Industry Update
Opinion Article 9 December 2016

Cutting a Bald Man's Hair

By Georges Panayotis, President & Founder of MKG Group & Hospitality ON

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Franchise contracts are based on a reciprocal commitment between the investor-operator and the brand. Since investment funds set their sights on the hotel industry, such contracts have run into serious pitfalls. More concerned about seeing share prices climb on the stock exchange, financial shareholders have driven corporate communication to the detriment of brand marketing, thereby weakening awareness, the image and the attributes that make up the essential capital of any consumer brand.

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The marketing budget is already desperately tight in the hotel world and any slowing down is felt rapidly. Groups have contented themselves with communications campaigns that are as creative as they are ephemeral. Thus, an implacable process is underway. In light of low resistance from brands OTAs saw the opportunity to take over hotel sales. They dictated their law by capturing a share of sales traffic that normally should have gone through franchisors' reservation systems.

It is understandable that there is increasing doubt about justifying the remuneration that feels like a "double sentence". Calculated on the entire results it also includes the share of OTAs that have paid their share of the commission. Is it normal? Has the brand received enough support to develop a real personality that makes it stand out among its competitors? How were fees used that contribute to strengthening differentiation? It would have been wise to invest some in the evolution of concepts to allow franchisees to keep up with trends. New hybrid concepts that incorporate shared-working spaces rather than empty meeting rooms, that offer a mix of lodging solutions to expand the customer range, that redefine the social role of public spaces were born outside of franchise groups, which should nonetheless stay ahead of market expectations.

Should a new supply be developed on the ruins of the old one, or in new locations? The question has been asked, but the answer remains unclear. Stuck with franchise contracts for 12 to 20 years, franchisees sometimes have the feeling of being abandoned en route while new players nibble away at their market shares. They carry the weight of the walls and business in the long term along with the threat of being underestimated if no one offers them the practical and profitable solutions for change. Transferring the risk of investment onto franchisees can only be justified if they feel supported and remunerated. That means a real investment in the brand and the product. Previously, during a difficult economic period, the brand's contribution was indispensable. More recently it proved necessary, but not enough. Will it end up being an option like another, and not necessarily one of the most efficient?

Digital marketing has not helped any. How is it possible to truly exist in light of the strength of web intermediaries or sharing platforms? The break with distribution is already complete, and it is now late to want to catch up with it through major investments in digital that would be more efficiently spent on product innovation and marketing differentiation.

A new generation is taking the helm at franchisees. It is clear they won't be using kid gloves to give some concrete meaning back to the win-win relationship sold to them by franchisors. As real entrepreneurs, they now analyze their operating accounts by ignoring the affective aspect that masked many frustrations. Loyalty to a group or a range of brands has disintegrated as much due to economic logic as to spite. Franchisees have often found themselves at the front line to drive their brand when groups refused to free up capex to invest in their own subsidiaries. How can you demand investment in concept renovation when the franchisor does not set the right example? It is not enough to do more concept projects if they are never unfurled or even begun.

Today, it is high time to get back on track, renew the pertinence of hotel marketing and the strength in direct distribution. Franchisees are expressing their right to speak up and criticize within a balanced dialogue among decision makers. There is no reason for them to only have the right to the congruous part of financial results. After the thinning hair has been trimmed, will we go so far as to shave it off completely?

Georges Panayotis

Georges Panayotis is the President & Founder of MKG Group & Hospitality ON. Born into a family of hoteliers, Georges Panayotis left Greece at the age of 18 to study Political Science and earn a management degree at the University of Paris, Dauphine. In 1986 he created his own company and started developing specialised marketing tools for the hotel industry.

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