Management contract and Franchise

Question 1

What is a management contract?

Answer 1

Allows investors with relatively little knowledge d experience in hotel industry, or who cannot directly manage the hotels for a number of reasons to invest in hotels.

Question 2

What are the responsibilities of the operator in a typical management contract?

Answer 2

• Managing all of the hotel’s departments such as: maintenance, front office, housekeeping, food and beverage, sales, etc.
• Recruiting, employing, training, supervising, and terminating employees
• Establishing prices and terms for hotel services
• Arranging and providing for public relations, advertising, and marketing
• Planning, purchasing, and supervising capital expenditures (e.g. furniture, fixtures, and equipment)
• Preparing monthly and annual financial statements and daily reports for the owner
• Purchasing supplies and entering into contracts and making payments for those services
• Operating the hotel in accordance with the approved annual budget and the terms of the management agreement
• Adhering to service and product standards required by any affiliation or brand

Question 3

What is franchising?

Answer 3

Essentially, a franchisee pays an initial fee and ongoing royalties to a franchisor; in return, the franchisee gains the use of a trademark, ongoing support from the franchisor, and the right to use the franchisor’s system of doing business and sell its products or services.

Question 4

What are the factors propelling the franchise growth?

Answer 4

1) Fresh looks (curb appeal)
2) Location= near highways, airports, and suburbs
3) Expansion in smaller cities throughout the United States
4) New markets= located closer to golf courses and other attractions
5) Foreign expansion= a move to increase brand awareness

Question 5

Who is the world’s largest franchisor of hotels?

Answer 5

1) Wyndham Worldwide= nearly 7,200 hotels
2) Choice Hotels Internationals= 6,300 hotels
3) Intercontinental hotel group= third largest franchise= 4,600 hotels

Question 6

(Important) What are the benefits of the franchise?

Answer 6

1) A sets of plans and specifications from which to build
2) National advertising
3) Centralised reservation system
4) Participation of volume discounts or purchasing furnishings, fixtures, and equipment
5) Listing in the franchisor’s directory
6) Low fee percentage charged by credit card companies

Question 7

(Important) What are the drawbacks of franchise?

Answer 7

• high fees, both to join and ongoing
• central reservations generally producing between 17 and 26 percent of reservations
• franchisees must conform to the franchisor’s agreement
• franchisees must maintain all standards set by the franchisor

Question 8

(Important) What are the benefits for the franchise company?

Answer 8

Increased market share and recognition

Up front fees

Question 9

(Important) What are the drawbacks for the franchise company?

Answer 9

The need to be very careful in choosing the franchesees

Difficulty in maintaining the control standards