Intro to Hospitality Test 2 Study Guide Chapter 6 Brands versus Chains o Chain operation Multiunit Operations Business Model o Simple Form A business under one management or ownership Chain operated hotels restaurants owned by same company and offer similar goods and services but are in different geographical locations Generally need around 6 to be considered a chain Regional national international Ex Mcdonald s BK Holiday Inn Hotels Becomes more complex with increasing size Complexity comes from ownership and management contracts that form the basis of relationships between units and corporate A specific identity of a business that is intentionally created through a careful combination of design of products and services Things like name logo slogans signs Trying to covey a personality for the business Also want to convey an image of what business stands for in guests mind o Brand Chain can consist of a single owner investor that has full equity stake in all of the units owned by company Parent company fully owns and operates all the units in operation Parents company get all the profits All employees belong to parent company Accounting o Parent company consolidates all sales and costs of unit operations to determine total loss or profit Marketing o All marketing is done at the expense of parent company and is performed for benefit of units Simple form is usually local or regional they re a large percentage of smaller chains hospitality o Mixed Franchise Form Mix of ownership some units being owned and operated by the parent company franchisor rest owned operated by many other owners investors franchisees Depending on size could be a large number of franchisees Some franchisees own multiple units Methods of which franchisor derives revenue o o Franchising fees franchise application fees and a flat fee as a of gross sales Incentive fees additional fee based on the level of profitability of the unit operation o Royalty fees fee for using name logo and standard operating o Marketing fees additional fee to pay for marketing the entire chain o Other fees project consulting employee training inventory supplies systems of parent company through different campaigns management Gross sales of the non company owned franchises are not reported as revenue of the parent company only the fees derived from franchised units Franchisor doesn t have to worry about feasibility of business model operating systems or marketing because the parent company takes care of all of it o Management Franchise Form Occurs when parent company also engages in offering professional management services for its non company owned units In this form the parent company has an additional stream of revenue called management fees Fees that it charges non company owned units for managing their operations o Employees that are managed but not owned by parent company are still considered employees of parent company Help fund investment project like grand openings and renovations Profits of such funding go straight to parent company Such financing operations are more profitable than franchise operations because of low interests rates on loans o o o Many regional and national chain operations use this business model In this model franchisees are free to hire any other professional operations management company rather than that of the parent company Unit will be owned by an investor and managed by an outside company that operates the business by standards of parent company Fee structure similar to that of parent company Outside management may be a partial or full business partner in some unit o Brand Management Form operation it manages Megacorporation owns multiple chain operations under the same parent umbrella structure it prefers to call each of such operations as brand not chain Emphasized importance of distinctive brand image of each brand in portfolio o ie Mariott owns 17 brands each of which covers specific market segments Operates similarly to the management franchise form in terms of franchisor franchisee relationships Chain s units may be operated by Parent company directly Sole owners as franchisees Partnership owners as franchisees Management company as third party operator for franchisee Large size allows them to raise funds through financial markets to make direct investments in real estate across the globe Buy land or existing establishments and convert to their brand o Can offer invested properties on lease to third parties Advantages of chain operations o Market Reach o Economies of scale Reach out to many markets with same concept increased profits Negotiate for better rates for its products and supplies because of sheer bulk that they are purchasing Chain operations have the same departments accounting marketing etc help run many units in the chain usually regionally Helps spread costs thereby reducing costs o Streamlined Operations Standardize products and services offered to streamline operations Extends to operating procedures Makes it easier to report and compare performance across chain o Enhanced marketing power Increased visibility gained through greater market reach Can use mass media like tv radio and newspapers for marketing Embark on multiple marketing campaigns at the same time o Value added service operations Able to provide additional services to customers and unit chain operations Ex providing reservations to full fledged consultants for running operations For customers providing loyalty program for continued business They also provide for the chain unit operations Preopening services o o Employee training and certification o Architectural and construction consulting o Operations and revenue management o o Guest satisfaction surveys Information technology consulting services o Access to Finances Multiple options for raising money for growth Cheapest way is through operational cash flows which are higher for a chain helps them grow faster than non chain operations They can also borrow money through bank loans or through bonds and stocks Borrowed money can fund operations make investments for growth or lent to unit operations for fee and interest rate Prudent to hire professionals like students graduating from hospitality training programs They understand company s operating needs Good management practices o Professional Management Disadvantages of chain operations o Operational constraints Because chain operations are so standardized it becomes difficult for franchisees or owners that may want
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