333 | ‘We’re Different’: Small franchisers strive to set themselves apart in a post-pandemic playing field

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ON THE SCENE: Representatives of HiHotels by Hospitality International were on hand in August during the AAHOA Conference & Trade Show in Dallas, Texas. Since becoming president and CEO in September, Chris Guimbellot is leading the franchiser’s rebranding and resurgence. It is among a group of small and new franchisers seeking to capitalize on hotel owners’ discontent with large legacy brands as the industry works toward a post-pandemic recovery.

Companies retool, rebrand to boost business amid recovery

In some markets, the coronavirus pandemic continues to negatively affect hotel businesses. In other cases, leisure travel has lifted occupancies and revenue from historic lows. Still, profitability remains a challenge across the board.

HotStats reported that in first half of this year gross operating profit per available room averaged a little more than $26. Compare that to the first half of 2019 when GOPAR averaged nearly $99.

Amid the uneven recovery and uncertainty, owners of branded hotels are asking franchisers how they plan to alter their strategies to drive more business to their hotels while reducing the costs of licensing.

Hotel owners and operators want simple licensing terms that will help them manage complex business challenges that aren’t going away any time soon.

Some small franchisers believe they have the answers by offering simple agreements that charge flat fees or by creating membership platforms powered by booking technology.

In this report, the second in a series on new and small franchisers, we highlight two such companies: Hospitality International Inc. and FairBridge Hotels International.

‘WE’RE DIFFERENT’: New and small franchisers may hold the answers to brand-licensing discontent amid the coronavirus crisis. Lodging Leaders podcast’s Episode 333 is the second in a series of reports on how small franchisers are rebuilding their businesses amid unprecedented challenges. They may have something to teach larger brands as hotel owners demand better licensing agreements in a post-pandemic business world.

Eyes Wide Open

Like many of the hoteliers who own and operate Hospitality International brands, President and CEO Chris Guimbellot grew up in the lodging business.

His father owned and operated hotels in New Orleans and Guimbellot’s first job as a youngster was bussing tables at the hotel restaurant and getting paid way below minimum wage. It was “all the money I could ever need,” he said. “And I absolutely loved it.”

While in college, Guimbellot interned at Hospitality International. After graduating he worked there for 10 years in various roles from the reservation center to marketing. He rose to a vice president role before leaving in 2010.

His father, Bobby E. Guimbellot, owns Southern Scottish Inns, a former franchisee of Scottish Inns and now a management company.

Chris moved to New York City in 2010. He got married and bought a digital-marketing company called Hotel Internet Strategies, which he still owns today.

He never cut ties with Hospitality International.

In 2015, then-President Jim Bloodworth asked Guimbellot to return to the company as consultant. Guimbellot helped reposition the reservation system with a new vendor.

“It was a big project,” Guimbellot said. “At the end, I said, ‘Hey, it was great working with you. I really enjoyed it.’”

But Bloodworth asked him to stay on in a consultant role. In 2019, Bloodworth told Guimbellot he planned to retire and asked him if he’d like to take over as president and CEO.

Guimbellot began his new role in September 2020, amid the coronavirus crisis. “I went in full bore and with my eyes open,” he said. “And so far it’s been a wild ride to say the least.”

Hospitality International has five brands, in the economy and midscale segments. Its franchise portfolio is heavy with Red Carpet Inn and Scottish Inns. Its other three brands are Downtowner Inns, Passport Inn and Master Hosts Inns.

Red Carpet Inn International was co-founded in 1969 by Tommy Tucker, creator of Quality Inn, and Bill Harwood after they acquired the Red Carpet Inn and Master Hosts Inns. They were headquartered in Colorado.

Also in the late 1960s, C.E. Scott founded Scottish Inns in Tennessee with a strategy to lease its name to existing hotels and motels. Within five years, the company shifted its model to a new-build brand that used modular construction. It claimed it could turnout one room every hour at a cost of $6,000 each. It also began to franchise.

Red Carpet Inn International acquired Scottish Inns in 1972, changed its name to Hospitality International and moved its headquarters to metro-Atlanta.

In 1991, it acquired the Downtowner Inns and Passport Inn.

“We essentially grew for a very long time. And then, to be quite honest, we started contracting a little bit,” Guimbellot said. “One of my jobs is to turn us around and start us growing again.”

Hospitality International has franchised 229 hotels. Last year, despite the COVID-19 pandemic, it signed 18 new licensing agreements. So far this year, it’s added nine franchised hotels and renewed an agreement.

NEW CONVERSION: Ketan Rama owns and operates the Scottish Inns & Suites in Spring, Texas. Hospitality International is the brand parent. Rama in August officially converted the former Econo Lodge by Choice Hotels International. The 40-room hotel is Hospitality International’s 60th property in Texas.

Guimbellot expects to grow even faster this year as owners’ and investors’ uncertainty eases and travel continues to rebound even amid the ongoing pandemic.

The biggest struggle facing the company is owners who want to cut ties with current franchisers who are not acknowledging termination requests, Guimbellot said.

“That’s proving to be a large problem because a lot of these hotels are tired of some of the brand standards and not getting the support that they feel that they deserve. They would like to jump ship but are having trouble.”

Many larger franchisers furloughed or terminated support staff amid the crisis and franchisees are feeling the pain, he said. Meantime, Hospitality International increased its support staff. “To me, COVID really separated the wheat from the chaff in terms of the franchise companies.”

Company Retools

In June 2020, the franchiser launched a rebranding that created Hi Hotels by Hospitality International.

Also last year, it added a consumer website that links to its booking engine,

StayHiHotels.com, which showcases the hotels and enables owners to interact with prospective and current guests on a mobile app.

Pre-pandemic, the franchiser created a program called Assurance and Marketing Program or AMP.

The timing for AMP was right. When the pandemic hit, the company was prepared to step up and work to keep hoteliers afloat.

“Our reps were on the phone with all of our hotels all the time. How can we help? What can we do for you? How can we make this situation better for you?” he said.

“It’s really more about how can we partner up to work together to get you more business, to get you higher rates, to get you reservations. During COVID, that program absolutely shined simply because of the commitment of our staff as well as the need by the franchisees.”

‘Better Brand’

Hospitality International has been known as an entry level agreement for first-time franchisees. Once the owners cut their teeth on operating a Scottish Inn or Red Carpet Inn, for example, they move onto bigger deals with larger franchisers.

It’s a description that does not rest well with Guimbellot.

“I’ve been with hospitality on and off for over 20 years at this point. And we’ve evolved as the industry has evolved, as the franchisee has evolved. People in this office used to say that we were Franchising 101. That (owners) get with us until they found a quote unquote better brand. And quite honestly, I always took offense to that because, you know, why can’t we be the better brand?

“So that said, we’ve really done a lot of work in the past few years. We’ve had a ton of turnover in our staff going out and getting better staff, putting our Assurance and Marketing Program into place and hiring people who are committed to our cause, which is growth and smart growth.

‘We are becoming the better brand and, subsequently, we can see that in our franchisees as well,” he said. “We still get those new to the hotel industry but we’re getting a ton of second-generation folks and we’re getting multiple-property owners. And not only that, what we’re starting to see a lot of at this point is experienced property owners who are tired of the onerous standards that are laid down by some of the other brands. They want to have less standards and focus more on driving revenue and taking care of their guests.

“While I would love to work with big-name developers and put up hundreds of Scottish Inns at a time, the bottom line is our message is resonating with our franchisees.”

Economy Comeback

One important factor going for Hospitality International’s franchisees is that business at hotels and motels in the economy segment did relatively well during the pandemic year 2020 and into 2021.

STR reported economy properties are leading the recovery. In the first six weeks of this year, demand at hotels in the economy-price tier had recovered to 2019 levels. Economy properties maintained an occupancy level of 60 percent and above. Meantime, RevPAR was a couple dollars short of 2019 levels.

Guimbellot attributed the strong showing to several factors:

  • Hospitality International’s hotels cater to essential workers, such as those in the construction industry, which continued to operate despite the pandemic.
  • Travelers gravitate to lower-cost hotels during an economic crisis.
  • And many of Hospitality International’s branded assets are exterior-corridor properties, which attracted more customers mindful of social distancing.

Hospitality International franchisees pay a fee-per-room rather than a percentage of gross room revenue. According to its franchise disclosure document for all five brands, licensees pay $40 per room, which covers royalty and marketing fees.

Guimbellot said there were hotels in some markets that struggled amid the crisis, mostly in Northeast markets. In cases of hardship, the company waived half of the fees in exchange for a six-month extension on the licensing agreement.

Though the COVID-19 pandemic is still with us, the lodging industry is seeing business return and owners, operators, investors and franchisers are optimistic about the recovery.

Guimbellot said it’s important that franchisers help owners weather the downturn while preparing for the upswing.

“The franchiser-franchisee relationship is incredibly important. And you really saw a disparity between the way franchisers handled the pandemic. Some of them simply cut off services. Some of them weren’t answering the phones and some of them provided more service and really stepped up their game. I’d like to say that we were in the latter half of that group.”

Guimbellot said as Hospitality International builds on its momentum, it plans to seek more input from its franchisees to help guide the direction of the company. “To make sure that what we do benefits them.”

‘ENOUGH IS ENOUGH’: Episode 332 of Lodging Leaders podcast, the first in a series on the state of franchising in the hotel industry’s COVID-19 pandemic recovery, features Keith Pierce, president of franchising and operations at Sonesta Hotels International Corp., and Patrick Mullinix, founder, president and CEO at Advantage Hotels Inc.. Participating in a panel discussion on July 26 at the Americas Lodging Investment Summit in Los Angeles are Carlos Flores, second from left, president and CEO of Sonesta International Hotels, which is entering the franchising business; Roger Dow, left, president and CEO of U.S. Travel Association; Greg Friedman, center, CEO of Peachtree Hotel Group; and Gordon Sondland, founder and chairman of Provenance Hotels.

Inflection Point

Another lodging company spent last year retooling its strategy to help its owner-members emerge from the crisis stronger than before.

FairBridge Hotels International is a 10-year-old venture that leverages proprietary booking technology to drive business to its members’ hotels.

Co-founders Sumeet Kals, Sumi Kohli and Deepinder Singh launched the company with its first hotel in Spokane, Washington, in the trough of the Great Recession.

The trio created a cloud-based reservation and marketing system called FairCloud that today generates bookings for its members’ 90 hotels.

Pete Patel and his son, Sanjay, of McDonough, Georgia, joined FairBridge in 2011 when a large franchiser it had an agreement with turned off their hotel’s reservation spigot over nonpayment of franchising fees. The family business was suffering the ill-effects of the Great Recession and was struggling to pay its bills.

Patel’s hotelier friends referred him to FairBridge, which connected him to its distribution system and kept him in business.

It’s a story that resonates today as hotels struggle financially amid the COVID-19 public health crisis.

Kohli, chief development officer at FairBridge, said, just as it was a decade ago, staying connected to a global reservation system is vital to a hotel’s success.

“We formed FairBridge really as a response to some of the inefficiencies and a lot of the inequities we saw in the relationship between a hotel owner-operator and its licensing platform,” he said. “We didn’t see that they were going to get a fair return on the investment that’s required to operate under the traditional franchise model.

“We came in with this idea that we are a technology company and our approach is to leverage the technologies that are available to provide a much more efficient experience for the hotel operator and their customers, the end users.”

Because it’s a membership model, owners pay a flat monthly fee for brand affiliation and for the business the company sends to the hotel.

The company has brands in economy and midscale segments that give owners a collective presence. The brands are FairBridge Inn & Suites and FairBridge Inn Express, FairBridge Hotel & Conference Center and FairBridge Loyalty Inn.

It has about 90 licensed properties in its portfolio. But the company’s bread and butter comes from its technology platform. And it wants to grow that part as the lodging industry emerges from the coronavirus crisis.

“We saw 2020 as an inflection point,” Kohli said. “It allowed us to kind of step back and take a good look at what we had been doing. In a weird way, we’re kind of grateful that we have the chance to reflect and take a look at what is our role here in the larger picture. Where are we going to be able to have the most meaningful and direct impact? How are we going to be able to help these families that invest their life savings into these hotels? Can we use this as an opportunity to kind of further refine what we’re doing and how to get that across to people?”

Over the past 12 months FairBridge increased its investment in FairCloud. It refined and expanded its capabilities.

SWITCHED ON: Pete Patel and his son, Sanjay, own and operate the 144-room FairBridge Inn & Suites in McDonough, Georgia. The family business joined the company in 2011 after its first franchiser turned off its reservation pipeline. It was the trough of the Great Recession and the hotel could not pay its franchising fees. FairBridge stepped in with FairCloud, its proprietary technology platform, and the economy property continues to do business today.

FairBridge charges members a licensing fee but it makes the bulk of its revenue through the business it sends to its members’ hotels via its tech platform.

“We think what it’s going to do is give us an opportunity to help a lot more people,” Kohli said. “We’re spending a lot of time now looking at FairBridge and FairCloud as a global travel tool, as a platform that can make it easier for global travel to happen; to make it a little bit easier for people to book through our platform travel that’s more affordable, makes more sense and is efficient.”

Kohli said FairBridge widened its mission after listening to it members, especially hoteliers operating in markets where the coronavirus crisis quickly and dramatically turned their fortunes.

He also noted that recovery and progress depend not only on the franchiser but on the owners’ willingness to adapt to the post-pandemic reality of doing business. Hence, FairBridge is seeking owners who want to invest in their properties and guest-facing services and bring an attitude of true hospitality.

“What we do on the licensing side is really just like cultivating a garden,” Kohli said. “We’ve learned this over the last 10 years. We’ve got to be able to pick those spots where that property has the best chance, where the best technology tools that are available to compete against their competitive set. If we pick owners that have the right mindset and that are in a tough competitive market, we still do great because our it’s our product that is going to make the difference.”

POWERED BY: Hotel Nova SFO is part of FairBridge Hotels International’s membership portfolio. The property near the San Francisco International Airport generates bookings through FairCloud, FairBridge’s proprietary reservation and marketing platform.

Pause on Disruption

Deepinder Singh is the brain trust behind FairCloud. As chief technology officer, he spends his time and creativity on coming up with technological solutions to business challenges.

But during the early days of the coronavirus crisis, Singh spent most of his time helping individual owners navigate federal government financial aid programs, such as the Paycheck Protection Program and SBA’s Economic Injury Disaster Loan.

It’s way beyond the call of duty for a franchiser or technology provider, but it’s something that Singh and others at FairBridge felt called to do.

Besides reducing fees, getting a financial lifeline to owners stunned by the overnight loss of business was key to survival for FairBridge and its members, Singh explained.

At the start of the coronavirus crisis in March 2020, Singh said its members were not doing any business so it was imperative FairBridge help owners navigate the aid programs.

A lot of small family businesses are unaware of programs that can help them through a crisis.

“To a lot of hoteliers this is a lifestyle, this checking in a guest, checking out the guests is all they know and fixing the room, taking care of housekeeping and making sure all the pieces to run a hotel are there,” Singh said.

“Unfortunately, sometimes they are not exposed to the rest of the world and we knew some of them really have no experience working through this EIDL or PPP.”

He said owners that received the initial round of aid were seeing business return within two to three weeks and began to generate revenue for themselves and FairBridge. “They called us and said, ‘You know, you guys have real expenses and I want to make sure that you guys are being paid on time.’”

“In the thick of it we waive fees for every property,” Kohli said. “And we were surprised how many said, ‘No. You know what? We’re open and we’re operating and we’re going to pay our fees.’

“And you’ve got to stop and reflect on what it takes for these people to make that kind of gesture. They felt like they were reciprocating what we were doing.”

Kohli said FairBridge is a different company today. “Before COVID, I would have given you the same elevator pitch: ‘We want to disrupt.’ But I think enough disruption has happened in this industry over the last year. I don’t think that’s the angle or the approach to take.

“What we want to do now is show how we’re different because we’re adaptable in these types of situations, because we’re flexible in these types of situations, because we can be more usable than what’s out there right now.

“We can be more effective and more helpful now and I think it’ll be more apparent when you see kind of exactly what’s happening with the big brands out there. As long as it’s business as usual for them, we don’t have to do a whole lot of showing them how we’re different.”

 

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