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Hotels growing as a player in the franchising market

Sarah Stowe

The hotels and accommodation sector isn’t traditionally a go-to franchising option. But of late the sector is enticing more potential franchisees to pursue their options as hoteliers.

With revenue of about $6 billion and profit of $840 million, the year 2014-15 proved promising for the sector.

More and more hotel groups are increasing their number of franchised units focusing on a talent pool rich with franchisees who have accumulated hotel, motel or hospitality experience.

Head of operations for the Intercontinental Hotel Group (IHG) Steven Skarott says that a franchise business’s success – particularly in the hotel sector – is heavily reliant on the capacity of its franchisees. He says that at IHG there’s a laser focus on recruiting the right people for the job.

“In having a successful franchise business you have got to have good franchisees: for us whether it be institutions or family companies people who operate hospitality operations are on our radar.

“Franchisees today exist from family run small businesses who started with a hotel or a motel, and over the years they’ve accumulated wealth from their success. These people are indeed a prime target. Essentially, what makes a great franchisee is someone who has a proven history of success in hospitality,” says Skarott.

Discussing franchising growth in the hotels sector, Skarott draws operational parallels between the Australian and US market. If Australia follows suit, he says, Australia’s hotel franchising market has a bright future.

But the process of increasing franchised units isn’t a simple task: comprehending the franchising laws, intellectual property details and finding the right breadth of talent encompasses successful growth.

“If you ask me I‘d generally say that Australia follows the mould of America, and certainly franchising in America has gotten larger and larger, so I guess like Australia retail food has been the majority of types of businesses that have franchised and hotels are starting to gain popularity – I’m confident Australia will follow suit.”

“We have the same level of business sophistication so in terms of some of the fundamental, environmental requirements to have franchising be successful are around having a good legal system, good intellectual property protection laws within the country, having a robust industry and having a deep pool of talent and industry professionals who are willing to be successful in that trade. Australia has all of that: the foundation to grow in hotel franchising as a sector,” Skarott says.

Senior director of communications at IHG Emma Corcoran outlines the importance of franchising as a business model, which is integral to expansion plans in Australia and global operations.

Emerging markets, such as the Asian market, require a different approach to expansion whereby more units are company run. This move is strategic, according to Corcoran, who says that while franchising is the predominant focus, there needs to be a tailored approach to certain markets.

“That[expansion] is a push for us because globally we are a franchise business, we have 4,900 hotels, 85 percent of those run under a franchise model already, so for us franchising is the predominant business model,” Corcoran says.

IHG operates in about 100 countries with 10 priority markets.