Franchise hotel: waste of money or a reasonable investment

Is a franchise hotel an overpayment for a name or a way to reduce risks? Let's look at what the investor actually gets along with the brand.

Interview with Alexander Petrovich Bib about what is behind the hotel franchise: a big name or a working business tool.

In recent years, I've seen a steady trend: people who haven't done it before are joining the hotel business, but they have the enthusiasm and money. And many people have a question: where to start if there is no experience? This is where the conversation about the franchise begins. Let's look at what this tool is today and how to use it correctly.

The first hotel: why not "from scratch"

I'll start with the obvious for myself, but perhaps not for beginners: today, a hotel is not just a means of accommodating on a business trip or on a short trip, it is a full—fledged conceptual product with thoughtful services, such as a SPA, restaurants, and entertainment infrastructure. And if we are talking about an authentic region, then the cultural code must be integrated in the hotel. This is not a restaurant with the opportunity to spend the night and not an apartment building where you rent out rooms and count the profit. Hotel development has its own economy, long investment cycles, and dozens of parallel processes that must run synchronously and smoothly. Design, construction, service management, sales, personnel. And all this needs to be combined into one working system. It is almost impossible for a beginner to assemble such a puzzle without mistakes. And every mistake along the way costs time and money — often a lot.

How to insure against such losses? A business is a business — it must work and generate income. no one will give you absolute guarantees. But I always say: if you are doing something for the first time, contact professionals. And in this sense, a franchise is perhaps the most optimal partnership format in our industry. When you have established processes and a strong brand, you can share your experience with your partner. This is how the entire global hotel market works. Hilton and Marriott have franchises that make up 70-80% of their portfolio. Accor and Radisson have about half of it. Russia is only approaching this standard, but the movement is already obvious. Cosmos Hotel Group has been developing the franchise business since 2023 and in a short period of time has created an understandable and competitive product for third-party owners and developers. The Cosmos network development portfolio currently includes more than 80 facilities with a total of 33.5 thousand rooms. These are facilities that will be implemented jointly with partners under the management and franchise model by 2030. Of all the contracted rooms, more than 40% are franchised and mainly these are hotel complexes in the format of apartment hotels on the Black Sea, Altai, Vladivostok, Pyatigorsk and Arkhyz, as well as in St. Petersburg.

What does a franchise actually do?

A common belief is that a franchise is just a fee for a sign. And I understand where it comes from. There are still plenty of examples on the market where a franchisee receives a logo and a bundle of brandbook standards in exchange for a payment. Next, figure it out for yourself. But not everyone works that way.

In large management companies, including ours, everything works differently. The sign here is just the tip of the iceberg. It has a working commercial platform behind it: a federal sales system, centralized booking, a website, a loyalty program, PR support, IT solutions for revenue management and staff training. That is, the entire operational framework, which a novice hotel developer alone would have to build independently for years.

The regions here are a special story. In conditions of a shortage of regional infrastructure, reaching the federal marketing level on your own, connecting modern technologies, and building a system for working with corporate clients is, to put it mildly, not an easy task. But at the same time, it is in the regions that we see the highest potential for the development of hotel chains. What to do? For those who do not want to oversleep this market, it is logical to think about a franchise.

The headache of the entire industry: personnel and team formation

This is a big problem for the hotel industry, but it is often overlooked at the start. When a novice investor thinks about a hotel, his imagination draws him a construction site, location, design and how his friends will come to visit. And only then it turns out that there is no staff in this location or there is someone to work with, but the quality of service varies from shift to shift.

In this situation, the franchise also provides an advantage. The largest hotel operators invest in training, and not just one-time, but systematic. For example, we have our own Cosmos Academy of Hospitality, which trains staff for the entire network, including our franchised hotels. We train specialists of various levels, from line employees to managers, form a corporate culture, and build strategic partnerships with leading universities.

Thus, the franchisee is not left alone with the problem of "where to get people and how to teach them." He receives a ready—made educational infrastructure, and the guests of his hotel receive service according to the standards of the federal network, even if the hotel operates in Moscow, Vladivostok or Murmansk.

Other support formats

But let's be clear: there are many partnership options between an investor and a management company today. In addition to the classic franchise, I would like to mention the following:

— management, when the operator takes over the facility and is responsible for the financial result, receiving a percentage of the proceeds; the rest goes to the investor

— rent, when the investor does not want to delve into operational, strategic management and hotel specifics at all, but simply wants to receive a fixed income or a percentage of the rental of the facility; the rest goes to the operator

— technical support, when the operator acts as a consultant and helps to design and build a hotel according to the correct standards in accordance with hotel technologies and legislation, for which he receives his own fix.

Of all these formats, a franchise is the most entrepreneurial, when the hotel owner receives a brand, platform, and tools, but runs the business himself. This format is usually chosen for medium-sized urban hotels, where the investor needs independence with clear standards. For large resort complexes with complex operating systems, they often take full control.

For those who come to the industry for the first time and are not yet confident in their abilities, for example, we suggest starting with management for two to three years, immersing themselves in the processes, and then switching to a franchise. This format is called franchising and it allows the owner of the facility to reduce risks at the start.

Or maybe it's easier to deposit?

Someone at this point may ask why bother with hotel development and franchises at all, if you can put money on deposit at a high interest rate. Fair. But we are discussing investments here, not a "how to sit it out" strategy. Everyone understands that the situation with deposits and the key rate is temporary, and the hotel is a real asset, brick, walls, and room. It takes a long time to build, but it also takes a long time to work.

I'll say more. If you have ambitions, then now is a good time to start. Create a concept, select a plot, consider a financial model and decide whether you are with a franchise or on your own. As well as to deal with government support measures, of which there are many today. Subsidized rates under Resolution 141, regional benefits, programs for the Far East and the Arctic. Everything is done so that by the time economic conditions become more comfortable, you have not just enthusiasm in your hands, but a built facility with a ready-made concept and product.

When the franchise does not remove the risks of the project

At the same time, a franchise is not a universal solution and definitely not a way to remove all responsibility for the result from the owner. It requires discipline, willingness to work according to established standards, and investment in operational processes, personnel, and product quality. If an investor expects that the brand itself will provide loading and profitability, without delving into the specifics of the location, the economics of the project and the management of the team, expectations can quickly diverge from reality. A franchise enhances a strong project, but it does not correct mistakes made at the start — in choosing a site, concept, or financial model.

There is another important point: not every facility is suitable for a franchise, as well as not every investor is ready for such a partnership model. Working under a brand means certain limitations in terms of independent decisions, additional investments in compliance with standards and regular quality control. Therefore, it makes sense to choose a franchise only when the owner understands why he needs an operator, what tasks he wants to solve with his help, and where the line between support and his own responsibility for the business lies.

That is why the franchise in the hotel business does not work as a formal brand license, but as a tool for those who are ready to build a project independently, systematically and for a long time.