Australia has lagged joining the global trend toward franchising hotel brands, but now it's on the brink of a franchising boom.
The pandemic contributed to the “normalization” of the hotel brand franchise model, according to Deloitte, which predicted franchising will become the “preferred operating model for most international brand affiliations” in hotels and hospitality.
Australia has been slow to jump into the ring, as property owners have traditionally favored keeping their hotels independent. But the franchising model is gaining momentum as its hotel sector evolves, according to executives at Paris-based Accor, which currently with the largest franchise footprint in Australia.
“We have seen steady and tremendous growth in franchises over the past decade, particularly in regional hotels” outside Australia's major cities, said Adrian Williams, Accor’s chief operating officer of premium, midscale and economy for the Asia-Pacific region.
As the hospitality industry has grown and matured in Australia, so has Accor’s franchise division, which is now up to 122 franchised hotel assets and counting, Williams said.
David Simpson, managing director at Melbourne-based business advisory Axsia HTL, said his clients “are starting to appreciate the power of franchise agreements.”
“In Australia, hotel franchising is a relatively new concept, but its popularity is skyrocketing as hotel owners and brands recognize the advantages it offers over traditional hotel management agreements,” he added.
Matthew Burke, regional director of APAC at STR, CoStar's hospitality analytics division, said that independent properties represent more than three-quarters of all hotels in Australia. The popularity of brand and franchise models is growing, though.
"As brands prioritize growth and investors seek returns, franchising emerges as the likely preferred operational path, especially with third-party management companies offering flexible solutions to owners," Burke said.
There are 4,844 independent hotels with 176,514 rooms in Australia, which equates to 77% of the hotel count and 53% of the room count, Burke said. There are 478 franchised hotels with 35,782 rooms, which equals 8% of the hotel count and 11% of the room count. Hotel management agreements are in place at 973 properties with 119,704 rooms, good for 15% of the hotel count and 36% of the room count.
Key players on the Australian hospitality franchising scene are Accor, Choice Hotels Asia-Pacific, IHG Hotels & Resorts, Marriott International and Quest Apartment Hotels. Quest has 120 assets in Australia.
The growing number of experienced third-party management, the strategic expansion by brand management companies and the increasing attraction to hotel owners of exercising great control over hotel operations are all contributing to franchising's growth in Australia's hotel industry, Simpson said.
“Which can translate to higher returns. … Whereas under [hotel management agreements], it’s often about relinquishing control,” Simpson said.
It's the loss of control over an asset that is hoteliers’ greatest fear, a bigger concern than even upfront costs, according to Danesh Bamji, vice president of franchise for the Asia-Pacific region at Accor.
“The cost has rarely, if ever, been a barrier. Surprisingly, the real challenge lies in overcoming the mindset that Accor might take control of the franchisee’s business. Many franchisees understandably worry that partnering with a global brand could alter the unique DNA of their businesses, which they’ve built with great care and dedication,” Bamji said. “This concern is sometimes echoed by general managers, who fear losing autonomy over their operations. The truth, however, is the opposite.”
No fear for franchise
For many Australian hotel owners, the fear of franchising is gradually giving way to unprecedented opportunities to expand their footprint.
Greg Winston, group general manager of Adelaide-based family office M&G Hotel Group, said he has several franchise agreements with Choice Hotels APAC under the Comfort Inn and Econo Lodge brands. Choice Hotels APAC has more than 150 hotels in Australia.
The Econo Lodge Port Augusta was “already notching up significant growth since branding as an Econo Lodge in August,” Winston said, which he attributed to being able to tap into Choice’s “robust global distribution channels and local, dedicated support” and revenue-management service, which provides an “unemotional set of eyes,” he added.
Hotel franchises are seeing growth in cities, too.
Sharon Yap, national hotel sector lead at Perth-based business advisory Altus Group, said she has seen an uptick in franchising alongside Australia’s shifting preference for branded hotels over independents.
“Franchise growth is notable in primary cities and luxury markets, with third-party operators helping to bridge the demand gap for branded hotels,” she said.
Trent Fraser, CEO at Choice Hotels APAC, said the November signing of the Bokarina Beach Apartments on Queensland’s Sunshine Coast under the Ascend Hotel Collection brand was part of an expansion strategy targeting “upscale assets commanding higher [average daily rates].”
Trent Conroy, director of investments and portfolio growth at Choice Hotels APAC, said the hotel firm has recently doubled its presence in Melbourne's central business district as it seeks “to drive growth in the region.”
Quest promotes franchising as the “future way forward” in its marketing, said David Mansfield, regional managing director of The Ascott Limited, Quest’s parent company.
“We love franchising. It is probably the best sector to get into. Australia is well and truly active when it comes to franchising,” Mansfield said. “We are growing our footprint every year in capital cities and emerging regional hubs.”
Working out the best route forward in the hotel franchising model is the trick, Mansfield said.
“Our model’s a little different, though. It’s the business form of franchising. There’s a lot more risk,” he added.
Franchising also benefits from “shifting traveler preferences” among both leisure and business travelers, which has created growing demand for “modernizing offerings” and prompt upgrades, Bamji said.
“We are on the precipice of a major transformation in the regional hotel landscape. Aging hotel inventory is becoming obsolete,” he said. “This presents an exciting opportunity to adapt and elevate regional hotels by transitioning them to our easy-to-implement, light conversion brands. This approach not only meets guest expectations but also unlocks growth opportunities for hotel owners.”
Hotel owners only stand to benefit, too, Accor’s Williams said.
“The uplift in performance … is not gradual. It is immediate and strong,” he said.
While there are risks and challenges, Simpson said, “hotel franchising is poised for continued growth.”
“By separating brand from management, owners can and should negotiate shorter-term operating agreements with white-label operators, and we see no reason why an owner with a current [hotel management agreement] cannot negotiate a change before the [hotel management agreement] is due to expire. … In the U.S., operator agreements are between three to five years and certainly not linked to the term of the franchise agreement. This is something Australian owners need to understand, or a large part of the potential is missed,” Simpson said.