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With 13 brands, Hilton is one of the biggest hotel companies in the world. One of its more recently launched brands is Tru, a digitally focused concept that appeals to younger travelers. Though the hospitality industry has started booming with its steady stream of strong performance worldwide, this trend may not continue in the long run.
Ongoing security issues in many important markets, the slowdown of the Chinese economy, and uncertainty in the global marketplace are some of the factors slowing down hotel owners’ revenue growth in the U.S.
A hotel chain owner can expect to make between $49,000 to $74,000 per year in the U.S. This estimate is based on a calculation from a past study on hotel profitability and inflation. The income of a hotel franchise varies according to the size of its holdings, the city in which it’s located, and the type of property. Investing in a Hilton franchise is a million-dollar decision. And not even making $100,000 every year is not worth spending such a huge amount on it.
To evaluate the accurate profit of Hilton franchise owners, watch the video below, which gives you the potential financial model of how much profit is earned by franchise owners after making investment and operation costs.
But what if you don’t have the funds to make such a huge investment. How can you still find a business that can meet your passion and earn a high profit on investment?
If you’re looking to invest in the hospitality business, you might consider fast-casual restaurant franchises instead. The investment for most fast-food restaurants is far lower than that of a grand hotel franchise.
However, it is crucial for anyone thinking of investing in a hotel franchise to go about it carefully. Certain aspects of this business may not be so attractive, and it is good to know about them from professionals before you get involved.
Hey, I’m Dan Rowe. At Fransmart, we help entrepreneurs become franchisees by providing world-class support at every step of the process. We’ve been in your shoes before — we’re experts on everything from finding a great franchise to financing to opening day. If you have any questions about buying a franchise, leave a message here, and we’ll get back to you as soon as possible!
Franchising in the hospitality industry has received significant attention and popularity in recent years. As called “flags” by industry insiders or Hotel franchisors, lends their brand popularity and name while the franchisees manage operations and premises in return. It leads to continuous earning for well-known hotel brands, including Hilton.
Hilton Franchise: BUY OR NOT TO BUY?
The Hilton brand has seen immense success through its global franchising model. The company has over 4,000 properties in 90 countries and territories made possible by its franchisees, who operate under various Hilton brands. This system allows the company to focus on providing better service where it matters instead of expending resources on running hotels. With more significant profitability potential, the company has expanded rapidly over the years.
Owning a franchise with the Hilton brand is not what people might think it is. Sure, the initial investment can be steep, but once the hotel business opens its doors to the public, it’s officially running on its own. While taking care of day-to-day operations may be difficult for someone who’s never worked in the hospitality industry, strong leadership skills are vital to long-term success. It would be best if you considered both the pros and cons of buying a Hilton franchise before making your final decision.
Fransmart has researched Hilton Franchisee competitors, existing franchisee feedback, and their complaint forums to provide you with unbiased information regarding Hilton’s Franchisee limitations and pitfalls.
Top 4 Reasons Why Not To Buy Hilton Franchise
With its upscale image, the Hilton brand is associated with luxury lodgings and impeccable service. However, franchising might not be the right step for everyone as there are several other considerations to take into account before purchasing a franchise. Investors should first check out the following Five reasons to ensure that it’s the right decision for them.
#1 The Learning Curve For Starting A Hilton Franchise Is steep.
Opening a Hilton hotel franchise, your first investment will be between $29 million and $112 million; then, on top of that, you’ll need to pay an initial franchise fee of $75,000. Hilton also charges a 5% royalty: on average, that’s between $600,000 and $1.8 million annually. In addition to the franchise fee and the royalty, there is a 4% advertising royalty fee.
Also, the franchise term lasts twenty-three years after the opening date or until the franchisor terminates the agreement. The contract for buying a franchise may last for any term under the existing FDD. Typically, it lasts from 10 to 20 years from the opening date of the franchise.
Investment cost of Hilton Franchise
- · Construction and Leasehold Improvements- $95,000,000.
- · Engineering and Designer Fees- $4,000,000.
- · Franchise application fee- $95,000
- · Furniture, Equipment, and Fixture Expenses- $17,000,000.
- · Initial Franchise Fees- $75,000.
- · Licenses and permits- 1,400,000.
- · Organizational Expense- $253,298
- · Product Improvement Plan- $7,500, and several other investment costs.
#2 Changing Franchising Strategies Now and Then Can be Troublesome
Hilton Worldwide has made a shift from a traditional hotel company to more of a consultant. They keep experimenting with the new themes of hotels, implementing the latest in technology at their hotels. As a Hilton’s franchisee, you need to be prepared to adapt constant change and ignore the unnecessary reinvention of the wheel.
#3 Service Cuts Left Many Franchisee Bewildered
The global business environment worsened as the pandemic spread. Hilton revised their service protocols to keep franchisees going despite the dire circumstances. Though they made some changes that helped during those times, it has undoubtedly left franchisees bewildered and left an impression with customers that need to be changed again. The service cuts by the Hilton franchise are
- Altogether avoiding daily housekeeping.
- Either eliminates in-room dining or serves in to-go pouches.
- Stopping a few in-room amenities, such as coffee machines and minibars.
- Close all restaurants, bars, and certain other outlets
Cutting down the services with the exact charges is not a good option for guests, making them think twice about choosing the brand or not. It may reduce the traffic and lower the brand reputation, specifically for those working in lousy marketing practices. The changes made it appear that there would be reduced employment options. However, the emphasis here is such a reputed brand, Hilton is not providing better value, i.e., looking to charge the same for the services and offering less.
#4 Religious Protests In China is Not Good for Hilton Reputation
Building a hotel plan in China on a bulldozed Uyghur mosque site has made Hilton hotels experience a massive boycott from a Muslim civil rights group.
In July, the bipartisan Congressional-Executive Commission on China urged Hilton In July 2021 to cancel the project that calls for the building projects of a Hampton Inn, which now led to a boycott.
Despite management’s best efforts to control costs, slowing economic growth in the U.S. and China, political uncertainty in many important markets, terrorism, and security challenges are all factors that can impact hotel room demand in the future. As a newbie franchisee, you should be aware of it.
Advantages of Buying Hilton Franchise
The significant benefit of buying the Hilton franchise is that you get a turnkey scheme. You get a well-placed brand name with the most renowned and proven approach to operating a business. Also, When you buy the Hilton franchise, you become an immediate owner of a well-known brand that most likely has established advertising, marketing materials, and other resources.
Conclusion
Travelers have a tough choice when picking a place to stay for a night or a week. Hotel brands such as Hyatt Hotels and Marriott International offer competitive packages that include extras like complimentary breakfast. At the same time, other resorts such as Hilton Hotels also promise friendly service and high-quality accommodations. With changes in Hilton’s global franchising strategies, the hotel operator has faced many consequences. In particular, it has led to a dispute over the watering down of its branding standards in some countries — a problem that may only be solved through changes in Hilton’s approach to franchising.
Sources
https://www.franchisedirect.com/travelfranchises/hilton-hotels-resorts-franchise-08360/ufoc/
https://www.corporatereport.com/hilton/2020/ar/downloads/hilton_2020_10k.pdf
https://www.franchisehelp.com/franchises/hilton-hotels-and-resorts/