Business Development Strategies Chapter 4 Hospitality Management Strategies

Business Development Strategies Chapter 4 Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Strategy Selection (Product) Singleness strategy Hybrid Product tiering Specialization Tailored to market(s) Alternate branding Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Strategy Selection (Market) Domestic Near to far geographic Multi-continent Everywhere - global (opportunistic or planned) Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Strategy Selection (Method) Ownership + limited franchising Joint-venture Franchising Alliances/consortiums/agreements Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Strategy Selection (Method) (continued) Build and lease Management contracts Acquisitions n Select n Brand collector Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Strategy Selection (Method) (continued) Horizontal (across sector) Vertical (multiple components of the same segment) Horizontal and vertical Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Strategy Selections (Organizational) Centralized (global) Decentralized (zone, region, country) Combination Market(s) served Product categories/types/lifecycle People strength Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Strategy Alternatives n n Acquisitions of companies with management contracts and franchise base Management contracts (solicitation/growth) Limited equity participation + management contracts Acquisition of brands Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Entry into Business: n Start from scratch n Buy an established business n Buy a franchise Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Franchising Introduction: n Overview of franchising n How franchising works n History of franchising n Types of franchise relationships n Global implications Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Franchising Statistics n n n Four times greater chance for success than starting from scratch. Two times greater chance for success than buying a business. Of franchises opened in the last five years, 96. 9% are still open. Six to eight percent growth in revenue. Franchising accounts for 1/3 of all retail sales - $760 billion in revenue. Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Franchising n n A franchise is a mutually beneficial financial partnership between a large organization and an independent entrepreneur. Franchisor sells the right to conduct business using the organization’s name, trademarks, products, business procedures, marketing, advertising, and everything else to the franchisee. Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Franchising n n (continued) Eighteenth century England Germany tavern owners and brewers Nineteenth century product-trade name franchise n Singer Sewing Machine Company n Auto parts stores n Beer and soft drink bottling companies Twentieth century automobile dealerships 1920’s A & W Restaurants Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Three Elements for a Successful Franchise n n n Established identity, exclusive trade name Finely tuned business format Long-term financial relationship between franchisor and franchisee Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Franchising Rationale n n Faster way to market entry/share Power of advertising Brand awareness equals sales Expanding global markets Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Four Types of Franchise Relationships n n Manufacturer-retailer franchise Manufacturer-wholesaler franchise Wholesaler-retailer franchise Business format franchise Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Hospitality Industry Franchising n n Lodging facilities Food service establishments Tour operators Travel agencies Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Global Franchisor Examples n n n Mc. Donald’s Anheuser-Busch KINKOS Holiday Inns Carlson-Wagonlits Travel Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Management Contracts “An agreement between a management company and a hotel owner for the management company to operate the hotel. ” Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Management Contract Services “Services provided by a management company or sold as a package, or separately. ” Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Management Contracts Management Company Selection n Independent management company n Chain management company Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Management Contracts Process RFP = Request For Proposal Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Management Contracts n n n n Criteria (domestic) Past performance Actual operating results Reputation/integrity Management accessibility Marketing strength Compatibility with property type Contract terms Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Management Contracts Fee Structures: n Basic = % of gross revenue n Incentive Hospitality Management Strategies By R. A. Nykiel = % related to negotiated profit or net cash flow © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Management Contracts (lodging facilities - domestic) n n Fees n Basic (1. 5% to 5. 0%) n Incentive (varies) Terms n 30 days to 5+ years n 5, 10, 15, 20 years Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Technical Services Fees n n n Separate fee Design Planning Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Management Contracts Pre-Opening Fees: n Paid to the operators for developing a pre-opening plan, budget, and supervising pre-opening activities. Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Management Contracts International Criteria: n Selection criteria n Contract services n Fee structures n Key provisions n Issues Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Management Contracts Selection Criteria: n Contracts and experience in the relevant market n Availability of qualified personnel n Sensitivity of local culture n Integrity and reputation n Standards of operation Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Management Contracts Selection Criteria: (continued) n Proven financial record (UPS) n Financial strength n Training staff and management local n Risk sharing (equity & loans) n Performance based fees n Term flexibility Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - International Fees: n Basic n Incentive Hospitality Management Strategies By R. A. Nykiel = 2% - 8% of gross revenue = 0% - 25% of gross operating profit © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - International Contracts Term: n 10 to 30 years n 10 -year renewals Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Management Contracts n n n Financial provisions Administrative provisions Operating provisions Marketing provisions General provisions Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Management Contracts n Key Provisions n n n n Contract term Management fee Reporting requirements Approvals Termination Operator’s investment in the property Operator’s home office expenses Transfer of ownership Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Management Contracts n Key Provisions n n n n (continued) Exclusivity Insurance and condemnation proceeds Hotel personnel Reserve for replacement Restrictions Indemnity Technical assistance Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - International Contracts n Termination n Failure on agreement n Option for property sale n Bankruptcy or assignment n Owners option without cause n License suspensions or revocation n Operator performance provisions Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Management Contracts n Process n Owners meetings (monthly/quarterly) n Annual budget reviews n Capital/FF&E reviews/meetings n Legal issues Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Management Agreement Trends n n n n Shorter terms Reduced fees/more incentives Stricter operating performance standards Detailed reporting Operator accountability for charges More flexible termination clauses Greater owner control over money Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Business Development Strategies n Airlines - leasing/purchases n Acquisitions n Alliances n Marketing n Bankruptcy/restructuring n Spin-offs Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Business Development Strategies (continued) n Attractions n Ownership n Joint-ventures n Licensing n Acquisitions Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Business Development Strategies (continued) n Car Rental n Ownership/purchasing n Joint-ventures n Leasing n Franchising Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Business Development Strategies (continued) n Cruise Lines n Ownership/leasing n Joint-ventures n Acquisitions n Sub-contracting Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Business Development Strategies (continued) n Food Service n n n n Franchising Leasing Acquisitions Management contracts Ownership Joint-ventures Re-theming Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Business Development Strategies (continued) n Gaming n Ownership n Acquisitions n Re-development n Localization Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458

HMS - Business Development Strategies (continued) n Travel Related Services n Ownership n Acquisitions n Franchising n Management contracts n Alliances n Joint-ventures Hospitality Management Strategies By R. A. Nykiel © 2005 Pearson Education, Inc. Upper Saddle River, N. J. 07458