Jonathan Mills, chief executive officer of Choice Hotels Europe, discusses the growth of the franchise model and why it works for a new generation of energised entrepreneurs, ahead of his participation to the International Hospitality Investment Forum (IHIF) in Berlin.
How do you manage challenges affecting performance in the hospitality sector in 2023, and when do you expect a return to more manageable market conditions?
Jonathan Mills: Against a backdrop of the challenges presented by the COVID-19 pandemic and current world events, we continue to see the industry hit by staff shortages, retention challenges, and increased costs caused by such factors as the adoption of new technologies and higher staff wages .
We know this is having an impact on the industry as a whole and specifically on the livelihood of our franchisees, the majority of whom are small business hotel owners.
It is about making sure we have a business and proposition that is future-fit by offering franchisees revenue-driving and relevant brands with brand concepts that are customisable and adaptable to local needs.
We hope as 2023 plays out market conditions will stabilise but in the interim, we know brand preference and equity gains will be key to long-term success for franchisees’ business. Our focus is on balancing short-term revenue delivery with longer-term sustainable RGI growth for both Choice and our franchisees.
What does performance look like for your company now?
Jonathan Mills: Performance industry-wide has changed since pre-pandemic and for us there are a range of metrics that we consider. Obviously ADR and occupancy rate is a key one as you would expect but we are also focused on ensuring that we deliver revenue for our franchisees, secure better deals with OTAs and other partners and embed our refreshed brands with a focus on revenue-driving aspects.
In terms of industry trends, we’ve seen hotels have mainly returned to Pre Covid Occupancy Levels with occupancy on par with 2019. ADR is fully recovered and growing - our ADR in 2022 increased by 14% compared to 2019. We’ve also seen a huge increase in return on investment of our direct online efforts that drive bookings to our hotels, by 90%.
One thing the pandemic did encourage was more discussion with our franchisees and partners - more honest and open discussion - and we love that. We value the relationships we have - it isn’t about being a faceless company but about really knowing your customer and that in itself is a key metric for us.
Blending expertise in technology, marketing, operations, and revenue management really allows us to support and drive performance through our systems, brands, and tools, which we think further strengthens our value proposition for franchisees at both regional and local levels.
The franchise model is growing in Europe, are you approaching it differently now compared to pre-pandemic?
Jonathan Mills: The industry continues to evolve at pace, and one of the most significant things we’ve seen is increased interest in franchising as we witness a new generation of energised entrepreneurs looking to more deeply engage and ‘upgrade’ their passion for hospitality and manage their own business.
While franchising has been a successful business model for years, we have seen an increased interest in franchising as a business format as many people look to franchising for the first time. We believe this is, in part, driven by a desire in people to seize new opportunities and shape their own futures following the challenges presented by the pandemic. Franchising clearly is now seen as an exciting and diverse industry, especially for the entrepreneurial opportunities it provides.
We are taking a fact-based approach that is supported by research which is fit for customers and future developments. But most importantly, we are the only hospitality company that is 100% franchise-focused. We offer a clear value proposition offering relevant brands customisable solutions that are revenue-driving and/or cost-saving. It is the flexibility we offer our franchisees that empowers owners to be in business for themselves -- but not by themselves.
As we’re one of the largest hotel companies in the world, we’re tapping into the global scale and expertise of Choice Hotels International, based in the US. The network and scale of the global company is of huge benefit to our franchisees – but at the same time, based on our post-pandemic research, we’re tailoring our strategy, our brands and our value proposition to ensure we remain EMEA-relevant.
Do you expect new developments to start picking up in 2023, or are you still focusing on existing properties?
Jonathan Mills: It has been 50 years since the first Choice hotel was franchised in the region in Ratingen, Germany and growth here in EMEA, which continues at pace, is core to our strategy for the region.
It’s certainly an exciting time - we have never had so many positive conversations with our current and potential new franchise partners that are leading to either extensions or future partnerships.
All the hard work undertaken by our teams in 2022 is paying off – it saw us build the foundations for portfolio growth with two ambassador hotels showcasing our refreshed brands, plus the addition of new hotels in Saudi Arabia, Slovakia and Ireland with existing partners.
We also signed a new deal with RIMC for a new Quality hotel in Vienna, Austria and re-signed for another 20 years with 4C Hotel Group for the Comfort Inn Victoria and Comfort Inn Edgware Road in the UK with a confirmed commitment for more properties.
Last year, we started our midscale brand refresh programme by announcing 3 refreshed brands and 1 new brand to the EMEA market. Informed by independent research of midscale traveller perceptions, the brand refresh programme is helping us re-energise the hotel experience for the ever-evolving value-seeking guest.
This year has seen the refresh of our upscale collection brand Ascend, which offers franchisees the freedom to shape their own individual hotel story and positioning. Amongst the latest additions to the Ascend portfolio are four historic Fortress Hotels in Norway.
So on the one hand, yes, we are focusing on existing properties to increase revenue. On the other hand, we are focusing on attracting new properties. We are actively looking for mid-scale and upscale hotels, both new builds and conversions, to join our fast-growing portfolio, and are focused not only on single, but multi-development agreements and merger and acquisition opportunities.
What regions or countries do you see as having the biggest potential for growth?
Jonathan Mills: We are looking to grow in all markets with a view to doubling our estate in our markets over the next five years.
Throughout the pandemic, Europe and the Middle East remained important growth markets for Choice Hotels and today we maintain a firm focus on strategic growth that will drive brand preference and customer loyalty.
Our growth in EMEA in 2023 will be achieved by expanding existing and forging new partnerships in our core markets of the UK, France, and Germany.
We are however evaluating and seeking investment opportunities across EMEA and continue to evaluate opportunities in Southern and Eastern Europe in addition to the Middle East and Africa where hotel owners are excited by the range of relevant brands, customisable solutions and revenue driving franchisee support Choice Hotels offers.
What segments are you focusing on as having the biggest potential for growth, and what are you doing differently to target them?
Jonathan Mills: Our guest profile has changed during the pandemic, what they are looking for has changed. Our brand refresh targets that and is based on the research, as the needs of travellers have changed throughout the pandemic.
We have 4 midscale brands and 1 upscale brand with a distinct individual positioning which provides the maximum opportunity for growth in core and emerging markets right across EMEA.
In terms of which segments we are focusing on, we continue to actively seek new properties, both conversions and new builds, in the midscale and upscale hotel segments.What sets us apart from competitors is the fact we are the only international hotel group that chooses to focus exclusively on franchisees.
More so, we offer brand experiences and other services designed within a framework enabling franchisees to customise for asset type, size, segment mix and location.
How are you developing, implementing and measuring ESG policies to ensure their effectiveness? What requirements are coming from your owner partners and how are you aligning your objectives?
Jonathan Mills: Choice Hotels International has a well-established programme of sustainability initiatives, and we are working towards having similar here for the EMEA region which we expect to announce more about later this year.
With multiple countries and franchisee owners in the region, it is fair to say there are different consumer and government factors at play that we need to factor into our CSR efforts.
Our brand refresh has captured the requirements of both franchisees and customers – for example, our Sleep Inn brand incorporates aspects of sustainability ranging from the property décor and materials to the food offering. All of our brands employ the “we love local” approach, which is based on finding local partners and sourcing local products for the properties, thus reducing carbon footprint altogether.
We are working hand in hand with our franchisees to drive sustainable offerings forward and this has been complemented by the appointment of Megan Brumagim to the recently created role of vice president of environmental, social and governance (ESG) at Choice Hotels International last year. She is leading Choice Hotels sustainability and corporate social responsibility initiatives, championing the pillars of environmental sustainability, human rights, diversity and inclusion, philanthropic and community engagement, and corporate governance. We are also working closely with Megan on the EMEA regional plans and have also appointed someone to lead the work in this area in the region.
What initiative or new opening/launch are you most proud of in 2022-2023 and why?
Jonathan Mills: 2022 was a significant year for Choice Hotels in EMEA as we worked to build a strong position for growth.
Most significantly in 2022, informed by independent research of midscale traveller perceptions in the UK, Germany, and France, we refreshed our portfolio of brands to better target a range of guest profiles and segments. There was a clear opportunity for us to refresh the Choice Hotels EMEA branded guest experience, implement clearer differentiation between our brands and best meet the evolving needs of our franchisees and guests. Comfort, Clarion, Quality and the Ascend Hotel Collection have all embarked on a refresh and the Sleep brand, which is well-established in other regions, was introduced in EMEA towards the end of 2022.
Our brand refresh was also supported by work to lay the foundations of building a partnership offer that optimises commercial and operational performance and inspires and adds value to Choice Hotels, our franchisees and guests.
In addition to our brand refresh work, we also opened our first hotels in the Middle East in Saudi Arabia and as part of our retention efforts, signed a new deal with RIMC with whom we have opened the Quality Hotel Vienna and re-signed for another 20 years with 4C Hotel Group.
As we move through 2023, we will work to achieve continued growth by delivering relevant brands focused on guest experience, brand hallmarks designed to generate revenue, and a framework of brand standards adaptable to property location, size and business mix.
What are you looking forward to with regards to your participation to IHIF?
Jonathan Mills: IHIF is one of the most anticipated events on our calendar and we are all excited by the opportunities that it brings year after year. As a company focused on growth, IHIF is all about exploring new opportunities.
My team and I are meeting with investors, developers, hotel owners, and other key stakeholders and encourage other attendees to come and see us at our booth to explore future partnership opportunities with us. It’s always a fantastic forum to meet new and existing franchisees as well as industry colleagues and one we very much look forward to.
This year the panel sessions will be both engaging and insightful and we are looking forward to discussing trends and emerging themes across the industry. I’m looking forward to discussing themes in the panel Franchising: A Golden Era of Growth? on 16th of May together with some of my industry peers.