Hotel franchises are gaining ground in Europe but remain held back by lack of scale

BERLIN – The level of risk to the hotel industry revealed by the COVID-19 pandemic has caused some European hotel investors to switch from the continent’s historic hotel lease model to a franchise model, according to speakers at the recent International Forum on hotel investment.

John Rogers, Hilton’s senior vice president of brands and central operations, Europe, Middle East and Africa, said while reports of the death of brand management deals in Europe might be overblown, those of a Entrepreneurs are increasingly turning to franchises.

“They can start with one hotel, then get a few, then move up the ladder chain,” Rogers said during the “Connecting You to the New Capital: The Changing Investment Landscape” session. “It’s an incredibly powerful win-win, with investors seeing a better balance of operations [profit and loss] and a global guest and supply chain platform.”

Panel moderator David Bond, a partner at Berlin-based law firm Fieldfisher, said hotel franchising in Europe has become more popular over the past decade, especially in the past two years.

“Franchises make up 90% of hotels in the United States, but in 2020 that number in Europe was only 30%. Now it’s 40%,” he said.

Rogers said if a franchise was offered in the United States, there would be lineups of around 20 applicants around the block, but in Europe that’s not always the case.

“In some markets you can’t find anyone because you need scale first,” Rogers said. He added that he sees franchises moving more and more east across the continent.

Eric-Michel Omgba, founding partner of Paris-based Alboran Hotels & Hospitality, which has 17 open hotels, all in France, said he had seen less alignment in hotel management agreements.

“We want flexibility to be able to challenge both parties and decide on the design and what happens in the hotel,” he said.

Rustom Vickers, Choice Hotels International’s franchise development manager for Europe, the Middle East and Africa, said that while the continent remains fragmented, companies emerging from the pandemic are emerging stronger and better positioned. to seek a larger scale.

“Historically, franchises were cookie-cutter hotels, but that’s no longer the case today. For some, franchises aren’t the ‘F’ word anymore,” he said.

Andreas Westerburg, hotel development manager at Best Western Hotels Central Europe, said he’s seen family offices move from single unit to multi-unit ownership as each generation takes control of these businesses.

“They’re starting to think with vision,” Westerburg said. “Opportunities have become more complex, so specialization has evolved, so it’s attractive to some that another entity can focus on the business side.”

Rogers said Hilton remains happy to run hotels with large meeting spaces in city centers.

“It’s not about [general manager] do everything. Investors want feedback. The main thing is the choice of the owner. What a hotel business wants is a range of options,” he said.

Omgba d’Alboran said franchises allow owners to choose the right partners.

“The distribution of customers is getting higher and higher and giving impetus to [earnings before interest, tax, depreciation and amortization],” he said.

Fieldfisher’s Bond said it’s too early to say the franchise model is thriving in Europe, but the model is certainly growing.

Westerburg agreed that the franchise model is changing.

“In a [complex business landscape] where it is impossible to control everything properly, franchises are possible thanks to trust,” said Westerburg.

Best Western is a membership organization, and Westerburg said company members have asked for help with “employer branding as franchises evolve and with what’s happening on the site and in the market”.

It’s revolutionary, says Vickers.

“Franchisees wouldn’t expect franchisors to help them. That’s the whole point, but we have global reach and support,” Vickers said.

Omgba said what he got from a franchise was distribution, loyalty and a good brand, but he also expected to get more help with IT and improved food and beverages to increase revenue per available room.

“It’s a small step for a franchised hotel to enter [food-and-beverage] franchise,” he said.

Vickers said it was another part of the shift, with European investors seeing hotel franchises as only about rooms.

“We help franchisees to have a more global vision. Good [food and beverage] helps the average daily rate,” he said.

Hotels that are both managed and franchised by the same company could be an option “when the asset is more complicated,” Omgba said.

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Mary I. Bruner