HFT100 Exam 2 Study Guide Chapters 6 7 9 and 12 Chapter 6 Chain operation business under one form of management or ownership Definition More specifically chain operated hotels restaurants and other similar businesses are owned by the same company and offer similar goods and services but are found in different geographic locations Invariably many large hospitality companies have many chains that represent a different brand with distinct beliefs and target markets the Intercontinental name including ANA Crowne Plaza Hotel Indigo Staybridge Suites Holiday Inn Holiday Inn Express Holiday Inn Garden Court Sunspree Resorts and Candlewood Suites all of which were developed to cater to a different need in the market The Intercontinental Hotels Group IHG has several chains under Examples The chain therefore represents the brand and is clearly displayed in all interactions with the customer Characteristics of Chains Ownership the chain could be owned by a company of an individual a group of investors or a large parent company corporation with a portfolio of many chains within it A parent company may represent chains in all price segments and geographic areas or may be restricted to one or more depending on their focus and strategic intent Operations A chain hotel could be a corporate hotel directly owned and or managed by the parent company or franchised the hotel is run by a third party and the chain receives some sort of franchised the hotel is run by a third party and the chain receives some sort of franchise fee An independent hotel is not affiliated with any chain or a parent company Operation Chain Corporate Chain Franchise Independent TOTAL WW Rooms U S Rooms U S Properties No No No 3 605 319 25 883 553 18 8 4 436 26 3 644 299 51 49 2 471 475 25 628 31 43 1 523 169 22 224 7 002 480 49 100 153 727 100 14 252 098 100 52 288 100 4 878 197 WW Properties No 14 20 811 23 35 981 96 935 63 This table shows the operational characteristics of chain hotels in the world Other Characteristics Hospitality chain operations are distinct in a way they are managed represented or marketed A hotel within a chain could be managed by a management company which is a company with domain expertise that operates a hotel for another party such as the hotel owners The owners in return contractually agree to pay management fees and or share the profits from the operations Structure and Business Models of Hospitality Chain Operations While the concept of a chain operation is easy to understand it may become more complex with increasing size The complexity comes from the ownership and management contracts that form the basis of the relationships between the unit operators and the corporate office Descriptions of each of the Business Models Simple Form Full Equity A chain can consist of a single owner investor that has full equity stake in all the units owned by the company In such a chain the parent company fully owns and operates all the units in its chain All the profits obtained by running the chain belong to the parent company All the employees of the unit operations are the employees of the parent company The employees will always be the employees of the parent company For accounting purposes the parent company may consolidate the sales and costs of all the unit operations in order to determine the total profit or loss of the parent company Any marketing campaigns conducted would be at the expense of the parent company and would be performed for the benefit of al the unit operations Usually this type of structure is found in local or regional chain operations and they constitute a large percentage of the smaller chains in hospitality Simple form One parent company owns every single unit Unit operations are owned by the same company These are called the parent companies the company owner Mixed Franchise Form In this type of chain there is a mix of ownership with some units being owned and operated by the parent company franchisor and the rest owned and operated by many other owners investors franchisees The percentage of the total units owned that are franchises also determines the number of franchisees Many of the franchisees may own multiple units through business partnership entities of their own The franchisor derives their revenues through multiple revenue streams Franchising fees franchise application fees and a flat fee as a percentage of gross sales of the unit operation Incentive fees an additional fee based on the level of profitability Royalty fees a fee for using the name logo and standard operating systems of the parent company chain through different campaigns Marketing fees an additional fee to pay for marketing the entire Other fees for project consulting employee training and inventory supplies management It should be noted that while all such fees are reported as revenue for the franchisor the gross sales of the non company owned franchisors units is not reported as revenue of the parent company Management Franchise Form When the parent company franchisor engages in offering professional management services for its non company owned franchised units the company is using the Management Franchise Form of chain operations The difference is that in this form the parent company has an additional stream of revenue called management fees i e fees that it charges the non company owned units for managing their operations The parent company also charges the costs involved in running the units directly to the units The employees of the unit operations that are managed but not owned by the parent company franchisor Some management franchise parent companies also help fund the investment projects of the franchisees such as opening a new unit or renovating an existing unit All such functions may be conducted through a separate financial subsidiary of the parent company Many regional and national chain operations use this business model Brand Management Form When a mega corporation owns multiple chain operations under the same parent umbrella structure it prefers to refer to each of such chain operations as a brand rather than a chain to emphasize the importance of the distinctive brand image of each of the brands in its portfolio Each chain within the brand Management form operates similarly to the Management Franchise Form in terms of the franchisor franchisee relationships The chain s units may be operated by the parent company directly sole owners as franchisees partnership owners as franchisees or a
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