Cash cows & paying pigs
By Georges Panayotis, President & CEO - MKG Group
are also the ones that are being asked to take risks by creating businesses and making productive investments. Busy with daily management, they remained silent as long as the rewards for commercial success reflected the hours of work and anxiety.
grab their ones. In the hotel industry, the development of networks relies largely on the shoulders of franchisees, CEOs of businesses that are locally well established, that are willing to act as a growth relay but not at any price. Treated like cash cows, they watch taxes multiply: tourism taxes, property taxes, VAT, employee contributions..., they must fill all cashboxes. Meanwhile, these paying pigs also watch their franchise royalties, commissions to OTAs, and debt interests that weaken their operating accounts all go up.
Taking advantage of the strength of a brand, of its distribution channels, of its logistics support and itsgood advice naturally comes with a price as long as the benefits are clear. An owner/operator has reasons to wonder what a brand offers to avoid winding up as the turkey in the game. What is a business really worth if it doesn't develop to its own advantage? Why join a hotel group if there is no competitive advantage? What happens if the contract is broken? After absorbing investments and operating costs, does the franchisee's business still have any market value?
A franchisee's commitment to a brand involves obligations that must be assumed with no regret:respect standards and identity, accompany the growth of concepts, continue CAPEX in order to keep the business up and running. Property charges are heavy, but they are acceptable when they are offset by lower commercialization costs, additional clientele sources and outperformance with respect to the local competition.
Today, however, yield management strategies, the accumulation of costs and taxes have explodedrack rates, resulting in mistrust from individual direct clientele who trusted in the brand and its "right price". Direct sales are increasingly diverted to online middlemen that advertise the most attractive prices. The franchised hotelier finds himself caught in an impossible squaring of the circle between drop in daily rates, increase in distribution costs and maintenance of investments. In addition, the invasive middlemen also get in the way of the personal relationship the hotelier develops with his customers, and go so far as to try to oust the hotelier from the game.
These subjects rightly upset the hotel industry. In a perfect world, the franchiser-franchiseerelationship is a win-win partnership. Secretly, each member of the couple hopes to get the most out of it. The time has undoubtedly come to revive the wisdom of our industry's pioneers who, as good observers of the trade, told their development teams that a good contract is a contract where the franchisee makes one euro more than the franchiser. A precept that's food for thought in today's hotel world.