American Hospitality: A Guide on Hotel Franchising

American Hospitality: A Guide on Hotel Franchising

The idea of being away from the hustle and bustle of the daily grind, and being in the comfort of a cozy room is truly appealing. Imagine lying down in a plush, king-sized bed, and in your window is the view of a beautiful pink sky as the sun is about set. As night falls, your have plenty of options as to what you would do: dinner at the hotel’s restaurant, some cocktail drinks at the bar, night swimming in the rooftop pool, or a relaxing massage at the hotel’s spa.

The fact that so many amenities are just at your fingertips is what makes a ‘staycation’ the new getaway. 

It has become noticeable that recently, a number of people have opted for leisurely stays or staycations over traditional vacations. Because of this, investment is made in local accommodations such as hotels where families seek convenient and comfortable retreats close to their homes.

And speaking of hotels, have you ever wondered why some hotels contain the same name, but have different owners? The answer to this is franchising.

Whether you’re a seasoned investor, an aspiring entrepreneur, or just someone who wants to know more about the world of hotel franchising, this article will discuss why hospitality has become a profitable business, and how you can turn your hospitality dreams into reality.

Please note, Waldrop and Colvin PLLC is not associated with any of the mentioned brands in this post. However, if you are considering a franchise opportunity, we encourage you to seek guidance from franchise legal counsel to assist in the business and legal aspects of franchising and negotiating the right deal. 

What are hotels and are they the same with motels?

A hotel is defined as an establishment that provides lodging and usually meals, entertainment, and various personal services for the public. On the other hand, a motel is defined as an establishment which provides lodging and parking and in which the rooms are usually accessible from an outdoor parking area. 

While there are sometimes confusion between hotels and motels due to their different features and typical locations, in a nutshell, a hotels are bigger, and motels are smaller, but both hotels and motels are both in the business of providing lodging to its customers.

According to IBISWorld, as of 2023, there are 107,902 hotels and motels in the United States, and the three states with the highest number of hotels and motels are, in sequence, California, Texas and Florida.

Independent Hotels vs. Affiliate Hotels

According to travel industry news site, Skift, only about one-third of the hotels in the United States are independent because in the U.S., only about one-third of hotels are independent as a number of business owners would choose to affiliate themselves with a well-known hotel brand.

An independent hotel operates without any brand affiliation while an affiliate hotel aligns its operations with the standards of the larger brand to which it is affiliated to.

The main differences between an independent hotel and an affiliate hotel can be summed up into three:

  1. Control and Autonomy
    Independent hotels have complete control over their operations while affiliate hotels may have some degree of independence, but it must adhere to the guidelines and standards imposed by the larger brand to which it is affiliated.

  2. Resources and Support
    Independent hotels rely solely on their own resources while affiliate hotels are able to receive support from and are able to utilize the resources of the larger brand to which it is affiliated.

  3. Branding and Marketing
    Independent hotels have to create their own branding and marketing strategies while affiliate hotels, apart from doing its own branding and marketing, are able to benefit from the established branding and marketing efforts of the larger brand to which it is affiliated.

Between an independent and affiliate hotel, it is an affiliate hotel that presents hotel franchise opportunities. 

Understanding a Hotel Franchise

In a hotel franchise, the franchisor is the hotel brand and the franchisee is the hotel owner. Essentially, the franchisor (hotel brand) enters into an agreement with the franchisee (hotel owner), allowing the franchisee to use the brand name, business model, and support network of the franchisor in exchange for a consideration.

Below are three of the well-known hotel franchises in the United States.

WYNDHAM

Wyndham is known to be a global hospitality leader, renowned for its expansive portfolio of well-known hotel brands.

FRANCHISED OUTLETS IN THE UNITED STATES. According to the 2024 Franchise Disclosure Document (“FDD”) of Wyndham Franchising LLC, Wyndham has 47 franchised outlets located in the following states: Arizona, Arkansas, California, Colorado, Connecticut, Florida, Illinois, Indiana, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nebraska, New York, Ohio, Pennsylvania, Puerto Rico, Rhode Island, Texas, Virginia, and West Virginia.

INVESTMENT NEEDED. The initial cost needed to begin operation of a 301-room Wyndham hotel typically ranges from $51,730,169 to $94,177,077 for a new construction project, and from $1,739,862 to $33,912,463 for a conversion hotel. This figure does not include ;and acquisition costs. 

APPLICATION FEE. Upon submitting a Franchise Application, an interested franchisee must pay an application fee to Wyndham amounting to $10,000.

INITIAL FRANCHISE FEE. Upon signing a Franchise Agreement, the franchisee must pay an initial franchise fee which is equal $50,000 or $500 per room, whichever is higher. The initial franchisee fee is not refundable.

ROYALTY FEE. Wyndham collects from its franchisees a royalty fee equal to 5% of Gross Room Revenues, payable on the 3rd day of the month for the preceding month.

‘Gross Room Revenue’ is all revenue, cash or credit, from from the use, occupancy or rental of guest rooms, excluding food and beverage charges, including room service, telephone charges, entertainment charges, vending machine receipts, federal, state and local sales, occupancy and use taxes.

HILTON

WIth its extensive portfolio of properties in key destinations worldwide, Hilton has established itself as a leader in the global hotel industry.

FRANCHISED OUTLETS IN THE UNITED STATES. According to the 2024 Franchise Disclosure Document (“FDD”) of Hilton Franchise Holding LLC, Hilton has 188 franchised outlets located in the following states: Alabama, Alaska, Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Kentucky, Louisiana, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Vermont, Virginia, Washington, and Wisconsin.

INVESTMENT NEEDED. The initial cost needed to begin operation of a typical 300-room Hilton hotel typically ranges from $38,914,325 to $162,511,189. Such amount, however, excludes the cost for real property.

FRANCHISE APPLICATION FEE. Upon submitting a Franchise Application, an interested franchisee must pay to Hilton a franchise application fee of $85,000 plus $400 for each additional guest room over 250; franchise application fee of $150,000 for change of ownership; or a franchise application fee of $85,000 for re-licensing.

INITIAL FEE. According to its most recent FDD, the initial fee to be paid for a Hilton franchise can range up to $477,865 which must be paid to Hilton or its affiliates.

ROYALTY FEE. Hilton collects from its franchisees royalty fees monthly amounting to 5% of Gross Room Revenue for Royalty Fee; 3% of Gross Food and Beverage Revenue for Food and Beverage Royalty Fee; and 2% of Gross Spa Revenue for Spa Royalty Fee. Such royalty fees are to be paid by the 15th day of the following month.

MARRIOTT

Tracing its rich heritage to as far back as 1927, Marriott has grown into one of the most trusted brands in the hospitality sector.

FRANCHISED OUTLETS IN THE UNITED STATES. According to the 2024 Franchise Disclosure Document (“FDD”) of Marriott International, Inc. / MIF, L.L.C., Marriott has 245 franchised outlets located in the following states: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, District of Columbia, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, and Wisconsin.

INVESTMENT NEEDED. The initial cost needed to begin operation of a newly constructed 300-guestroom Marriott Hotel typically ranges from $95,892,590 to $158,033,990. This amount excludes the cost of real estate, insurance, contingencies, and related costs such as building permit, tap, and impact fees. On the other hand, the initial cost needed to operate a newly-constructed JW Marriott Hotel ranges from $146,235,590 to $239,254,490.

Marriott Hotel vs. JW Marriott Hotel

Both Marriott Hotel and JW Marriott Hotel are part of Marriott International’s portfolio, but their difference lies in the target market that they cater to. For Marriott Hotels, they primarily serve business and leisure travelers whereas JW Marriott Hotels is positioned as a luxury brand that targets luxury travelers looking for an elevated accommodation.

APPLICATION FEE. Upon submitting a Franchise Application for a New-to-System Marriott Hotel, including the conversion of a non-company brand hotel to a Marriott Hotel, the application fee to be paid by an interested franchisee is $100,000 plus $300 per guest room in excess of 250. On the other hand, the application fee for the conversion of an existing Marriott Hotel is the greater amount between $150,000 or $500 per guest room. The application fee is refundable in part if Marriott does not approve of an interested franchisee’s application.

INITIAL FEE. According to its most recent FDD, the initial fee is around $418,000 to $490,000 for a 300-guestroom Marriott Hotel, or $438,500 to $530,500 for a 300-guestroom JW Mariott Hotel.

FRANCHISE FEE. Marriott collects from its franchisees franchise fees payable by the 15th day after the end of each month. This franchise fee amounts to 6% of gross room sales plus 3% of gross food and beverage sales.

Remember that working with a franchise attorney to evaluate a franchise opportunity is essential. 

Meet the Author:

Christine Bontuyan is a lawyer in the Philippines and she is based in Cebu City. She earned her Juris Doctor degree in 2020. Apart from handling civil and criminal cases in the Philippines, Christine serves as a paralegal for reputable US law firms. She previously served as an elected public official in the Philippines, as one of the Sangguniang Kabataan Chairperson from 2018 to 2023.

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