Franchising On The Up As Hotel Chains Seek Further European Expansion, Says HVS

Franchising as a means of expansion is gaining popularity across Europe’s hotel sector as the big brands seek to move into new markets to drive growth, according to a new report from global hotel consultancy HVS.

While the majority of hotels in Europe are still unbranded, there is evidence that this is changing. Brand affiliation in Europe is currently estimated at 40%, a decade ago it was closer to a third, the report says.

In the US around 70% of hotels are branded, which remains unchanged from five years ago, indicating that the opportunities for brand growth in Europe, including franchises, are significant.

Although franchising is still less prevalent in Europe compared with the US, the operating model continues to gain popularity as it allows owners to maintain a greater degree of control whilst offering brands the ability to expand their footprint rapidly with the benefit of the owner’s local knowledge and connections.

“While some chains are reluctant to relinquish the control offered by management contracts for their luxury brands, particularly in flagship locations, franchising is becoming a strong, often preferred means of expansion for midmarket properties,” said report co-author Stephen Collins, senior associate, HVS.

“However, the franchise model is not without challenges as despite an increasing recognition of the strength of a hotel brand and brand affiliation, brands that are successful in one European market might struggle to gain recognition in another. Different regulations and disclosure obligations across various European markets also mean a one-size-fits-all approach to franchise agreements is not always possible, as it is in the US,” added Collins.

Over the past five years Accor’s proportion of franchised properties across Europe has increased from 37% to 48%, Hilton’s has risen from 32% to 51%, and the majority of IHG’s European portfolio is now made up of franchised properties. Companies such as Hyatt, which historically had no franchise presence in Europe, now have several franchised properties and is set to role out this model for the expansion of their limited service and extended stay brands, according to the report.

“The consolidation and acquisition of hotel chains has led to a sharp rise in the proportion of franchised properties in the portfolios of the top chains, and as they are now larger than ever, they will continue to rely on franchises to achieve the desired growth and remain ahead of their competition,” concluded report co-author Sophie Perret, director, HVS