HFT1000 Exam 2 Chapter 6 Chain Operations Franchising Brands versus Chains o Chain operation A business under one management or ownership Owned by the same company Offer similar goods services Found in different geographic locations Generally 6 similar type operations could be considered to be a chain Scope can be regional national or international A specific industry of a business that is intentionally created through a careful combination of the design of its o Brand Products Services Name Logo Slogans Signs Aim is to convey a personality for the business and to infuse a consistent image of what the business stands for in the minds of the guests Multiunit Operations Business Models o Simple Form A chain can consist of a single owner investor that has full equity at stake Parent company owns operates all smaller units Found in local or regional chain operations Constitute a large percentage of the smaller chains in the hospitality o Mixed Franchise Form A mix of ownership Some units owned operated by parent company franchisor rest owned by many other owners investors franchisees Of total units owned that are franchised determines the of franchisees Franchisees can own multiple units Not uncommon for them to sometimes own more than the parent company Derives revenue through Franchising fees o Application fee o Flat fee as of gross sales Incentive fees o Additional fee based on level of profitability of unit operation Royalty fee Marketing fee Other fees o Fee for using name logo operating system etc o Additional fee to pay for marketing the entire chain through different campaigns o Project consulting o Employee training o Inventory supplies management Gross sales of franchisors units is not reported as revenue of the parent company Benefits Franchisor doesn t have to worry about soundness or feasibility of business concept Operating systems are already laid out Marketing for units is undertaken by parent company o Management Franchise form o Brand Management form When parent company engages in offering professional management services for its franchised units The parent company has an additional stream of revenue Parent company directly charges the units for the costs involved in Management fees running the units Employees of this form are employees or the parent company They are managed but not owned by the parent company Many regional and national chain operations use this business model Franchisees may be free to hire any other professional operations management company rather than the parent company Unit will be owned by investor managed by outside company When a megacorporation owns multiple chain operations under the same parent umbrella structure Prefers to refer to chain operations as a brand rather than a chain i e Marriott International owns 17 brands Each has a distinctive position covers specific market segments of the lodging industry o JW Marriott vs Residence Inn Units may be operated by parent company sole owners partnership owners or a management company as a 3rd party operator Large size allows parent company to Raise funds through financial markets to make direct investments in real estate o Buy land o Build new establishments o Buy existing establishments o Offer leases to third parties Cendant Choice Hotels franchise all the hotels in their chain Marriott Extended Stat Hotels manage the most hotels in the world Advantages of Chain Operations o Market Reach Reach out to many markets w same concept Increased sales increased profits o Economies of Scale Definition The cost advantages that a company can derive due to large size Can negotiate better rates for products Derives cost savings from synergy Able to spread costs across many units because a single department can manage many units o Streamlined Operations Standardized products services operating procedures Easy for consolidation reporting of performance Easy to compare unit performance across chain assign o Enhanced Marketing Power accountability to individuals Increased visibility through greater market research Use of mass media Chain can embark on multiple marketing campaigns same time in different regions o Value Added Service Options Reservations to full fledged consulting Loyalty programs Customer relationship management CRM Employee training certification services Consulting services Operations management services Guest satisfaction survey services o Access to Finances Multiple options for raising money Operational cash flows Can borrow money from banks savings loans other financial institutions Issuing bonds on stock Increased assess to finances grow more rapidly o Professional Management Enhanced legal requirement complexity prudent to hire professionals greater understanding of a company s operating needs chains have become incubators of good management practices Disadvantages of Chain Operations o Operational Constraints Standardization may lead to restrictions on the franchisees Type of marketing collateral may be limited Power of brand comes from maintaining image of brand parent company is strict w requirements Unit operations have to contribute to parent company and also may o Financial Strain incur additional expenses o Legal Forces Complex structure of chain along w many types of owner operator contracts partnerships often plagues it w legal woes Big Chains in Hospitality o Now commonplace for major hospitality corporations to consider the entire global market as their potential domain o Tope 5 companies operated in more than the nations in the world InterContinental 100 countries Starwood 100 countries Accor 90 countries Best Western 82 countries Hilton 81 countries o InterContinental Hotels Based in UK Worlds largest hotel company o Hilton Partly based in Herts England in Beverly Hills CA Under 2 different ownership companies o Food service chains are currently dominated by American quick service restaurants 2009 Ranks from 1 to 9 Subway McDonalds Wendy s Arby s Group Yum Brands KFC Taco Bell Pizza Hut Long John A W Burger King Dunkin Donuts Dominos Starbucks Sonic o Although McDonalds is ranked 1st in terms of sales Subway is the largest in terms of units o Newer restaurant concepts like Starbucks and Sonic are rapidly growing o Food service industry like the hotel industry has a penchant for franchising w some chains franchising almost all of their restaurants Subway Dunkin Donuts o The organization that manages lodging or food service operations for owners o Segment of hospitality
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