Franchisors and Franchisees
in 2012

Adele Mourad
XiT-AGM Sales And Marketing
exit@xithotelsales.com

Forecast inconsistencies are not new to the hotel industry especially in a volatile economy. Predictions for 2011 and 2012 have reflected positivism mixed with skepticism.We hear a positivism with caution in November then a promising 2012 with altered data again in December. Predictions for the amount of rooms sold, plus Rev Par were expected to be even higher in 2012 than they were in 2011. December’s data suggests a drop in the forecasted RevPAR of approximately 3% from the initial forecast in November. The irregularities in these forecasted results is making it harder for hotel owners and brand leaders to launch business plans for 2012.

Views concerning the significance of the correlation between the economy and hotel business have differed. Some industry observers insist that the national economy did not have much bearing on hotel occupancies because some properties did perform as expected during the tough economic downturn. This conviction is being sharply contradicted by owners and managers who argue that the demise of their properties has been directly linked to the economic downturn.
However, we generally feel that a few businesses that do well in tough times do not reflect the majority of businesses in that industry. Most industries will be affected in one way or the other by the state of the economy.
Contradictions and controversies of that nature do not leave much room to engage in future planning and strategizing for the coming year. The hotel business is a very complex business in tough and good times and the predictions reflecting sharp inconsistencies add to the ambiguities of 2012.

Casual conversations with hotel owners, General Managers and other executives of limited service/mid-scale properties in the mid-west, have yielded an optimism as far as their control of their hotels on their hotels even with the precariousness of the economy. However, their biggest concern seem to revolve around expenditures that may be imposed by brands especially because 2011 fared better than 2010. The fact is that hotel owners are recognizing that the results of 2011 are being characterized as an improvement but they insist that this is not to be called by any means a recovery. They in fact have not had the time to recover the sharp losses of recent years. Many of them agreed that the year was better, and they are operating but, that they are still in an economic hole and they are still trying to keep their heads above water.

Independent franchisees are asking themselves about the effect these positive readings will have on corporate brands this year. Effects such as product improvements, brand relaunching, brand updates, etc…  After the depressed results of previous years, hotel owners are trying to recover their loss and get out of the hole.
All updates pertaining to their properties were put aside while their main focus was staying afloat until the signs of economic recovery start flashing again.

The problems that the brands face and have faced in the past is in hotel leadership. Some hotel leaders always have had issues with product improvement projects, upgrades, updates and so forth. As long as their property is doing well, they shove all spending aside. In a situation like this the problem is directly centered in the character of the ownership and not in the state of the economy. Now with hotel owners being hit hard by the recent recession those who neglected updates during good times find themselves in a far worse conditions than they were before. This is damaging both to themselves and to the brand. Furthermore, brands that adopted a relaxed approach toward property updates in the past have lost the image of quality and high standards other brands have earned over the years. But, more damaging, many of their properties remained in operation during the recent years under a flag providing hospitality under poor conditions; appealing only to budget travelers due to the harsh economy.
These properties can no longer hide under the guise of tough times and a bad recession and they should not be spared by the brand nor should they be given extensions on refurbishing.       For guest safety is a priority and is a more much a significant issue than guest services. Travelers who are under budget restraints and must travel should not have to risk their health and safety. Low cost lodging translates into fewer amenities and limited services but should not include moldy walls, falling wall papering, dirty breakfast counters and rust-stained breakfast equipments. Some major infractions are not visible to the guest’s eyes, yet do create safety and health hazards. Brands that have taken  too long to act in good times have hurt both themselves and hoteliers, for many of those properties have reached a point where remodeling is exorbitantly expensive and the chances for return on investment is unlikely.

It would be refreshing to see the main criteria for inspection focused first on health, safety and property conditions. Uniformity in amenities though important for brand loyalists would come next. The entire industry is being tarnished by hotels that are operating under many flags presenting themselves as ready to receive guests but clearly are not. Some travelers stay with them because of budget restraints but their stay is under unacceptable conditions.

Of course there are those hoteliers who have always kept their property conditions well up to and above the standards and yet they still above it still had to forgo remodeling and Pips because of the sharp decline in revenues. These are the hoteliers that are  concerned about 2012 and the expectations of the brand and the guests.  Should the brand reconsider deadlines for property upgrades, product improvement plans, brand relaunching etc… to allow hotel owners time to recover?
It is very hard to anticipate the length of the period of recovery especially since economic predictions for 2012 are vague, and each recovery will vary with each property’s geographic location, its budget, its ownership and other related factors.

For brands to acquire new hotels, add to their pipeline and maintain a profitable venture for investors, they must preserve a  level of standards within which their independent franchisees must operate. Many feel that the relationship between hotel owners and hotel brands for the next year will certainly be unpredictable or strained. Both hotel owners and hotel brands need a new type of cooperation with one another to survive and prosper. Hotels whose leadership believes in reinvesting in their properties will survive the economic downturn and will achieve an understanding with the brand, as long as hotel brands take a serious look at the reality of the lending landscape. Hotel owners are struggling to acquire loans that would allow them to remodel, refurbish and improve. It is certainly true as many argue that some brands must keep a reasonable amount of time between one relaunch and another to allow hotel leaders to feel the return on their investment even in a stronger economy. Hotel leaders that consistently slack on reinvesting in their properties incur losses which will be difficult to recover and further damage the brand name as well.
Many of those hoteliers will have to either comply with the standards or choose options with flags that require less regulations. However even with economy-type hotels where standards may be at a minimum, there must be a bar that outlines for hoteliers the limit under which they should not fall. In our research, we have seen many hotels that are operating with poor standards while other hotels are picked at by brands for matters that do not affect quality nor diminish image. These are details toward which brand experts must develop a criteria because it is continuously on going; made more visible by the bad turn that the national economy has taken. To achieve win-win results there must continue be a continuous partnership between the two the coming year. This is a problem that need to be addressed more aggressively in 2012.
Hotel owners who complain about operational costs have many options to pursue today that could cut their expenses tremendously.The outsourcing option has become most viable for many hotel owners. Outsourcing has proven to be successful in many areas such as housekeeping, accounting/payroll and sales and marketing.
Outsourcing in these areas provides large savings allowing managers and owners to spend on upping the conditions of their rooms, doors, carpets and bathrooms.  So while brands must work closely with their franchisees, we feel that cleanliness and property conditions must be the first to be addressed. Hotel managers and owners must think creatively to allot money for such priorities even in a recovering economy. Hospitality must not lower its standards when there are other ways to combat tough times. Owners that take too long to address their property problems such as: heating issues, air conditioning, hot water problems, low drainage, broken or nicked doors, chipped cabinets, scratched walls, slippery car parks, icy and unsalted walks and many many other deficiencies will find themselves struggling even in an ideal economy. It is difficult for brands to regularly monitor conditions of that sort. It should be unnecessary.  Hoteliers should take responsibility without awaiting for the brand guidelines, brands should enforce the issues that matter first. It will undoubtedly become real partnership with  progressive communications between both for the circumstances of the future will force all business leaders to become more approachable, involved and humble.

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