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Brands work to improve franchising for owners
March 23 2012

Lack of financing has changed aspects of franchising today. Executives of major franchising companies shared what they have done to help franchisees stay afloat.

Highlights
  • Deals are getting done in today’s franchising world, but they are taking much longer than they did in the past, said Rob Wallace of Red Roof Inns.
  • Hyatt has done a little bit of everything to help its franchisees in the financing side, including mezzanine financing and full-equity participation.
    Americas Best F
  • ranchising, La Quinta and RedRoof Inns all are in negotiations with Room Key with expectations to join the site in the near future.

ATLANTA—Lack of financing continues to be one of the top challenges brands are helping their franchisees overcome, according to franchising executives at the 2012 Hunter Hotel Investment Conference.

Things have started to stabilize in the past six months, and franchisors still are doing their part to help their franchisees keep afloat or kick-start new develop and renovations, executives said during a panel titled “Franchising in Today’s World.”

 

Rob Wallace

Deals are getting done, but they are taking much longer than they did in the past, said Rob Wallace, executive VP of brand operations and franchising for Red Roof Inn.

 

Recourse continues to play a part in difficulty of people getting loans, especially on bigger deals, said Jim Chu, senior VP of franchise and owner relations for Hyatt Hotels Corporation.

Hyatt has done a little bit of everything to help its franchisees in the financing side, including mezzanine financing and full-equity participation, Chu said.

Wyndham Hotel Group provides similar financing to franchisees depending on the project, said Gus Stamoutsos, executive VP of franchise development. In addition, “We’ve done development advance notes where we’ve given a certain amount of key money per room per project,” he said.

The other panelists said they take a different approach to helping their franchisees with financing. There are many other things besides money a brand can offer its franchisees, said Rajiv Trivedi, executive VP of franchise and chief development officer of La Quinta Inns & Suites.

La Quinta, Red Roof Inns and Americas Best Franchising all provide its franchisees with lists of active lenders to help them in their quests for financing.

“We’ve also looked at the prospect of getting a pool of money and lending it to the franchisees … and we’ve come out against it,” said Doug Collins, chairman and CEO of Americas Best Franchising. “… I think it changes the dynamic of the relationship.”

If something happens to the hotel, for example, the franchisor can no longer just look at it from the point of view of the service provider, he said.

 

Rajiv Trivedi

In addition to the lender-matching service, La Quinta and Red Roof Inns also provide extensive support to their franchisees looking for financing.

 

“We go with franchisees to present to the bank our brand. We present our history to them, our marketing plan … the performance, what we have done during the tough times as well, and that’s what’s prevailed,” Trivedi said.

Getting certain loans can be a daunting task for franchisees, Collins said. “We hold their hand, we walk them through the process, and certainly help in any way we can,” he said.”

Red Roof Inn also is looking into various other options, including implementing a loan-forgiveness program, Collins said.

Room Key
The introduction of Room Key as a distribution channel could be an attractive option to help lower costs for franchisees, Wyndham’s Stamoutsos and Hyatt’s Chu said.

 

Gus Stamoutsos

“One of the ultimate responsibilities of a franchisor is to make sure we deliver roomnights to our franchisees at the lowest possible cost that’s out there,” Stamoutsos said.

 

Americas Best Franchising, La Quinta and Red Roof Inns all might soon be a part of the platform, which allows guests to compare and price offerings from participating brands and then book property direct, the companies’ executives said. All three are in discussions with Room Key with expectations to join the site in the near future.

Before becoming a part of the site, executives of La Quinta wanted to be clear on the return of investment and any liabilities. “We simply wanted to let it unravel, research, experience and then …. consider participating,” Trivedi said.

Social media 
As social media continues to evolve, franchisors are constantly monitoring what they can do to help franchisees connect with members of the brand, as well as with their customers.

 

Doug Collins

Americas Best Franchising, for example, hired a social-media coach that works with franchisees on blogs and managing the various networks, Collins said.

 

“It’s certainly one of the cheaper forms you can use to reach your clients … (and) franchisees,” he said.

La Quinta uses social media as a way to communicate with its franchisees, Trivedi said. The company’s internal LQ Connect allows employees to post questions and interact with one another.

Red Roof Inn is encouraging franchisees to respond to customer reviews on different sites in a genuine and non-promotional manner, Wallace said. If the guest had an issue, franchisees are advised to respond accordingly, and if they enjoyed the experience, simply thank them, he said

While he agrees social media is here to stay, Chu believes it is a dangerous weapon.

Ten years ago, having the GM walking around the hotel and interacting guests was the norm, but now many are sitting in their offices, on their computer, deciding how to respond to feedback on social-media sites, Chu said.

Hyatt is working on giving its hotels support in this aspect, he said. “It’s a difficult balance that will continue to be more challenging.”

COMMENTS   Show All
gcapital
3/26/2012 1:21:00 PM
Brands work to improve franchising for owners? Really? Hyatt sueing for unstarted projects. Hilton, Marriott, IHG all charging interest on late franchise fees. No assist, no reductions, costs rising, pressure to renovate consistantly.
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