1. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 Business Development Strategies Chapter 4

2. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Strategy Selection (Product)  Singleness strategy  Hybrid  Product tiering  Specialization  Tailored to market(s)  Alternate branding

3. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Strategy Selection (Market)  Domestic  Near to far geographic  Multi-continent  Everywhere - global (opportunistic or planned)

4. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Strategy Selection (Method)  Ownership  Ownership + limited franchising  Joint-venture  Franchising  Alliances/consortiums/agreements

5. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Strategy Selection (Method) (continued)  Build and lease  Management contracts  Acquisitions Select Brand collector

6. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Strategy Selection (Method) (continued)  Horizontal (across sector)  Vertical (multiple components of the same segment)  Horizontal and vertical

7. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Strategy Selections (Organizational)  Centralized (global)  Decentralized (zone, region, country)  Combination  Market(s) served  Product categories/types/lifecycle  People strength

8. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Strategy Alternatives Acquisitions of companies with management contracts and franchise base Management contracts (solicitation/growth) Limited equity participation + management contracts Acquisition of brands

9. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Entry into Business Entry into Business: Start from scratch Buy an established business Buy a franchise

10. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Franchising Introduction: Overview of franchising How franchising works History of franchising Types of franchise relationships Global implications

11. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Franchising Statistics Four times greater chance for success than starting from scratch. Two times greater chance for success than buying a business. Of franchises opened in the last five years, 96.9% are still open. Six to eight percent growth in revenue. Franchising accounts for 1/3 of all retail sales - $760 billion in revenue.

12. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Franchising A franchise is a mutually beneficial financial partnership between a large organization and an independent entrepreneur. Franchisor sells the right to conduct business using the organization’s name, trademarks, products, business procedures, marketing, advertising, and everything else to the franchisee.

13. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Franchising (continued) Eighteenth century England and Germany tavern owners and brewers Nineteenth century product-trade name franchise Singer Sewing Machine Company Auto parts stores Beer and soft drink bottling companies Twentieth century automobile dealerships 1920’s A & W Restaurants

14. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Three Elements for a Successful Franchise Established identity, exclusive trade name Finely tuned business format Long-term financial relationship between franchisor and franchisee

15. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Franchising Rationale Faster way to market entry/share Power of advertising Brand awareness equals sales Expanding global markets

16. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Four Types of Franchise Relationships Manufacturer-retailer franchise Manufacturer-wholesaler franchise Wholesaler-retailer franchise Business format franchise

17. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Hospitality Industry Franchising Lodging facilities Food service establishments Tour operators Travel agencies

18. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Global Franchisor Examples McDonald’s Anheuser-Busch KINKOS Holiday Inns Carlson-Wagonlits Travel

19. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Management Contracts “An agreement between a management company and a hotel owner for the management company to operate the hotel.”

20. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Management Contract Services “Services provided by a management company or sold as a package, or separately.”

21. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Management Contracts  Management Company Selection Independent management company Chain management company

22. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Management Contracts Process RFP = Request For Proposal

23. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Management Contracts Criteria (domestic) Past performance Actual operating results Reputation/integrity Management accessibility Marketing strength Compatibility with property type Contract terms

24. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Management Contracts Fee Structures: Basic = % of gross revenue Incentive = % related to negotiated profit or net cash flow

25. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Management Contracts (lodging facilities - domestic) Fees Basic (1.5% to 5.0%) Incentive (varies) Terms 30 days to 5+ years 5, 10, 15, 20 years

26. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Technical Services Fees Separate fee Design Planning

27. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Management Contracts Pre-Opening Fees: Paid to the operators for developing a pre-opening plan, budget, and supervising pre-opening activities.

28. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Management Contracts International Criteria: Selection criteria Contract services Fee structures Key provisions Issues

29. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Management Contracts Selection Criteria: Contracts and experience in the relevant market Availability of qualified personnel Sensitivity of local culture Integrity and reputation Standards of operation

30. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Management Contracts Selection Criteria: (continued) Proven financial record (UPS) Financial strength Training staff and management local Risk sharing (equity & loans) Performance based fees Term flexibility

31. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - International Fees: Basic = 2% - 8% of gross revenue Incentive= 0% - 25% of gross operating profit

32. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - International Contracts Term: 10 to 30 years 10-year renewals

33. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Management Contracts Financial provisions Administrative provisions Operating provisions Marketing provisions General provisions

34. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Management Contracts Key Provisions Contract term Management fee Reporting requirements Approvals Termination Operator’s investment in the property Operator’s home office expenses Transfer of ownership

35. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Management Contracts Key Provisions (continued) Exclusivity Insurance and condemnation proceeds Hotel personnel Reserve for replacement Restrictions Indemnity Technical assistance

36. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - International Contracts Termination Failure on agreement Option for property sale Bankruptcy or assignment Owners option without cause License suspensions or revocation Operator performance provisions

37. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Management Contracts Process Owners meetings (monthly/quarterly) Annual budget reviews Capital/FF&E reviews/meetings Legal issues

38. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Management Agreement Trends Shorter terms Reduced fees/more incentives Stricter operating performance standards Detailed reporting Operator accountability for charges More flexible termination clauses Greater owner control over money

39. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Business Development Strategies Airlines - leasing/purchases Acquisitions Alliances Marketing Bankruptcy/restructuring Spin-offs

40. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Business Development Strategies (continued) Attractions Ownership Joint-ventures Licensing Acquisitions

41. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Business Development Strategies (continued) Car Rental Ownership/purchasing Joint-ventures Leasing Franchising

42. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Business Development Strategies (continued) Cruise Lines Ownership/leasing Joint-ventures Acquisitions Sub-contracting

43. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Business Development Strategies (continued) Food Service Franchising Leasing Acquisitions Management contracts Ownership Joint-ventures Re-theming

44. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Business Development Strategies (continued) Gaming Ownership Acquisitions Re-development Localization

45. Hospitality Management Strategies©2005 Pearson Education, Inc. By R.A. NykielUpper Saddle River, N.J. 07458 HMS - Business Development Strategies (continued) Travel Related Services Ownership Acquisitions Franchising Management contracts Alliances Joint-ventures