Five professionals shared their views on franchisor-franchisee relationships, the value of the brand and remuneration methods. All in all, franchisees stressed the importance of building real trust and franchisors committed themselves to sharing tools and know-how.
- At the Global Lodging Forum 2017, Arnaud Fayet, outgoing president of the Accor Franchise Association, asked for mediation. One year later, has the relationship been pacified or clarified?
Arnaud Fayet, outgoing president of the Accor Franchise Association: "It is true that one year ago, the Accor Franchise Association asked for mediation to initiate a new dialogue with the franchisor. We had identified a number of dysfunctions between the franchisors and ourselves. The franchisees voted 97% in favour of this mediation to get a fresh start with our franchisors. This mediation was quite short in duration as we had requested. It took place between late September and early November. We held little more than 30 hours of meetings with our franchisors. We tried to cover all possible themes including distribution, loyalty, purchasing, marketing and IT. To date, not everything has been resolved, but everything has been reviewed. At the end of this mediation, we drew up a set specifications with working guidelines, and today some points have been resolved while others will be resolved during this year 2018. I would say it was neither a success nor a failure."
- Do you have the feeling that there is a new deal between the owner, the franchisee and the brand and the franchisor?
Christine Garnier, AccorHotels: "Unlike Arnaud[Fayet], I would say that it was not a failure. On the contrary. It was pretty good. It was almost like going to couples’ therapy. I think there were things that were not said, not understood, and that needed to be discussed again. We started on a new foundation. We are preparing the year 2018 with workshops, with meetings, to co-construct on certain subjects and better exchange. There has been a major communication problem in recent years. This is being addressed very strongly. There are things we need to do together. We may not agree on everything, but the main thing is to exchange and understand each other better."
- Because of OTAs and new technologies, do we need to review a certain number of fundamentals?
C. Garnier, AccorHotels: "Yes. Things have changed a great deal and all hotel groups are facing these costs which are becoming more and more important. Certainly, in terms of distribution, we need to straighten things out, but our franchise partners and managed partners have challenged how loyalty works, and it needs to be discussed again. There is a real subject concerning business customers, who are highly interested in and important users of loyalty cards. This is really what we want to work on with our partners. We need them to nourish us with the field experience and no doublespeak."
Olivier Pelat, Europequipements: "I wanted to come back to the relationship between franchisors and franchisees. It's a love/hate relationship. When a relationship and a discussion drag on, you're not sure you'll get very far. We need to review the fundamentals as they are and present the observation as it stands. Thirty years ago, when I opened my first hotel, it had no brand. It worked very well. Ten years later, we opened a large 850-room complex and we were a little scared, so we said to ourselves: we'll go to Accor. It works very well too. Fifteen years ago, when we financed these hotels, we took 12-year loans and repaid them after eight years. Today, we take out loans for 15 years and repay them after 15 years. In ten years, the profitability of our hotels has fallen sharply. We made a lot of money 15 years ago. That's why today we accept this decrease in profitability, but it's still strong! What are the hot topics today? It's not the thickness of the franchise agreement. It's: What do we do with Airbnb? What do we do with the OTAs? To face competition and negotiations, franchisors are needed. But they need us too. We are the ones with the raw material and we, alone, take the financial risk. Those who invest the money to buy hotels are the franchisees."
- Are brands still needed?
O. Pelat, Europequipements: "When you go into the ibis of Clermont Ferrand, which is exactly the same as that of the Porte de Clichy, which is the same as in Strasbourg, customers are fed up. They want a little fantasy. That's what we're trying to do. We're doing our best. These are pretty tough negotiations we have with Accor. The franchisee, when he invests in his hotel, he will not do anything. The brand must trust us. This trust between the brand and its customer must be renewed.
- There is a hotel of which you are proud, it is the MGallery of Venice.
O. Pelat, Europequipements: "We are proud of all our hotels! Today, I feel like I no longer do my job the way I really love it. We have hotels... but I don't know where they are or how they are. I think that when that happens, for a franchisee, there is danger. We love them all equally. We do them all exactly the same. With the same passion for "denorming". It is true that we are at peaceful war. We really appreciate them. We owe them a lot. Just as they owe us a lot. But I would remind you that the hotels that are not standardized are those in the top 5 EPRs and RevPARs."
- Maybe a word to explain who you are and what you do?
Loïc Giroud, SOGEPAR: "We are a family group with a strong development ambition. Four hotels have been announced. We are looking for new opportunities in both acquisition and construction. Today we are at a turning point. We have worked exclusively with Louvre Hotels since 1978. It really is a story that was built between two families. We're going to work more soon with Accor and B&B Hotels and we're close to operating a hotel with no franchise."
- Would you consider not having a brand?
L. Giroud, SOGEPAR: "I have a lot of faith in brands. There are locations, situations, where a brand, a franchise, is not relevant. For some of our hotels, we launched a call for tender to buy the label and on some sites, it is very difficult to find a franchise. Some are saturated, others do not have sufficient production in a provincial city and there are much more innovative concepts that are being developed and franchises that want to master their concepts, but are not ready to entrust us with franchises.
- Does the franchise model need to be reinvented?
L. Giroud, SOGEPAR: "Clearly. The franchise agreement has been almost the same for 20 years. In the Louvre Hotels franchise agreement, there is always a commitment to distribute flyers in all hotels. This has been subject to much debate. It's kind of fun and comical. Take the automotive sector, for example. Every three years, technological leaps are made. We're flabbergasted for two days. When I look at the franchise agreement, there is very little imagination, very little innovation. There are things that, as an operator, we would like to have and that we are not given. I think franchisors should offer us relevant revenue management tools. Today, we are testing an external solution. Yet the franchisor has everything to do it. I will take a second example, which is CRM. Three to four years ago, we renovated all our Campaniles and I went to the franchisor because I wanted to do a mailing to all our customers, but this was not possible.
- Can you present Interstate's business? What brands do you have? How do you feel about what has just been said?
Aaron Greenman, Interstate: "Interstate is entering the market. We have been in Europe for about 20 years. We hold a different position compared to the rest of you because we are a pure management company. We do not own any real estate. We do not own any brands. We are really positioned between the brands and the owner. Our model has long been present in the United States and the United Kingdom. Of course this model is now coming to most continental European countries."
- In which countries are you present?
A. Greenman, Interstate: "We operate about 100 hotels in Europe and 500 hotels worldwide. We are present in about 12 countries. In Europe, from west to east: we are in Ireland, in the United Kingdom. We have just signed our first management agreement in France. We are in Belgium, the Netherlands, Germany and recently we entered some Eastern European countries such as Bosnia, Hungary, and then we are in Russia. Traditionally, the industry has always been made up of two parts: investors and brands. Often investors would go to the brand and tell them: here are the keys, run my hotel, my brand and my distribution. We are really the next phase in the evolution of this model which is to introduce a third party. When investors are less interested in managing day-to-day operations, then a company is needed to help manage the relationship between a hotel's operational requirements and the franchisor.
- What do you think the brand's powers are?
A. Greenman, Interstate: "We see the brand as a key element of the distribution strategy. If you look at our global portfolio, about 85% of them are with franchisors. But in the end, we don't pay attention to brands. We work with over 50 brands, but on an individual basis, we look at the hotel and ask: what would it benefit from? Does this market require a known brand? A boutique brand? Perhaps it requires no brand or just a custom distribution system. It's a matter of determining what works best for the hotel and we can advise the owner on what would be the best distribution strategy, but that's his decision."
- What changes do you foresee in the franchise agreement?
A. Greenman, Interstate: "From the perspective of our model and the services we offer, it is clear that the industry is evolving more and more towards franchising. In the long term, companies like Interstate, managers who do not manage on a lease basis and operate only at the level of a service agreement, will continue to thrive. We are in an educating phase. With a market like France, not only do we educate investors, but we also educate owners about the benefits of working with a manager. This is not something that will happen overnight. We believe that in the long term, the market will accept this third-party manager. Ultimately, it's about demonstrating to investors that we can manage a property."
- How do you see the future of franchisors' expertise?
C. Garnier, AccorHotels: "First of all: the role of the franchisor is to pass on know-how to a franchisee. There are things that are due because included in the franchise agreement. Secondly: there are complementary areas of expertise that we are working on today. We have a revenue management offer for partners. A catalogue of non-mandatory services is being created and will be offered to franchisees. It's part of innovation. I'm talking about things that are outside the franchise agreement. As for innovation, it's a real subject. We see how important this is and how destabilizing it is. I will talk about the Novotel brand, a brand that is becoming less and less standardized, which has been very destabilizing for our franchise partners. Innovation is good, but it is sometimes difficult to understand and support it. I think that our customers no longer want, or less and less, to go to a hotel that is the same everywhere. Before, it was something that reassured them. Now it's something they don't want anymore. The Novotel brand, which has moved, which has been un-normed, was difficult for customers and partners to read. We are trying to promote and advertise it better. Innovation is always at the heart of Accor and the services we offer our partners."
- Is the brand still useful?
O. Pelat, Europequipements: "Launching hotels without brands is also tempting for us. We have locations where we could do without them. But we must be consistent. I am a faithful and loyal person. I have been working with Accor for a number of years, I will continue with them. It is up to them to adapt to some of our requirements, particularly with regard to brands. A Novotel is four stars. The brand would always have a reference: you stay at a four-star. It's up to Accor to tell us: if you make a Novotel un-normed, you must do something very good. The brand represents a star category and thus services. A guest, what does he want in a room? A big bed, a good shower, a good television. If it's a four-star hotel, he wants a slightly larger room, a better breakfast and other amenities. I think we'll always need brands, probably not in the same way."
- And the price of added services?
L. Giroud, SOGEPAR: "Returning to the example of the car where finally, for the same price, every three years, we have much better. I think that in franchising, there should always be new solutions and new proposals. And I understand that some of them are not free. Development costs are very important for the franchisor."
- All-inclusive or à la carte?
L. Giroud, SOGEPAR: "I think à la carte services are an historical phenomenon. Investor profiles greatly. We have a team in charge of operations, with experts in PR, sales, marketing and communication. But we don't have the same expectations as a franchisee. We have 26 hotels. When you have one or two hotels, you need your resources and special services from your franchisors."
- How do you position yourself regarding all this?
A. Fayet, ex-AFA: "I bought an independent hotel in June. I don't think the brand will bring me much and I take the risk of going back to an independent hotel. The notion of an economic model is extremely important. At the Accor Franchise Association, we are working on a barometer of profitability for properties. We have seen that over the last five years, the franchise fee has increased. Turnover remains fairly stable and our profitability is declining. It is inconceivable that a franchisor would charge more while our business model is regressing. Regardless of the size of the contract, the franchisor must be remunerated on net RevPAR. That's where you see the real performance of the brand. We want to have high-performance brands. Having an effective brand for us means putting back in place operational marketing that will allow real differentiation. In terms of royalties, it is not necessary to stack them and create new ones. If the franchisor is successful, our sales will increase and its fee will naturally increase. We have to go back to a win-win relationship. Frédéric Brouillard [the new president of the AFA] has always campaigned for a feescal shield. A shield that blocks fees so they can't exceed a certain percentage of revenue."
L. Giroud, SOGEPAR : "I would offer a slight note of cautien. We tend to shoot at the franchisor. Performance comes from the franchisor, but also from our own work. There's work we can do in the field. But we will never be able to do the work of our franchisors on digital or on negotiations with key accounts. That is the work of a partnership and if you say partnership, you say contracts for up to twenty years. The franchisor must give us tools. That leaves us a little lonely in our corner."
- What is your position on this win-win partnership?
A. Greenman, Interstate: "The franchisor is a piece of the distribution puzzle. When we look at our portfolio, there are very few branded hotels where franchisors generate the majority of overnight stays. The franchise can bring 20-30 % during good days. Ultimately, it is a situation where the franchisor and brand are very important, as are distribution, sales and marketing they bring. But the day-to-day management of the hotel is just as important. Can the typical owner balance what franchisors bring and complement the business and income? That is why the management element is so important in the equation. If the owner or manager doesn't really know how to manage the franchisor and optimize what he brings, then the relationship often doesn't work as well as it could.
C. Garnier, AccorHotels: "Franchising is not just about distribution. We talk a lot today about distribution because it's the customers. It's the crux of it and it's what has destabilized the hotel business. But franchising also means know-how in team training, recruitment, product innovation and communication. Certainly, what worries hoteliers is distribution with these actors who are very strong. But franchising is not just about distribution. Last thing, win-win, yes! We are fully aware that the more the franchisee makes profits and earns money, the more we earn too. In 2018, we will work on how to rethink distribution fees and the loyalty program. The idea would be to pay for what we receive. I don't know if I'd call it feescal shield. It's not very positive, but I fully understand their point of view."
- In one word, what should we remember?
C. Garnier, AccorHotels: "In France, Accor develops between 40 and 50 hotels per year. There is still a future for development, franchising and brands. We are currently thinking about a new brand. I think it is a very positive thing to know that we are still developing many hotels and that many new franchisees trust us.
O. Pelat, Europequipements: "That the franchisor trust the franchisees in the organisation and decoration of its hotels. Indeed, the relationship must be win-win because if there is a loser, whoever he is, the relationship will end."
L. Giroud, SOGEPAR : "I think there are things we could progress on with the franchisees. We commit a lot of money. Behind it, we must pay back the banks. It is true that we do not know what the future will be like and I think it would be interesting to include rendez-vous clauses to take stock of the situation and ask: are we achieving the expected results? When you sign with certain franchisors, for up to 20 years, you take the handcuffs and say: I hope it will pass. I fully agree with what Arnaud [Fayet] says. Ideally, compensation should be results-based and the franchisor should be incentivized to succeed."
A. Greenman, Interstate: "I totally agree that ideally that's the way franchisors should work, because that's the way we work. The key element is probably the fact that the franchisor needs to generate revenue."
A. Fayet, ex-AFA: "Today, what we expect from franchisors is innovation. We notice that on the hotel market, small groups, even independents, manage to release truly innovative products. I'd like to see my franchisor have a research and development office. I'd like my franchisor to be the NASA of the hotel industry."
A. Greenman, Interstate: "When we talk to new investors, we see a lot of them focusing on: well, I don't want to pay 10% more because it's a cost. For new hotel investors: instead of focusing on costs, look and understand what the benefits are."
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