The Hotel Times - September 2008 - (Page 28)

FRANCHISE UPDATE Economic crisis: stress or opportunity for franchisees BY CATHIE GANDEL, C O N T R I B U T I N G E D I TO R ? O ne of the hottest trends of summer 2008 was the “staycation,” a clever word for what many Americans saw as a second-best, and at times necessary, option. Worried about the soft economy as well as the high cost of gasoline, people opted to stay put. But while the trend has generated a lot of press, it is not the whole story. According to a Travel Industry Assn. survey released in August, only 9 percent of adults in the U.S. said they were planning a backyard vacation in the coming six months. In addition, the survey found that 22 percent of those taking a “staycation” expected to spend at least one night in a local hotel, motel or resort. “I think we should put the industry in perspective,” said Jim Anhut, SVP for franchise development at InterContinental Hotels Group. “The sky is not falling. While the growth rate of quarterly earnings was not what it was in previous years for most companies, we are still a profitable industry. We are not reporting huge losses like the automotive or airline companies.” That said, it’s not an easy time for franchisees, who are “at the spot where the rubber meets the road,” according to Steve Belmonte, president of Hospitality Solutions LLC, which helps hotel industry entrepreneurs negotiate with franchise and management companies. “Not only does the macro-economic picture impact their business, they are locked into franchise agreements that mandate maintenance, upgrades and an average 14-percent royalty fee all-in,” he said. “In tough times, when franchisees are looking for ways to save money, they will eventually have to evaluate the relationship with their franchisor.” What does that mean? Franchisees may look at new brands like Vista Inns and Americas Best Value Inn that are more franchise friendly, Belmonte said. “It’s all about [return on investment],” he said. “A 4-percent royalty fee versus 14 percent makes a huge difference over a five- to 10-year period.” Market stress “Franchisors asking franchisees to spend money becomes a bigger deal in a down economy,” said David Neff, a lawyer with Perkins Coie in Chicago, who practices in the hotel industry and is a former chairman of the International Society of Hospitality Consultants. Neff points out several areas that can produce tension, including required upgrades to guest amenities or to the product. “These 28 The Hotel Times September 2008 www.TheHotelTimes.com http://www.TheHotelTimes.com

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The Hotel Times - September 2008 Business Outlook Editorial Outlook Contents In The News Transactional Facts Hurry Up and Wait Capital Outlook Development Outlook Brokerage Outlook International Litigation: Who gets sued? Insurance Outlook Economic Crisis: Stress or Opportunity for Franchisees? Franchise Outlook Ad/Edit Index In Closing

The Hotel Times - September 2008

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