois stresses the need for an ability to do a number of projects with the franchisor. “Nobody wants to do onesies and twosies,” says Gadbois. “Brands often go through a pretty intensive screening process including criminal record and credit checks, which are expensive and extensive.  They don’t want to do that every time.  In other words, they like to work with people they know.”

“Franchises are not in the business of turning down developers.  But their brand will be a reflection of that franchise business.  Customers will rate the brand based on their experience at that property.  That’s why planning by the rules is vitally important.”

“We’re looking for quality,” says Carlson’s Johnson.  “We want people that have the operational experience to be able to deliver the customer service we want for our brand.”

Prince says that Realstar looks for someone who enjoys working with people, because hotel owners are in the service industry, 24/7. “They need to understand how to build a relationship with people,” he said adding that when people stay at Realstar brands, it’s not a one-time transaction—whether they’re going to Barrie, Ontario or Revelstoke, BC, the company wants Days Inns, for example, to be top of mind.

“We’re looking for franchisors who are passionate about the business, individuals who clearly understand the notion of hospitality,” echoes Blake.  “A hotel is not just bricks and mortar, but a thriving family. We look for people who come into our office who have already thought about and put a plan together about how and what they would do when they join the franchise system.  It’s important that they are business people with a business plan and a budget.  Joining a chain is not just flipping a switch as much as work on the part of the franchisee to help enhance the prospect of success.”

“Brands look for self-starting entrepeneurs who have the ability to work within a franchise framework,” says Starwood’s Duff. “A brand will look for proven business experience ideally within the industry with solid management infrastructure or a willingness to hire a recognized third-party management company.  I think that it’s also important that prospective franchise “get” what the brand is all about and be willing to embody that philosophy in their business.”

“We’re looking for franchise candidates that share our passion for delivering a great guest experience, and those who will fit well into a franchise environment,” says Leon from Choice Hotels Canada. “A hotel franchise can provide an owner with some great benefits, but it’s not for everyone. Some operators are just too independently minded to be able to fit well into the guidelines of a franchise system. The need for brand consistency is crucial to providing guests the same experience regardless of where they stay across the country. We’re also seeking those who have a clear plan on how they’re going to operate their hotel—the resources they’ll have in place to oversee key functions like sales, marketing and hotel operations. While hotel experience is helpful, it’s not a requirement for us.”

5. What steps do franchisees have to go through in order to meet the brand requirements?  Interview process?  Financial evaluation? Financing requirements? Letters of recommendation?

“While financing has become more difficult to secure, the good news is that it’s still available, and most financial institutions give preference to hotels that have secured a strong brand,” says Leon.  “For most, it’s a great idea to invest into having a professional consulting report completed. There are a number of reputable firms, including PKF and HVS that will complete them. These reports provide valuable information to hotel owners and are great tools for securing financing, plus, they put hotel owners in strong positions to negotiate the best financing terms possible.”

Typically, the process starts with a conversation with one of our three directors of franchise development, said Realstar’s Prince. They help determine the fit of the asset to the brand.  After that, Realstar distributes a disclosure document to all prospective franchisees as part of its commitments as a member of the Canadian Franchise Association. There’s a financial and contractual agreement, an application that must be completed and returned to the company, and a set of license agreements.

For new construction, they review and assist the architect with creation of a set of plans.  For conversion properties, Property Improvement Plan provides a list of what has to be done in terms of improvements, be they new bedspreads, replacement of carpet, new case goods or a new lobby.

Realstar also asks new hotel owners to work for 1-2 weeks in one of their sites, getting hands-on experience in all departments including laundry, night shift and room attendant.  This takes place while their hotel is under construction or renovation. The offsite arrangement works well because the owners are not disturbed by phone calls and other interruptions, and can fully focus on training, Prince said.

Full House’s Blake says they obtain new franchisees using effective marketing and dynamic ads, resulting in calls from potential franchisees who want to learn more about the brand and the company.  The next step is meetings and discussions between franchise sales representatives, who visit the properties to meet with potential franchisees.

Atlific’s Gadbois points out that franchisees will need a third party feasibility study to get funding. Everything depends on the project and the brand and the financing.  Most brands and lenders force developers to retain the services of third party management companies or consultants. “Typically this would not apply to brands such as Wyndham or IHG, but Marriott, Hilton and Starwood will force management on you unless you have obtained experience through previous projects,” he says.

6. Any tips on how to handle the financial requirements? 

“Lenders for hotel development are few and can afford to be picky, so they will be looking for significant equity requirements before proceeding,” says Duff from Starwood. “They, like the brands themselves, only want the best deals and most lenders require ownership experience, ideally with multi-units.  If you don’t have that, consider, partnering with someone who does until you’ve got enough experience and credibility in their eyes to stand on your own.”

“Bring in partners so you do not have to handle all the financial issues on your own,” suggests Best Western’s Williams.

“For existing owners, it’s part of the requirements of our brands to spend money to meet the brand standards,” said Prince.  “If the capital doesn’t exist, that’s a dealbreaker for us—it’s essential for the overall health of the brand.”

7. How long does the evaluation process take?

The whole process can be as short as a couple of months if the hotel is a new build that is brand-ready, and 18 to 24 months if the deal involves new construction, says Prince.
For Best Western the process takes 30 to 60 days.

Blake says that from the time a person thinks about becoming a franchisee to the time they open can be anywhere from 30 to 160 days, with an average of 90 to 100 days, or three months.

“When evaluating conversion opportunities, we also assess the property and how it would fit within our brand portfolio, adds Leon. Once we receive an application, provided the property and franchisee appear to be a potential partner, we arrange for completion of a ‘Property Improvement Plan’.  This identifies any facility upgrades that would need to be completed to meet our brand standards.  This process can be completed in just a few weeks, and from there we review it with the prospective franchisee and agree on a plan to address the various items.”

8. What kinds of assistance can the franchisee expect from the brand, especially in the crucial first year or so?

“Any brand worth its salt should assist with operations, sales, design, supply, marketing, bookings and PR,” says Best Western’s Williams.

“Assistance among the brands is tremendously varied,” adds Gadbois. “They are all strong at some things but weaker at others.  For example, Marriott offers a tremendous amount of help prior to opening a property.  Its like a jigsaw puzzle kit with written instructions.  Hilton and Starwood provide a lot of help but less than Marriott.

“Marriott offers less help once the property is open – they leave it up to you to follow the Marriott system. Hilton is more helpful, especially on the technology side of things, which is one of their strengths.  And while Starwood offers less assistance than Marriott before the opening, once you’re opening they’re all over you.”

“We offer as much as the franchisee wants to accept—including reservations, marketing, purchasing, hiring practices,” says Hope from Coast Hotels.

“Our approach is to roll up our sleeves and help on all aspects,” said Prince.  In addition to the owner training mentioned earlier, Realstar offers pre-opening assistance including preferred vendor recommendations, pre-opening press assistance, and a team of trainers to bring staff up to speed prior to the opening.

Full House’s Blake says his company has onsite and online training, plus a dedicated director of business development available 24/7/365 for technical support and service.  There are one or two more site visits in the first three months, and a rolling program of onsite visits for two or three days, three or four times a year.

9. What kinds of advantages does your chain have to offer?

One of Realstar’s major advantages is that it is Canadian–owned.  “We are not a branch office of a U.S. company.  We know the market, the specific of each region.”

Coast emphasizes its strong presence in BC and Alberta, on all the major highways in BC.  “There’s brand value recognition in those areas,” says Hope.

Full House’s two brands can provide a double opportunity for some franchisees, according to Blake.
 
“Some franchisees may not be able to work up to a mid-market right away.  In some cases, they can join as a Knight’s Inn and grow into a Howard Johnson.” In the company’s first 24 months of operation, one franchisee has already done that, he adds.  “We also have great opportunities for growth across Canada.  We are not saturated in any one market—and there’s room to grow.”

“As the World’s Largest Hotel Chain, we offer unrivalled flexibility in product and contract length, lower ongoing fees, and global recognition in 80 countries,” says Willams of Best Western.

Johnson of Carlson also stresses the sheer size of her company’s brands, as well as the fact that they have the largest travel agency in the world with Carlson Wagonlit.  “We have a large system that is truly global—we have more hotels in major European countries, and we have a global loyalty program.

“We have the only online travel agent loyalty program, Look to Book.  This gives travel agents points, providing a huge advantage over our competition,” Johnson adds.

“We’re the biggest, privately held and family run hotel company.  Maintaining relationships is crucial in any business.  We really value that at Carlson.”

La Quinta is the fastest growing economy brand in the Americas, says Trivedi.  “We believe in smart growth,” he adds.

Here’s the bottom line, says Gadbois.  “Any developer and  manager out there who expects the brand to fill his property is going to fail.  The brand is a tool and the management (general manager or management company) has to take advantage of the tools offered by the brand. They can only really do so effectively by asking for help.  The squeaky wheel gets the oil!’

FRANCHISEES

1. Tell me about your property

Fresh out of the University of Guelph hotel management program, Jay Pandit is a first-time franchisee who opted for the Howard Johnson brand from among the five brands he researched. His 78-room property on Kingston Road in Toronto’s east end, formerly known as Toronto Gateway, opened as a Howard Johnson at the end of January.  Pandit’s family had owned the property for three years, but the property had reached a cap in terms of how far they could go without a brand. “There is only so much exposure you can get as an independent,” he told CLN.  “After that, especially in today’s market, you have to franchise.”

Royal Adderson and Lori Andrew’s 53-room Calgary motel was built in 1956 and caters to small business, construction workers, people visiting the three hospitals in the area, and in summer, vacationers.  They had identified sports teams and schools as potential markets, but found that those organizations were reluctant to go with an independent motel.  They ended up with  a Canada’s Best Value Inn for a number of reasons.

2. What did you look for when you were shopping for a brand?

Adderson and Andrew were looking for something different. Their motel is located in the area of northwest Calgary known as “Motel Village”, where there are 12 accommodation properties in a relatively small area. “The Canada’s Best Value Inn logo was catchy, and we wanted a brand that wasn’t already in our area,” said Adderson.  “We liked the idea of a membership rather than a franchise model.”

3. How did you determine the “brand fit”? Did you research various brands?  Where did you find that information?  How did the brand help you with this process?

Adderson and Andrew looked on the internet, made some phone calls and looked at brochures.  Once they had decided they were interested in CBVI, Vantage Hospitality sent Bill Hanley to talk to them, “and the rest is history”, Adderson said.

4. Why did you choose this franchise?

After seeing several brands, Pandit decided on Howard Johnson because it had the “energy of a brand moving forward instead of standing still.  A few of the brands we approached were not really growth oriented.  Their attitude was ‘this is what we have done so far and we are going to continue doing it.’”

5. What steps did you have to go through in order to meet the brand requirements?  Interview process?  Financial evaluation? Financing requirements? Letters of recommendation?

One of most helpful things Howard Johnson did was sending someone to work onsite to help Pandit with the reams of paperwork associated with becoming a franchisee.
 
“If we had questions, we got an answer right away.  And even if they didn’t know the answer, they would get out their Blackberry and get a message back right away,” he said.

6. Any tips on how to handle the financial requirements?
 
“It’s a given that you’ll need financial statements for the part few years,” said Pandit.  “Get a good accountant and before you undertake the process make sure you books are in order.  Nothing can go forward until that’s done.”

7. How long did the evaluation process take?

Pandit said it took him a year to decide on which franchise to joint, but once the decision was made it took six weeks.  “It depends on if you have your paperwork ready,” he said.  “It can take six to eight weeks, but it will be longer if the paperwork is not in order.”

8. What kinds of assistance did you receive from the brand, especially in the crucial first year or so?

Pandit had to undertake extensive renovations in order to get his hotel to meet Howard Johnson standards. “We had loads of help on everything from the contractor, to purchasing products, the interior designer, inspections and marketing strategy.  They helped up every step of the way.  We were very luch to deal with Rick Keene.  He was really there for us, and that’s important, especially for a first-time franchisee.”