Strategies for Successful Franchise Management in High Stakes Hotel Market

The Indian Hotel market is expected to witness a rise in revenue with a projected value of US $9.13bn by the end of 2024.The market is expected to exhibit an impressive annual growth rate of 5.41% (CAGR 2024-2028), contributing to a market volume of US $11.27bn by 2028, according to a Statista report.

The steady growth in the Indian hotel industry post covid is here to stay. With domestic travel trending in the country and showing an upward swing, the industry is witnessing a boom. In the midst of the rapidly growing, fast-changing landscape of this high-stake industry, the people who make it work, the franchisors and the franchisees,take center stage and this makes franchise management extremely crucial.

Franchisors and Franchisees: The Cornerstones of India's Booming Hotel Industry

“When you enter into franchising in the hospitality industry, you are looking at a relationship of at least 20 years or upwards. So, we have to establish mutual trust right from the first conversation. We need to understand the specific needs of the potential franchisees and marry them with our specific needs and wants”, says Shivali Verma, Vice President- Commercial and Franchise Business, Lemon Tree Hotels.

Lemon Tree has 106 hotels operational in India right now and another 60 in the pipeline. Founded as the category creator for the branded mid-market hotel space in India, today, Lemon Tree Hotels Limited (LTHL) is one of the largest hotel chains in India and owns/leases/operates/franchises hotels across the upscale, upper-midscale, midscale and economy segments.

“For us, India is a 100-hotel market, which is not small. We have 60+ hotels operational and 40 in pipeline. We have 25 brands in our portfolio which include economy, mid-scale, up-scale and all-inclusive hospitality solutions.While dealing with franchisees in different parts of the country, we have to provide them a model that they need and the one that will suit their market the best,” adds Animesh Kumar, Director, Franchise Operations, Eurasia, Wyndham Hotels and Resorts.

Wyndham is one of the world’s largest hotel franchisors and has hotels in over 95 countries with 9,200 hotels globally. From India itself, the group manages operations in5 more countries, namely Nepal, Sri Lanka, Bhutan, Bangladesh and Maldives.

High-Stake Game

Hotel industry is a high-stake game for both franchisors and franchisees. While the franchisor has his/her brand name to protect, the franchisee, who has made a high level of investment, is looking out for returns due to him/her.

“I prefer calling ourselves ‘manchisors’ rather than franchisors because we manage and handhold our franchisees right from ownership to training and operations. It should be an all-inclusive partnership where the franchisee is able to trust the franchisor and also foresee that he/she will be able to get good return on their investment,” says Animesh Kumar.

“For us, it is important that our brand standards are met. The products and the services being offered at any location must be designed and operated in such a manner that the customer shouldn’t feel the difference between a company owned hotel or a franchisee managed hotel. 50% of our portfolio is owned hotels. So, for us, the stakes are very high,” says Shivali Verma.

The Power of Technology

Managing partners across various geographies, time zones, cultures, ideologies and beliefs is a mammoth task. Smoothening procedures, protocols, standard practices and operations takes paramount importance and so, putting technology to best possible use becomes a necessity.

“In the last 5 years, Wyndham has invested almost $275 million on technology and its growth. We have developed a few brands, a few products for the ease of operations of our franchisees, to make it more convenient for them. This is how we make them stay with us and then plan to grow together,” says Animesh Kumar.

“I feel many franchising companies lose out when they don’t use technology to their advantage to make operations and communications easy for themselves and their partners. These are key aspects,” adds Shivali Verma.

Choosing Franchisee In Changing Scenario

Post covid, the Indian hotel industry is experiencing a change in the growth pattern. The demand for hotels and resorts across smaller cities and towns is surging.

As per a recent industry report, this trend is attributed to increased interest in travelling to smaller towns, enhanced road connectivity, growing local tourism, lower land costs, and booming wedding markets. In FY24, non-metro cities accounted for 52% of new hotel developments, and of 30,000 rooms signed last year in 128 cities, about half were in Tier 3 locations.

Hotel chains are capitalizing on this trend and spreading wings in Tier 3, Tier 4 locations. However, this also means dealing with a lot of first-time investors and franchisees.

“Since most of our franchisees in these locations are first time hoteliers, we need to ensure a thorough background check and due-diligence before signing the dotted line. We need to be absolutely sure that the investor has a specific bandwidth to spend what the industry requires and to sustain as well because returns take time to come by. Almost 100% of our portfolio is franchised and so, a proper feasibility check is required,” says Animesh Kumar.

Shivali Verma adds, “Besides destination and location which are extremely important, for me, investor profiling is crucial for first time hoteliers. I spend a fair amount of time in understanding the profile of the franchisee partner, who the person is, where is he coming from, what are his areas of interest, his ethos and values and most importantly, if he respects the brands, holds its values and have the intention of holding his side of the promise in the agreement.”

What Keeps It Going: Compassion Or Commerce?

For maintaining any long-term relationship, communication is the key and the hotel industry is no exception. A two-way communication, listening and understanding the other perspective is what keeps the partnership going.And franchisors need to maintain a fine balance between being compassionate and being commercially wise.

“Compassion and communication are extremely important elements in franchising. Compassion means understanding the partner but it doesn’t mean we don’t stick to the contract. The contract is well communicated, the fee, the structure, the deliverables, everything is well explained and we like to stick to it.However, since the environment, the industry is constantly changing, we need to be compassionate to be able to understand franchisees’ unique needs but it can’t be above the agreement. There’s a very fine line between being compassionate and being taken for a ride,” says Shivali Verma.

“We do give waivers where need be, like covid times or in case of a natural calamity. We are there to help our franchisees but we need to ensure if the franchisee is in genuine problem or not. At the end of the day, it is a commercial transaction and numbers do matter,” says Animesh Kumar.

The Churn: Calling It Quits

Just as not all long-term relationships run smoothly, not all long-term business agreements have a smooth sail. “Termination of contracts generally happens on two counts: not meeting the prescribed quality standards over a long period of time or non-payment of fee,” says Shivali Verma.

However, once the contract period, which generally runs into decades, runs its course and expires, the franchisee has an option to either renew it or fly solo or look for an alternate franchisor. A ‘churn’occurs when the franchisee ends his relationship with the franchisor or ceases to use its products.

“India is still developing market as compared to other matured markets like the US where churn rate in hospitality sector is very high. We personally see churn of about 5% and a 95% retention rate. That 5% may want to go solo having gained enough experience with the franchisor, they may feel they have created a brand of their own and can sustain that way,” mentions Shivali Verma.

“We have a retention rate of 98%. If a franchisee wants to upgrade, evolve, we have many brands to offer to him/her and make him stay. We have maximum number of hotels in US, almost 4500 and 60% of them are owned by Indians in the US. They are all from Gujarat and have been associated with us since a very long time,” adds Animesh Kumar.

As per a recent report by the Hotel Association of India, the direct contribution of Hotel Industry to GDP was USD 40 billion in 2022 and is expected to reach USD 68 billion by 2027. In aservices driven industry which is growing by leaps and bounds, its people will always remain its most important aspect and it is their successful relationships and partnerships that will pave the way for a thriving future.