How to Pick a Hotel Franchise: Hotel Investing Secrets

How to Pick a Hotel Franchise: Hotel Investing Secrets... join me as we dive deep into the complexities of selecting the right hotel brand for franchising. Far beyond merely attracting the most guests, this decision requires a nuanced understanding of brand loyalty, competitive landscapes, and robust reservation systems. With Marriott Bonvoy leading the way with its unparalleled brand loyalty and reservation system, we explore how being part of the right or wrong reservation system can dramatically impact your hotel's success. From comprehensive market analyses to strategic brand positioning, discover the critical factors that can turn a potential hotel investment from a question mark into a lucrative venture. Join me as I unpack the intricacies of making a smart franchise choice in the hotel industry... Welcome to The Gould Mine, everyone...

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Transcript

•  What's up gold miners welcome back today I I was reflecting on a question that I've been getting a lot from friends. Family investors anyone that's interested in what I'm doing in the hotel space. One of the questions that I get is regarding the brands franchises specifically you know like for example Marriott Hilton Pyatt IHG Choice Best Western need I go on. These are all a brands or franchises and that's actually one of the things that a lot of people do not understand is the fact that Marriott and Hilton and all of these Brands don't own the majority of their hotels. These are all franchise models and so what they do is they inject their operating system. They inject their reservation system and they inject their brand standards into these hotels and then owners like myself like my partners and like all hotelier out. There assume the operation in the sense that they're the ones that own it right.
•  But they are leveraging the franchise's operating system and brand and everything that comes with that and one of the questions that I get often is which brand is the best and there are many ways to answer that and I think the copout answer is it depends and even though that might not be a satisfactory answer. It's one that I wanted to explore with all of you today. When you look at the chart right you simply look at who has the strongest reservation system. It could be hard to argue against the fact that Maria is widely considered at this point in time and this is like March of 2024 to have the best reservation system out there and of course things can change and that really equates to what does the brand loyalty look like across the brands and who has the strongest brand loyalty program and bonvoy right now is crushing it. They absolutely are crushing it and so when you look at simply like hey which brand has the best brand loyalty and which brand can deliver on the promise of getting.
•  The most heads in beds so to speak right that's the industry term that would be the best brand but it goes a lot deeper than that because it's not just who can get the most heads and beds. For example if we're going into a a market and we are buying a hotel that's unencumbered meaning there. There's no brand on that property right. Now we have our choice. We have a pick of the litter natural tendency would be hey let's go to let's go to Marriott which could very well be the case and a lot of cases said that is the case there are also situations in which for example you go to a market and that hotel that you're buying there are five Marriotts within a mile radius like no Hilton. Properties that would be an exaggerated version like that would be very unlikely but like let's just say that that were the case right and so then we have to look at a couple of things number one. What's the competition look like which brands are.
•  They associated with right because if you've got a bunch of competition that's all pulling from the same reservation system. If you're going to go in there you're just diluting yourself right versus another reservation system you might be the only player and so even though theand brand loyalty might not be as high you will get an unfair share of that brand loyalty uh of that. The members of that brand right or the loyal members of that brand and so there are other things to consider outside of that. Another thing to consider would be what does this market right.
•  What is the what do the consumers what do The Travelers. What do the guests expect when they go to this area. All right is this an area where you could do a a bouquey kind of upscale feeling type of hotel. Or is this a like a corporate kind of hotel right. So there are so many or or an area where there's more business travel right so if you're going to be in an area where there's more business. Travelers you might go to a completely different brand than if you are getting more say upscale travel business and so you really have to assess the market and and do a comprehensive analysis of which brand is going to fit best in this market. Given the competition that exist already the inventory that exists already and given the type of guest that we expect them to to come to this hotel and with those three things we can really start to make some decisions on which brand to associate with and so it's really hard when people ask like hey which one is the best one.
•  Now I will say that in terms of repositioning right and so this is something to consider that when we are repositioning an asset so if we're bringing it from one flag to another there are definitely tears and so if you're a passive investor into hotel deals I'd be very weary of hotels that are going from a top tier. Brand Marriott Hilton will throw IHG and height in there even though I wouldn't necessarily call them like the top top and then they're moving it down a tier right to a choice or a Windom or something else and by the way like I have friends at all those Brands like I'm not like talking down to any of them. I'm just saying it how it is right and so when you look at tiers of Brands when you're repositioning an asset you're you're usually trying to tier up you're repositioning up or within the same tier not reposition down and so if you are a passive investor and you're looking at a deal I would be very cautious of those and if that is happening there better be a really good story possibility of like key money. The thing is and I'll end with this is I've seen a lot of deals where the lower tier Brands they want the the hotel so bad so they'll throw money at the op.
•  The the owner they'll throw money at the sponsor's uh key money is what they call it to renovate the hotel and bring it up to that brand standards for what they're trying to reposition it to but then the hotel performs worse after it reopens as the new brand than than it did before I just saw this uh recent example I'm not going to say brand names to yeah. I'll say brand names who cares it was a holiday. In express. They renovated the property and made it a I want to say country in. I don't even know dude.
•  But it was a Windom product and it was IHG. They repositioned it to a Windam. They got tons of key money from the brand. They got lots of money from the brand to reposition the asset but then when it reopened the revar penetration which means the revenue per available room. Penetration index fell significantly and the hotel never performed as well as it did before the remodel. So even the H the hotel was remodeled. It was newer it was nicer. The pictures looked better because the reservation system was that much weaker it ended up being an inferior uh investment and so just because you're getting a lot of money from the brand and just because you're getting a lot of incentives from the brand doesn't necessarily make it a good buy and doesn't really make it a great investment either so just some food for thought. This is Danny G everyone and I hope you found this little gold nugget useful.