HVS’ 2003 Franchise Fees Analysis Guide: Designed to Assist the Hotel Owner

HVS Press Release
HVS International, the leading global hospitality consulting and hotel appraisal firm, has recently published the 2003 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. "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," states Stephen Rushmore, president and founder of HVS International. "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." "Most hotel lenders believe that in order to be competitive in today's hotel market, a strong franchise affiliation is essential, and therefore, the selection of a brand affiliation should be evaluated carefully," explains William Lee, senior associate at HVS International, who co-authored the study with Rushmore. "Hotel lenders also typically insist on a franchise affiliation of some type because it reduces the perceived investment risk." "Our analysis shows the total franchise fees a property would pay over a ten-year period and then demonstrates what percentage of rooms revenue that represents," continues Lee. "Armed with this information, 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 owner can then make an informative decision as to whether to opt for a Best Western affiliation at 1.1% of rooms revenue, or spring for a La Quinta Inn at 9.9%." A total of 89 franchise groups, including 28 economy, 37 mid-rate, and 24 first-class franchisors, participated in the analysis. The trend toward continued franchise expansion and segmentation was exhibited by a 6.0% increase in the number of study participants from 2000 to 2002. The Budget Host organization led this year’s analysis, with only 0.6% of its projected ten-year revenue going toward expenses related to franchise fees. Other organizations achieving low percentages included the Best Value Inn at 0.9%, the Best Western at 1.1%, and the ClubHouse Inn at 4.5%. Study results showed that rooms revenue ranged from 0.6% to 10.9% in the economy category, 1.1% to 10.7% in the mid-rate category, and 7.7% to 11.1% in the first-class category. The Budget Host, the Best Western, and the Woodfin Suite Hotels were the respective category leaders in low percentage, at 0.6%, 1.1%, and 7.7%, respectively. Overall, these percentages ranged from a low of 0.6% to a high of 11.1%, with a median of 9.0%. Since 1980, HVS International, the leading global hospitality consulting organization, has provided financial and valuation consulting services for more than 10,000 hotels in all 50 states and more than 60 foreign countries. Our professional staff of more than 150 industry specialists offers a wide range of services, including market feasibility studies, valuations, strategic analyses, development planning, and litigation support. Other hospitality-focused services include environmental consulting, food and beverage services, timeshare consulting, hotel construction and interior design, asset management, technology strategies, property tax services, gaming services, and marketing communications. HVS databases contain comprehensive information on more than 30,000 hotel transactions, operating agreements, financial statements, and compensation information. To answer any questions regarding the 2003 Hotel Franchise Fees Analysis Guide, please contact William Lee at 516-248-8828, ext. 261, or via e-mail at wlee@hvsinternational.com. To purchase a copy of the 2003 Hotel Franchise Fees Analysis Guide, please contact Joan Raffetto at 516-248-8828, ext. 231, or via e-mail at jraffetto@hvsinternational.com. For further information, please contact: Leora Halpern Lanz HVS International 516-248-8828, ext. 278 llanz@hvsinternational.com # # #