The franchise agreement is a contract that generally consists of terms and conditions defining how one company (franchisor) agrees to make available to another party (franchise) the brand, services, modes of operation and other assistance in carrying out a similar transaction against a first payment, as well as a percentage of the income generated in the form of a monthly reintroduce charge (licence fee). Although the type of agreement chosen is important for the hotel group, it has no impact on customers. Based on the application of brand standards, they have the same experience, whether they stay in a franchise hotel or a hotel run by the same brand. How does an owner choose between a franchise agreement or a management contract? The decision can be made on the basis of many factors, but in general, a franchise agreement is the best for an owner who wishes to have a “hands on” stake in the day-to-day running of his hotel. This person may already be an experienced hotelier. The franchise agreement is the legal contract that binds a franchisor and a franchisee into the company. Before entering into an agreement, Watson recommends a thorough review of the proposed market. “Always start by making sure the market is viable. There are a lot of factors in terms of supply/demand, who the players are, what brands are there, how strong the competition is, the economic growth and a variety of things,” he says. Brand positioning is also an important aspect. “Over the past five years, there has been a trend towards building industry in terms of people`s development, with Midscale [and] upper average levels being very expensive in the market and without any returns.” In the hospitality and restaurant sector, there are a number of major players and interest groups involved in the management of a successful hotel. Hotel brands, hotel owners and management companies often work together to create transformations and combinations of business models to maximize profitability and increase customer satisfaction. The question to the hotel owner is: “How do you choose between a franchise operator contract or a hotel management contract?” and “Which model is best for your hotel?” The purpose of this article is to provide a brief overview and comparison between the two operating models of the hotel industry.
Christine Ravanat of AccorHotels explains how major hotel groups are expanding their network space through franchise or management agreements, a win-win agreement for groups and hotel owners. These hotels belong to many different types of owners, wealthy individuals, businesses or even institutions that all want to maximize the business of their property.