Franchisors are taking an aggressive approach to cleaning up the performance of their brands, even if it puts portfolio growth in jeopardy.
Editor’s note: This article was originally posted on 24 February 2012. The article was chosen as part of Hotel News Now’s look back at 10 years of the hotel industry.
REPORT FROM THE U.S.—A handful of hotel brands announced brand overhauls in recent months, and in doing so franchisors weren’t shy in saying a significant percentage of underperforming properties would be exiting the system.
For Crowne Plaza, approximately 10% of hotels in the system are not expected to make the cut; Comfort Inn and Comfort Suites also will lose about 10% of their portfolio size; and for Best Western International, about 500 hotels were removed from the system before the company launched its descriptor program.
It’s an aggressive approach to cleaning up a brand and one that could hinder portfolio growth, which is held in high regard on Wall Street. But franchisors today are focused on eliminating the low-hanging fruit so both owners and guests are comfortable every hotel offers consistent value.
“We’ve been very candid with franchisees throughout the whole process,” said Christina Williamson, senior director of brand planning and management for the Comfort brand family. “People love the Comfort family name, but we felt to some degree the competition was more aggressive about being contemporary. It was time for Comfort to make sure all of its hotels were up to date.”
Ron Pohl, senior VP of brand management and member services for Best Western, said the quality of the hotel builds customer trust. If Best Western hotels are going to drive revenue, they must offer a product the consumer is willing to pay for, he said.
“It’s with the owners’ best interests in mind,” he said. “As a hotelier, what’s your exit strategy? At some point they’ll want to sell the asset, and we want them to get the best bang for their buck.”
Who stays and who goes?
Identifying a brands’ underperforming properties is a thorough process, but sources said in the end it’s pretty cut-and-dried. Franchisors use a combination of quality assurance inspections and customer satisfaction scores.
“We have a done a global assessment of all 387 properties using quality assurance and guest satisfaction,” said Janis Cannon, VP of brand management for Crowne Plaza and Hotel Indigo. “They’re equally weighted or valued.”
Parent company InterContinental Hotels Group removed 11 hotels from the Crowne Plaza brand last year and expects to remove another 30 before the brand repositioning is complete.
For Best Western, a lot of trust is placed in the hands of the consumer. The hotels receiving the lowest scores—mostly from comment cards and occasionally supplemented with third-party feedback systems—are then visited by the executive team and given the opportunity to make improvements. Four hundred Best Westerns will be visited this year.
“We want to ensure they’re meeting customer expectations,” Pohl said.
“We have about 10% of our system that we are willing to terminate if they don’t improve,” added Williamson, of Comfort Inn and Comfort Suites. “It’s all based on guest satisfaction; it’s impartial. If these hotels can improve, can make the investments, they’ll stay. If they can’t, they’ll have to leave the Comfort system.”
Keeping it in the family
But just because a Comfort Inn owner can’t make the necessary investments to keep up with brand standards doesn’t mean parent company Choice Hotels International wants to lose them altogether. Most often, the franchisor will work with the franchisee to see if the hotel fits better as another brand within the family. For Comfort, Williamson said Quality Inn and Econolodge might be appropriate options.
“It makes for an easy transition because they keep the property management and central reservation systems,” she said.
“It ultimately will be the owners’ decision in what they’re prepared to invest to be a great Crowne Plaza,” Cannon added. “So there may be hotels that choose another brand within the IHG family, but there may also be hotels that—based on their (revenue per available room) track, the age of asset, the market dynamics—don’t.”
Because Best Western doesn’t offer multiple brands, Pohl was able to be more straight-forward: “If they don’t fit in one brand, they don’t fit in all of them,” he said. “They were terminated for a certain reason, and they always have the ability to reapply.”
With brands strengthening their standards and requiring more capital expenditure, ditching a flag altogether and going independent could be a viable option. But Cannon said former franchisees understand the importance of partnering with a brand.
“Part of the tremendous value that IHG brings is Priority Club Rewards, the strength of a global system, (central reservation systems), marketing—all of those kinds of things,” she said. “I would imagine those would still be very important for owners.”
If properties aren’t hitting quality-assurance or customer-satisfaction metrics, can they be booted from the system even if they’re under a long-term contract? For the most part, yes, because contracts require franchisees to make necessary property improvements and meet certain performance goals.
“The freshen-up phase is about compliance,” Cannon said of Crowne Plaza’s three-phase repositioning strategy. “So this first phase, that’s what it is: assuring all the hotels that are part of Crowne Plaza meet those metrics.”
Best Western’s contracts are shorter than all of the other franchisors; membership in Best Western is one year at a time. Pohl said renewal is extremely high but memberships have performance measures just as a franchising agreement would.
“You have to meet whatever the brand standards are to be an owner in good standing,” he said.