Franchise Renaissance?

The depth of the recession is likely to see a deeper interest in franchising both by owners, particularly lenders with REOs on their balance sheet. The recession appears to be generating interest for franchises amongst former corporate employees as this article in the Wall Street Journal and Franchisedirect.com note. Franchisedirect says that "franchising will be something that we’ll be reading a lot more of in the coming weeks and months" while the Journal article says that "Franchisers contend that franchises are a natural alternative. They
argue that their time-tested, how-to business model offers people a
greater likelihood of success than striking out on their own—assuming
that the franchisee is willing to play by the company’s rule". The WSJ article quotes a "franchise expert" on the pitfalls in franchising and details the requisites for successful franchising.

But as any hotel owner and operator will readily attest to, hotel franchising is arguably so unique that the challenges in acquiring and operating a hostelry demands more savvy, rigor and capital than most others. So how are hotel franchises doing under the new economic paradigm?  Some public brands have seen their stock downgraded by analysts while others have scaled back on their projections for the next couple of years while still others such as IHG have had a resounding vote of confidence as evidenced by the renewal of long term franchises. Many others are looking east for, hopefully, greener pastures in Asia and the Far-east in the interim.

As yet the outlook for boutique hotels is unclear. Recessions have historically been unkind to non-branded hotels. Preliminarily that aspect appears to be true this time around as well as this offering by the unsurprisingly named cheapflights.com for boutique hotels indicates with major cities like New York, Las Vegas and Chicago hiving off  as much as 25-45% from their rates. Other cities such as Portland, OR have seen occupancies drop far more than the national average.

However, the prognosis for boutiques may not be bad once the economy recovers as boutiques are not merely independents but hostelry that combine character, design and functionality all catering to a new demographic that is distinctly different. An example of the appeal of design to that demographic, albeit in a different industry, even in this recession can be seen in this article in the Wall Street Journal. The other positive for savvy boutique operators is the presence of the world wide web and its enormous potential and influence as a distribution system. When consumer spending picks up, such operators are likely to see their coffers refilled more quickly than others without having to deal with some of the financial burdens of a franchise.

Published by

Vijay Dandapani

Co-founder and president of a New York based hotel company for 24 years. Grew the firm to five hotels in Manhattan and also developed a greenfield project at MacArthur airport, New York. Speaker at numerous prestigious forums including Economy Hotels World Asia, Lodging Conference, NYU, Columbia University Real Estate Roundtable, Baruch College's Zicklin School and ALIS. President and ceo of New York City Hotel Association since January 2017.

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