Chapter 6 Chain Operations 02 10 2015 Definition of Hospitality Chain Operations A chain operation can simply be defined as a business under one form of management or owernship 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 Many hospitality companies have many chains that represent a different brand with distinct benefits and target markets Characteristics of Hospitality Chain Operations Ownership o The chain could be owned by a company of an individual a group of investors or a large parent company corporation with a portfolio with many chains within it o 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 o The top parent company is the Intercontinental Hotels Group Operations o A chain hotel could be a corporate hotel or franchised directly owned managed by parent Corporate company Franchise some sort of franchise fee Ran by a third party and the chain receives o An independent hotel is not affiliated with any chain or a parent company Other Characteristics o Hospitality chain operations are distinct in the way they are managed represented or marketed o A hotel in a chain could be managed by a management o Hotel Management Company company expertise that operates a hotel for another party such as the hotel owners A company with domain o The owners in return contractually agree to pay management fees and or share the profits from the operations o Management companies typically manage hotels across many chains and brands o It is also not unusual for private owners of chain hotels to hire an asset management company to represent their interest in the operations o Therefore an individual chain hotel may have both a management company and an asset management company Structure and Business Models of Hospitality Chain Operations Simple Form Full Equity o A chain can consist of a single owner investor that has full equity stake in all the units owned by the company o Parent company fully owns and operates all the units in its chain company o All profits obtained by running the chain belong to the parent o For accounting purposes the parent company may consolidate the sales and costs of all the unit operations in order to determine the toal profit or loss of the parent company o All marketing expenses is with the parent company Mixed Franchise Form o 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 o Depending upon the size of the chain the number of franchisees can be large o It is not uncommon for some of the franchisee partnerships to own more units than the parent company o The franchisor derives revenues through multiple revenue streams Royalty Fees Franchising Fee franchise application fees and a flat fee an additional fee based on the level of as a percentage of gross sales Incentive Fees profitability of the unit operation standard operating systems of the parent company the entire chain through different campaigns and inventory supplies management A fee for using the name logo and For project consulting employee training An additional fee to pay for marketing Marketing Fees Other Fees Management Franchise Form o When the parent company franchisor also engages in offering professional management services for its noncompany owned franchised units the company can be said to be using the Management Franchise form of chain operations o The difference is that the parent company has an additional stream of revenue called management fees or fees that it charges the non company owned units for managing their operations o The employees of the unit operations that are managed but not owned by the parent company are the employees of the parent company franchisor o 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 Brand Mangement Form o When a megacorporation 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 o Each chain within the Brand Management form operates similarly to the Management Franchise form in terms of the franchisor franchisee relationships o The chains units may be operated by the parent company directly sole owners of franchises partnership owners as franchisees or a management company as a third party operator for a franchisee o The large size of the megacorporation may also allow it to raise funds through the financial markets to make direct investments in real estate across the globe o In Such a case the parent corporation may buy land build new establishments or buy existing establishments and convert them into one of their brands o Such investments also allow the megacorporation to offer the invested properties on a lease to third parties that may choose to operate the establishment or hire a professional management company to run it for them Advantages of Hospitality Chain Operations Market Reach o Chain operations have an advantage over single independent restaurants since they reach out to many markets with the same concept Economies of Scale o Refers to the cost advantages that a company can derive because of its large size o A chain operation will be able to negotiate better rates for its products and supplies from vendors compared to a single owner unit o Chain operation could have the same departments and staff help run many units in the chain Chain operation is able to spread the costs of such functional departments across many units compared to a single unit operation and thereby reduce the overall unit cost of such functions for all units in its chain Streamlines Operations o Chain operations often standardize the products and services offered in order to streamline their operations o Such standardization makes it easy for consolidation and reporting of performance across the chain Marketing Power o Marketing power of chain operations comes from increased visibility gained through greater market reach o Greater visibility allows the chain to use mass media such as TV radio and newspapers for
View Full Document
Unlocking...