Nowadays franchising is one of the main driving forces for the development of the service and hospitality industry. Franchising in hospitality is a concept that allows the company to expand its activities more dynamically. Franchiser is a company that provides its partners (known as a franchise) with certain rights for a certain fee. As a rule, these rights may include:
- a trademark
- technological operations and procedures
- a reservation system
- marketing know-how
- discounts on original components, etc.
The franchiser signs a contract with the franchise, giving the latter the right to manage a restaurant, a hotel, etc. in accordance with the conditions specified in the contract. Franchising is beneficial for the company because it promotes dynamical development. As for the franchise, it is the perfect option for those who have money and desire to work, but lack experience and reputation. Some corporations prefer to transfer to the franchise only individual outlets, while others can transfer the entire enterprises.
The license fee may be different and is established on the basis of the franchising agreement. The average fee for a hotel franchise is from three to four percent of the income from each room.
The situation for the franchiser is complicated by the fact that it is always very hard to set out all the nuances that could guarantee quality standards in a contract with a franchise. Franchising contracts should be very precise in formulating requirements for the level of customer service.
Still, franchising remains a popular form of expansion of hotel business all over the world. The critical mass created by all the structural units of the company working together makes the overall structure more valuable than just the sum of all individual components. Such chains derive huge purchasing power and control over the market and allow selling products more effectively to a wider range of consumers.
Main Advantages of Franchising
A franchise does not have to create the business from scratch. The essence of this concept is the access to a famous brand, its expertise, and know-how required for business operation.
Brand influence and the guidance of the franchisor increase the chances of success in a local market. A franchise can perform more efficiently than a similar independent business for the equal time span. As for the long run, a franchise has comparably lower chances of business failure.
A well-known brand profile may cause strong demand for new franchise’s services and products and provide a franchise with a more advantageous running start compared to an independent startup.
Potential Pitfalls to Remember
Experienced franchisees can itemize some specific drawbacks of franchising. Your business may hold lower potential than you expected to get, or maybe you were not ready to invest enough time, efforts and energy in this business. A beginning hotelier may also meet an unscrupulous partner and risk to go the wrong way with the business.
Your freedom of action as a franchise is limited to some extent. You must act within the conditions set forth in your agreement and the guide to production standards. Still, there will be enough opportunities to express your creativity and demonstrate innovative approaches. However, bear in mind that the boundaries within which you must act still remain. Therefore your work sooner or later may seem monotonous and boring, but in these conditions, you are obliged to stand by the same company for a long time. Your inability to strictly follow the business practices established by the franchiser can lead to the termination of the contract and the end of your business