Franchising in hospitality sector is set to evolve at a larger scale. A trend toward franchising in the hospitality industry that commenced more than a decade has been amplified by the pandemic. Through franchising, hoteliers can establish or grow their companies with the support of a well-known brand. As a result, guests’ expectations are naturally raised and they gain trust that the services are on par with those of the branded establishment.
Hotel owners get the existing proven and trusted vendor network as part of the franchise agreement. Franchise agreements nevertheless let the hiring of expert white label management firms, creating a great alternate to straight management agreements.
“Franchises are a common business strategy in the US and Europe, but they are also becoming increasingly popular in India. Franchised hotels provide company owners with additional revenue stability and support in comparison to the more well-known business models of managed and independent hotels.”
But why has India’s hotel franchising industry grown so slowly up until now? The most common business model in developed economies, franchising, has yet to be successful in the Indian hotel industry for a variety of reasons. Foremost amongst these is that hotel brand companies, even international players who rely on franchising in other markets, shied away from it in India.
Despite the fact that SOPs are in place, they lack faith that the owner, particularly a first-time owner, which is frequently the case in India, would be able to manage and adhere to the brand standards set. Due to their familiarity with the DNA of the existing agreement, hotel brand firms did not actively pursue the franchising model.
Today not just global franchise known brands like Wyndham Hotels & Resorts are spreading their wings through franchise model but homegrown brands like Lemon Tree Hotels are betting on it too.
In an interview with Mint, Patanjali Keswani, CMD, of Lemon Tree Hotels mentioned that out of 87 operational hotels today, three hotels are franchised and one hotel is man-chised (a model where the general manager is on the payroll of the corporate). The hospitality chain so far signed two more hotels under the franchise model and it is profitable.
“So going forward, we will either manage or franchise. To me, franchising is the formalisation of the informal hotel business. Over 80 percent of hotels today in India are either unbranded or standalone,” he stated in the interview.
According to STR, led by global hospitality leaders such as Wyndham Hotels & Resorts, the proportion of branded hotels globally that were franchised operations rose from 70 percent in 2010 to around 80 percent in 2019.
Joon Aun Ooi, President, Asia Pacific, Wyndham Hotels & Resorts mentioned in an article published in Forbes Asia Customs that the rise can be attributed to three major reasons. Firstly, the “OwnerFirst” mindset where the company constantly collaborates with owners to achieve a win-win outcome. Secondly, Wyndham prides itself on having a brand for every occasion. This enables existing and potential business partners to identify a brand suitable for their market and target guest profile. Lastly, they have a robust on-ground presence across regions.
Owners in the Asia Pacific region have become more comfortable with franchising as the talent pool to support this model expands. Asia’s hotel development boom in recent years has swelled the ranks of qualified general managers (GM) and other hotel professionals in the region.
According to Ooi, Asia has a lot of hospitality talent available now. This enables owners to hire their own GMs and other key team players to run the hotel themselves. As per as several media reports, global brands like Hilton and Marriott are also witnessing franchise takers in India and have expansion plans slated including through franchise model.