Hotel Franchises Gain Steam in Europe but Still Held Back by Lack of Scale – CoStar Group

By Terence Baker
Hotel News Now

BERLIN — The level of risk for the hotel industry revealed by the COVID-19 pandemic has some European hotel investors shifting from the continent's historic model of hotel leases to a franchise model, according to speakers at the recent International Hotel Investment Forum.
John Rogers, Hilton's senior vice president of brands and central operations, Europe, Middle East and Africa, said while reports on the death of brand management agreements in Europe might be exaggerated, those of an entrepreneurial spirit are increasing moving to franchises.
“They can start with one hotel, then get a few, then rise up the scale chain," Rogers said during “Connecting You to the New Capital: The Changing Investment Landscape” session. "It is an incredibly powerful win-win, with investors seeing a better balance of operational [profit and loss] and a global platform of guests and supply chains."
Panel moderator David Bond, partner at Berlin-based legal firm Fieldfisher, said hotel franchising in Europe has become more popular in the past decade, especially in the past two years.
“Franchises constitute 90% of hotels in the U.S., but in 2020 that number in Europe was only 30%. Now it is 40%,” he said.
Rogers said if a franchise is offered in the U.S., there would be queues of 20 or so applicants around the block, but in Europe that is not always the case.
“In some markets, you cannot find anyone, as you first need scale,” Rogers said. He added he is seeing franchises moving increasingly eastward across the continent.
Eric-Michel Omgba, founding partner of Paris-based Alboran Hotels & Hospitality, which has 17 opened hotels, all in France, said he has seen less alignment in hotel management agreements.
“We want the flexibility so we can challenge both sides and to decide on the design and what goes into the hotel,” he said.
Rustom Vickers, Choice Hotels International's head of franchise development, Europe, Middle East and Africa, said that while the continent remains fragmented, companies emerging from the pandemic are emerging stronger and are better-positioned to seek increased scale.
“Historically franchises were cookie-cutter hotels, but that is not the landscape now. For some, franchises are no longer the ‘F’ word,” he said.
Andreas Westerburg, head of hotel development at Best Western Hotels Central Europe, said he has seen family offices moving from single-unit to multi-unit ownership as each generation take over those businesses.
“They are starting to think with vision," Westerburg said. "Opportunities have become more complex, so specialization has evolved, so it is attractive to some that some other entity can concentrate on the commercial side."
Rogers said Hilton remains happy to manage hotels with large meeting space in city centers.
“It’s not a case of the [general manager] doing everything. Investors want input. The key thing is owner choice. What a hotel firm wants is a range of options,” he said.
Alboran’s Omgba said franchises allow owners to choose the right partners.
“Customer distribution gets higher and higher and provides a push to [earnings before interest, tax, depreciation and amortization],” he said.

Fieldfisher’s Bond said it's too early to say that the franchise model is booming in Europe but that the model certainly is developing.
Westerburg agreed that the franchise model is evolving.
“In a [complex business landscape] where it is impossible to properly control everything, franchises are possible because of trust,” Westerburg said.
Best Western is a membership organization, and Westerburg said the company's members have asked for help with “employer branding as franchises evolve and with what is happening in the location and the market.”
That’s revolutionary, Vickers said.
“Franchisees would not expect franchisors to help. That’s the entire point, but we do have global reach and assistance,” Vickers said.
Omgba said what he obtained from a franchise was the distribution, loyalty and the right brand, but what he also expected to obtain is more help on IT and improved food and beverage to boost to revenue per available room.
“It is a small step for a hotel franchisee to get into [food-and-beverage] franchising,” he said.
Vickers said that is another piece of the evolution, with European investors seeing hotel franchises as solely concerned with rooms.
“We help franchisees have a more encompassing view. Good [food and beverage] helps 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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