Strength in numbers: franchising the future for Choice Hotels

In this era of multinational, multibrand behemoths, Europeans could be forgiven for developing an inferiority complex. As operators try to outdo one another in posting bullishly optimistic five and ten-year expansion road maps, all the talk is of 'BRIC nations', 'fast-growing economies' and 'new markets'. Hospitality's traditional home has been recast as an ancien régime.

The financial downturn has hardly helped, with hotel groups looking to reduce exposure to still-struggling economies, exiting leaseholds, shedding assets and emigrating to the promised lands of the East. So, when the CEO of a group that accounts for more than 6,200 properties worldwide comes along and identifies the European continent as a "key strategic market" and "our biggest opportunity for growth", it's fair to say he's bucking any number of trends.

But Stephen Joyce is not driven by a sense of sentimentality or nostalgia. The head of Choice Hotels International has spotted huge potential for conversions in a region that, unlike his home market of the US, remains predominantly unbranded. Furthermore, Choice's pure franchising model allows for a level of flexibility and speed of movement that might just appeal to a growing number of independent owners looking to benefit from the delivery systems and economies of scale that franchising with an established multibrand player can bring.

Action plan

If Joyce's bullish optimism for Europe is to be translated into hard figures, UK CEO of Choice Hotels Europe Duncan Berry will have a big role to play.

"It means I'm getting fewer hours sleep each night, but it's certainly great to hear," Berry says of his boss's passion for all things European. "To have our market put front and centre is a breath of fresh air, and there's plenty of room for expansion. Banks are promoting the franchise model, we're seeing a growth in appreciation and understanding among owners, and we're building on an existing base."

At the end of Q1, that base stood at 458 European properties in operation and another 23 under development - a total of 48,486 rooms across four brands. The proportion found in the UK is relatively modest, something Berry takes full responsibility for; since joining Choice in 2008, he's proactively upgraded the quality of the portfolio, which meant bringing numbers down from 68 to 38 hotels in the UK.

"It was without doubt the right strategic decision," he says. "When I first came in, there were franchisees who were not investing in the product - they weren't up to scratch.

"It becomes very difficult to defend that state of affairs to franchisees who are doing everything asked of them. I had no choice but to terminate some franchisees and we've been the better for it. Taking those steps back was necessary in order to make much larger strides forwards."

The group appears to be benefitting from this extremely bold move. At the beginning of the year, Berry oversaw a strategic agreement with Akkeron Hotel Group that will initially incorporate nine of Akkeron's hotels into Choice's network. There's the potential for more to follow, but the initial deal alone represents a 25% increase in the UK portfolio.

"It shows that brand awareness and our reputation are growing," Berry explains. "The Akkeron deal includes the conversion of some Ramada properties and should demonstrate to other developers what we're capable of. It doesn't just have to be independent hotels we bring into our system; we now have a number of owners looking to rebadge their properties getting in contact with us and wanting to hear what we have to say. Five years ago, we simply wouldn't have been at the table for those discussions. It's a significant step forward."

There is competition, but the CEO believes that in the battle to sign up new franchisees, a high degree of flexibility will work in Choice's favour.

"Providing the standard is high and investment is going into the hotel, we'll happily consider tertiary markets," he says. "We can also support 40-60-bed hotels and the same cannot be said for a number of other brands. While we do have standards that need to be met, they are by no means draconian. Choice doesn't expect all walls or carpets to be a specific colour, and owners can retain decor and furniture so long as it's in good condition. Consistency is an essential component of franchising, but so too is a willingness to collaborate and accommodate one's franchisees."

Cloud effect

A core component of this collaboration has been the arrival in Europe of choiceADVANTAGE (cA), a proprietary cloud-based property management system already used by more than 5,500 Choice hotels worldwide. The first UK installation was in August 2011 and Berry is targeting 50% take-up by the end of the year. He has a strong business case.

"In the first three months of installation, properties in our international markets that have installed cA have experienced an average of 55% higher growth in CRS revenue compared with other Choice hotels in the same country.

"The system will become mandatory," says Berry. "But it's a question of picking the right moment. Having over half of our properties up and running on cA will give us a massive opportunity for those who aren't to talk with their peers about the benefits of the system. Hearing it from their peers, rather than from ourselves, always proves a lot more powerful."

Berry mentions the owners of a London property who've been so impressed by the results of cA that they are now looking to rebadge one of their hotels in Scotland. Working with partners who boast multibrand portfolios poses challenges, but developments are afoot that may soon help owners achieve consistency across their portfolios.

Earlier this year, Choice Hotels announced the availability of Sky Touch Hotel OS, a new cloud-based property and rate-management solution that draws on some of cA's functionality, available for non-Choice branded hotels and independents to buy.

"Our franchisees will continue to enjoy some exclusive benefits of cA, but it's so effective that other hoteliers, including chains and independents, have asked to use it," Berry added.

Sky Touch is currently only available in the US, but the longer-term potential for bringing in new members should be significant.

"Over time, it will enable us to provide a solution to franchisees who have other properties and want a consistent system across their portfolio," Berry explains. "It needs to gain some traction in the US first, but I don't think we'll be waiting too long before it becomes available in Europe."

In the meantime, Berry will focus on using his own members as brand ambassadors, and is keen to create more forums for owners and general managers to share experiences and best practice with their peers. Education, internal and external, is a theme he returns to time and again.

"The franchise market is reliant on ensuring the franchisor-franchisee relationship is strong," Berry explains. "It's still maturing in the UK; the appreciation of how people can do business and get involved with brands remains relatively low. We need to get that message out, make it clear what we can bring and explain the advantages of going down this route, as opposed to management contracts or leasing.

"We can target the hotels and markets in which we'd like to be involved, and it provides owners with the opportunity to make educated decisions."

Blueprint integrity

Having cleaned and clarified the standard of Choice's UK portfolio, and focus now turning to growth, that message must become easier to convey. However, while Berry is confident in his ability to help deliver on Joyce's optimistic European targets, he insists that growth should not come at any costs.

"We can't take on hotels simply for the sake of boosting numbers," he says. "That won't get us anywhere. We're looking for the right properties and the right kind of owners.

"Choice has been going for 70-odd years. There's a very successful blueprint in place and we can help the right kind of owners achieve what's increasingly difficult in this market - securing the long-term future of their business."