Why Europe is on the cusp of a franchising boom

With a growing number of white label operators across the European region, and leases coming under pressure through the pandemic, are the conditions right for a boom in franchising?

The change in landscape since 2019 has been “quite dramatic”, says Jonathan Mills, CEO of Choice Hotels EMEA, which has more than 400 franchise hotels in the region. Mills says he has seen a “massive” increase in the number of entrepreneurs, institutional investors and white label operators looking at franchising, as well as independent hotels wanting the support of a brand. “They need those tools, services and support,” he says. “Those four segments are absolutely our focus and where we see that growth coming from.”

Dimitris Manikis, president EMEA, Wyndham Hotels & Resorts, the biggest hotel franchise company with more than 9,000 hotels including 550 across EMEA, suggests the growth of professionally managed owned and operated companies has allowed hotel owners to consider the benefits of a white label operator.

Markus Lehnert, SVP, international hotel development EMEA, Marriott International, agrees: “What we’ve seen post-pandemic is, a lot of people who had a portfolio of 10, 15, 20 hotels began to think, ‘what am I going to do with this? Am I going to go alone, am I going to sell, am I going to go under a brand?’”

Safety in branded

The trend, he says, was to seek safety in a brand, particularly in light of the leadership role brands took during the pandemic, establishing sector-wide hygiene and safety protocols. Once they’re in the franchising fold, they may then develop a close relationship with their franchisor and seek to grow their portfolio (Marriott’s largest franchisee has close to 300 hotels with the group).

“We need a multitude of partners that we can feed deals to,” adds Lehnert. Around 74% of Marriott’s inventory is franchise “and increasing”, with 60% of its franchise projects the result of leads provided by Marriott.

“Maybe before the pandemic, some franchisees may have gone it alone, not relied on the brand, but because of that leadership they saw and wanted, that relationship is a little bit closer than it was,” suggests David Bond, a partner at European law firm Fieldfisher. “It becomes a virtuous circle where, if the brand trusts the franchisee, they’re more willing to allow operations to go to the franchisee.”

A bespoke approach

Although the franchise market has evolved, says Mills, it still needs to continue moving away from the ‘tick-box’ of brand standard compliance to an approach that is tailored to the needs of the franchisee.

“We have to adapt to the segment, the person,” agrees Manikis. “I’ve got people that are just family businesses, and they only care to create something for the kids to inherit. You don’t talk to him about the same thing as someone who has 150 hotels.”

Part of identifying and supporting the different needs of owners for Wyndham has included a programme dedicated to the advancement of women in hotel ownership, which has signed more than 30 hotels across the US and Canada in the programme’s first year.

“Franchising is not just one size fits all… everyone has a slightly different take on it,” points out Bond.

“All that flexibility in franchising is something that makes it a very adaptable model for all those different types of third parties out there that are all looking for something completely different, which is the beauty of it.”

“We also like the flexibility it gives us,” says Chris Penny, senior vice president at Starwood Capital Group, which has franchise agreements with Marriott, Hilton and YOTEL, and owns stakes in YOTEL and SH Hotels, which is looking to expand further across Europe with a 1 Hotel set to open in London’s Mayfair this summer.

“There are benefits that we see to having a franchise rather than a management contract that gives us more autonomy over how we drive our P&L whilst respecting brand standards.”

How many brands is too many?

A bespoke approach includes being able to offer a range of brands, although every brand must make sense, stresses Manikis. Wyndham has continued to add to its 24-strong brand portfolio with the launch of its ECHO Suites concept last year, which already has more than 200 hotels in its pipeline with the first due to open by the end of this year. The group also acquired Vienna House last year, bolstering its upscale and midscale presence – and it’s not done yet.

“Are we going to develop more? Probably yes. Are we going to buy more? Probably yes, if the right opportunity comes along,” says Manikis. “But always because Wyndham is missing a brand in that particular segment.”

He adds: “The challenge that we’re going to face at some point in the golden era of franchising is: do we have too many brands? I believe that is going to be a big question for our industry in the next few years – how many brands can this industry tolerate? How successful are they going to be and how relevant are they?”

A golden era for franchising?

Whether it’s going to be a golden era for franchising, Lehnert describes the model as a “catalyst” for distribution, while Mills extols the benefits of a capex-light option that enables fast growth and focus on delivery.

“If it is going to be a golden era, it’s got to be to the benefit of everybody involved,” suggests Bond, while Manikis thinks about it slightly differently: “For me it’s not the golden era of franchising, it’s the golden era of travel. Covid has proved to us that travel is not a luxury, it is a necessity. We need to connect and you’re going to see more and more people travelling.”

All those quoted in the article appeared on stage at the International Hospitality Investment Forum (IHIF) held in Berlin between May 15 and 17, in a session called: Franchising: A Golden Era of Growth?