HVS' 2005 Franchise Fees Analysis Guide

This report is a survey of the fees charged by the major hotel franchisors in the economy, mid-rate, and first-class market segments, enabling hotel owners to easily compare the total cost of one hotel franchise with that of another.
HVS International, the leading global hospitality consulting and hotel appraisal firm, has recently published the 2005 Franchise Fees Analysis Guide - a survey of the fees charged by the major hotel franchisors in the economy, mid-rate, and first-class market segments. This guide enables hotel owners to easily compare the total cost of one hotel franchise with that of another. "Hotel franchise fees are the compensation paid to the franchises for the use of the chain's name, logo, identity, image, goodwill, procedures and controls, marketing, and referral and reservation systems," states Stephen Rushmore, president and founder of HVS International. "A franchise agreement creates certain benefits and costs for both the owner and the chain." Knowing the relative costs of various franchise fee offerings, an owner can determine the overall cost of an affiliation, and directly compare the estimated costs of different franchises, which can vary dramatically between brands. "The purpose of the hotel franchise fees guide is to provide a comparative analysis of various hotel franchise companies, based on the fees they charge," explains Rushmore, who co-authored the study with Zubin Saxena and Parris Jordan, consulting and valuation analysts at HVS. "The selection of an appropriate franchise affiliation affects a property's ability to compete in the local market, generate profits, achieve a certain image or market orientation, and benefit from referral business. Because the success of a hotel is primarily based on the cash flow it generates, owners and lenders must weigh the benefits and services of a national affiliation against the total cost of such a commitment." A total of 89 franchise groups, including 27 economy, 35 mid-rate, and 27 first-class franchisors, participated in the analysis. The trend towards franchise expansion and segmentation that was evident in the past moderated as the number of study participants from 2002 to 2004 remained the same. However, the number of first-class participants increased from 24 in 2002, to 27 in 2004. Conversely, the number of economy franchisors declined from 28 to 27, and the mid-rate participants decreased from 37 to 35, during the period 2002 to 2004. The Budget Host organization led this year's analysis, with only 0.6% of its projected ten-year rooms revenue going toward expenses related to franchise fees and associated costs. Other organizations achieving low percentages included the Best Value Inn at 0.9%, the Best Western at 2.8%, and the ClubHouse Inn at 4.5%. Study results showed that the franchise fees and costs as a percentage of rooms revenue ranged from 0.6% to 11.0% in the economy category, 2.8% to 10.7% in the mid-rate category, and 7.0% to 11.1% in the first-class category. The Budget Host, the Best Western, and the Omni Hotels were the respective category leaders in low percentage, at 0.6%, 2.8%, and 7.0%, respectively. Overall, these percentages of rooms revenue ranged from a low of 0.6% to a high of 11.1%, with a median of 9.2%. HVS International is a full-service hospitality consultancy providing industry skill and knowledge worldwide. HVS International offers market and financial feasibility studies, valuations, strategic analyses, development planning, and litigation support. Additionally, HVS specialists provide unique knowledge in the areas of executive search, investment banking, brokerage, asset management and corporate and single property strategic planning, management contracts, environmental sustainability, timeshare consulting, food and beverage operations and restaurant appraisal, interior design, gaming, technology strategies, organizational assessments, operational management, strategy development, convention facilities consulting, marketing communications, property tax appeals and investment consulting. Since 1980, HVS International has provided hospitality services to more than 10,000 hotels throughout the world. Principals and associates of the firm have written textbooks and thousands of articles regarding all aspects of the hospitality industry, and literally "wrote the book" on how hotels should be valued. To answer any questions regarding the 2005 Hotel Franchise Fees Analysis Guide, please contact Zubin Saxena at +1 516 248-8828 ext. 205, or via e-mail at zsaxena@hvsinternational.comor Parris Jordan at +1 516 248-8828 ext. 253, or via e-mail at pjordan@hvsinternational.com. To purchase a copy of the 2005 Hotel Franchise Fees Analysis Guide, please contact Joan Raffetto at +1 516 248-8828, ext. 231, or via e-mail at jraffetto@hvsinternational.com.
For further information please contact: Leora Halpern Lanz Tel: +1 516 248-8828, ext. 278 Email: llanz@hvsinternational.com Zubin Saxena Tel: +1 516 248-8828 ext. 205 Email: zsaxena@hvsinternational.com Parris Jordan Tel: +1 516 248-8828 ext. 253 Email: pjordan@hvsinternational.com