This report aims to assist owners in increasing their understanding and awareness of the franchise business model and current market trends, the fees outlined in this report apply solely to hotels operating in Europe.

Hotel Franchising in Europe is an update of our previous report published in 2019.

Introduction

Since our last edition of Hotel Franchising in Europe back in July 2019, the Hospitality Industry has gone through the most difficult time of its history. First, the COVID-19 pandemic, which emerged at the beginning of 2020, along with the resulting travel restrictions imposed by governments to reduce its spread and impact, have seriously tested the hospitality industry’s robustness, flexibility and adaptability.

When demand started to recover by the summer of 2021, another wave of COVID-19 was followed in February 2022 by the Russian invasion of Ukraine. With the sanctions imposed by many European and American governments against Russia, important economic impacts challenged and continue to challenge the hospitality industry, from increases in energy and goods prices, disruptions to the global supply chain and difficulties in finding qualified personnel. The inflationary trends that first emerged during the pandemic have continued, becoming more significant.

These major events, coupled with the many acquisitions and mergers in the hotel industry over the past few years, have rapidly changed the landscape. The ‘big’ brands are now larger than ever and must continue to drive growth, lest they fall behind their peers. Their coverage, loyalty programmes and distribution channels are accordingly stronger than ever, but so is their bargaining power, which has been a strong force throughout the COVID-19 pandemic and continues to be post-pandemic. Technology continues to evolve at an incredibly fast pace.

The OTA versus direct channel debate continues. Third-party operators have continued to grow and prove themselves as viable options. These are but a few of the factors that make a hotel owner’s choice of operating model essential for unlocking a property’s full potential and maximising its return. In order to help with this decision, this report will focus primarily on franchising and provide greater clarity on what terms can be expected.

Although franchising continues to be less prevalent in Europe compared to the USA, there is both anecdotal and quantitative evidence that it is gaining in popularity, both as a preferred means of expansion by the brands as well as an attractive model that allows owners to maintain a greater degree of control.

Franchising is also important for brands entering new markets, as it allows them to increase their footprint more rapidly and rely on the owner or a local operator to manage the hotel; these local operators often already have a strong network of connections within their business community, local travel agents and tour companies, and so forth.

Hotel brands are arguably more important than ever, as they have a reach that independent hoteliers cannot match. For example, large operators have the resources to keep up with rapidly moving technology, whereas this might be more challenging for smaller independent hoteliers.

Operators also have the depth of knowledge and the ability to send in their ‘specialists’ (be they in marketing, IT, operations, finance, or other areas) across the regions to assist their properties when needed.

When considering franchising, brand affiliation is important. The importance of selecting the appropriate brand for a hotel resides in the impact it will have on the hotel’s positioning within the market, its capacity to maximise occupancy and achieve room rate premiums, and the potential benefits of the chain’s distribution channels and know-how – and at what cost.

All these factors will ultimately be reflected in the hotel’s bottom line, and therefore both owners and lenders will be interested in properly understanding and considering the overall benefits that a brand will bring to the hotel when assessing if the additional franchise cost is worth it.

Franchising in Europe

Franchising in Europe is not as transparent as it is in the USA where, because the Federal Trade Commission regulates the sale of franchises, information regarding each franchise fee structure is readily available. While discounts on the standard fees are often still offered, at least in the opening years, all parties know what the starting point is when they come to the table to negotiate.

Because this report is focused on Europe, it is therefore limited to the information franchisors and franchisees we interviewed were willing to share as well as the information published in the hotel companies’ annual reports and other publicly available sources.

Table 1: Proportion of Franchised Properties in Each Market Segment

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