The Chefs Table

Hedging the recession fear– who is investing in franchise motels and why.

Posted in Entrepreneur, Hospitality by ftiess on the January 31st, 2009

Niranjan's New Motel

Niranjan's New Motel - Flickr Source

Over the Christmas holiday my family and I traveled from Charlotte to Virginia Beach and then to New York, traveling on several major highways along the coast. We noticed the closure of many business’s along our path. Our return trip took us another route down route 81, through the Shenandoah valley. One thing that I noticed coming home was the number of new motel construction projects. Each of these sites were noticeably the same as far as the progressive phase of construction, an indication that someone or some group was investing quite heavily in motel construction. I questioned why someone would invest now in motel construction, with news that the lodging sector would experience an even greater downturn this year.

A more important question than why, was who had that kind of financial reserve. In researching motel ownership trends I cam across an interesting article about the Patel motel cartel.
The article highlighted the fact that 50% of the hotels owned in the North America are owned by member of the Asian American Hotel Owners Association (AAHOA). Further stating “at least 50 percent of all new franchisees since 1992 are Indian-owned. Typically these motels are not fleabag properties but Econo Lodges, Days Inns, Holiday Inns, Comfort Inns, Quality Inns and Super 8s. These are economy/budget properties with no food, conference facilities, guest laundries or room service. In addition, AAHOA members own and franchise a growing number of full-service hotels like Marriott, Hilton and Sheraton.”

So why would one invest in a franchise motel as opposed to creating a new brand? Perhaps we should first look at this choice from the perspective of the consumer. There are important considerations to take into account, as a traveler, going 65 miles per hour on our major highways chooses; lodging cleanliness, safe environment, and reasonable value for a single hotel night. These choices are sometimes made in an instant.

As for the investing nascent entrepreneur, based upon the consumers factors the following is a list of franchising benefits.

1. Immediate brand recognition.
2. Repeat business due to brand loyalty.
3. Proven marketing results with national campaigns.
4. Standardized quality control points for the brand.
5. Centralized reservation systems.
6. Collective purchasing agreements.
7. Established operating systems and training.

All of these factors support the success rate of franchise motels over independents. Consumers are less likely to trust the cleanliness, safety and related value of a motel stay to an independent micro-branded operation.

So to answer the question who is building these motels lets look at what Joel Millman writes In The Other Americans “Patels took a sleepy, mature industry and turned it upside down- offering consumers more choices while making the properties themselves more profitable. Motels that attracted billions in immigrant savings turned into real estate equity worth many billions more. That equity, managed by a new generation, is being leveraged into new businesses. Some are related to lodging (manufacturing motel supplies); some related to real estate (reclaiming derelict housing); some simply cash seeking an opportunity. The Patel-motel model is an example, like New York’s West Indian jitneys, of the way immigrant initiative expands the pie. And there is another lesson: as the economy shifts from manufacturing to services, the Patel-motel phenomenon demonstrates how franchising can turn an outsider into a mainstream player.”

I am only assuming that the Patels are making this investment, there isn’t any concrete data to support my claim, just the historical data. It stands to reason that with a downturn in housing construction, in a slumping lodging sector that someone had the insight to negotiate the construction of the motels with construction companies and lending institutions for their future advantage, build and invest now for a increased return on investment.

Franchising- Have it your way

Posted in Entrepreneur, Hospitality by ftiess on the January 24th, 2009

By definition a franchisee is an independently owned operation within a chain of franchise. A company owned store within a franchise chain is similar in operational standards, however the unit is managed by an agent of the franchise corporation. Ideally a customer should not notice a difference in the product or service offered. Depending upon the performance of the franchisees and corporate owned units the collective synergy can either promote the brand or damage the brand.
The corporate attributes that are beneficial to the franchisee is instant brand recognition, a limited risk of failure over independent startups, and continued product and service support. A path to learning the business operation for some budding entrepreneurs is to become a manager of a corporately owned franchise or even a private ownership. As a franchise manager climbs the corporate ladder he or she may position themself to become an owner operator.
Actually my preference would really be to develop a concept, “perfect” the brand and promote the growth of the operation by becoming a franchisor. If you have a favorite chain restaurant it is because of a single concept- quality. Quality is the consistent delivery of a predetermined standard.

Based upon observation and experience, in my opinion, the four most important elements to develop a successful quality business are:

1. Provide a product that fills a need or desire.
2. Identify operational problems early, and correct them.
3. Repeat, and document the activities that are successful.
4. Adapt with market demands.

The Need to Achieve vs Success in a Small Business

Posted in The Chefs Table by ftiess on the January 24th, 2009

“One thing is common with very successful people. On a minute-by-minute, day-by-day practical basis, successful people don’t go around succeeding all day. Successful people actually fail. Only through failure is there a pathway to success.” This quotation of Simon Woodroffe was used in an article by Ian Ashbridge describing the leadership style of the Yo! Sushi founder.
In my opinion those who venture into a small business truly have the desire to succeed. The need for achievement is not a personality attribute which is necessary for operating a successful business, because failure can breed success. Those who need to benchmark their professional progress on a personal level may find a greater sense of achievement in a corporate structure, with performance based incentives. A small business may not see a profit or a measurable achievement for several financial periods or even a few years.

When taking the internal locus of control into account, those who believe that they are masters of their own destiny are either on the way to success or somewhat unprepared for the challenges that business can bring. Those who believe that their business fate lies in the hands of others operate with an external locus of control. The factor that really determines the rate of success in a business, concerning both types of locus of control, is the entrepreneurs’ ability to adapt to change, because change is inevitable.

One of the benefits of becoming an entrepreneur is that you can set your own schedule, depending upon the degree of the entrepreneurs’ interaction with clients, employees, and suppliers. In a business model, like a sole proprietorship, in which there are a very limited number of employees, controlled supply line, and targeted client base, independence is indeed a positive benefit.

For small business operators who have the natural need to lead, given the right circumstances, success can be measured by the accomplishments of those who are willing to follow. Although someone has a desire to lead in a small business, if the concept, market position or economic factors involved in running the operation are not aligned then overall success may be jeopardized.

Indeed a successful business person is very much like a “Heffalump”, as described by Jim and Joanne Carland, I know one when I see one. The elusive “success image” is as differentiated as the number of individuals who seek success. I believe that a successful business operator is one who possesses an ability to analyze past challenges and achievements for the purpose of goal setting and benchmarking.

Ashbridge, Ian. “Success means stepping outside the ‘comfort zone’.” Farmers Weekly 8 Mar 2008: P 77.

Why restaurants are failing

Posted in Entrepreneur, Hospitality by ftiess on the January 17th, 2009

In the midst of an economic recession many of the newbie restaurants in my area are already out of business. Those establishments that are hanging in there, frankly, have been around for a while and have weathered past economic storms. For those that ventured into these turbulent waters over the past year I do have some menu design ideas for you.

1. Ask yourself, again, does my menu offer a differentiated product that my client base is looking for.

2. What am I able to do without, “trimming the fat” is not just beneficial for the appearance of the food and our customers, and it also will help you strengthen your contribution to marginal profitability. Eliminate those menu items that are simply not moving.

3. Make you seasonal menu items more adaptable to market changes, are your ingredient selections nimble enough to jump over the hurdles of market price changes.