How your hospitality business is structured can determine whether it succeeds or faces challenges. However, understanding and choosing the right business model from the many available can be daunting. Let’s explore and evaluate different proven hospitality business models, such as franchised, owner-operated, and brand-owned businesses. Read on to discover more about which model aligns best with your goals and aspirations in hospitality.
Introduction to proven hospitality business models
Let’s clarify what we mean by a business model. Think of it as a roadmap or blueprint that outlines how your organization will operate financially. It covers key aspects such as revenue sources, target customers, products offered, and financing details. This is a large part of any hospitality or hotel business plan.
Now let’s shift our attention to the wider tourism industry, encompassing many kinds of accommodation, resorts, and restaurants. This industry thrives on delivering an outstanding guest experience that keeps customers returning again and again. It aims to provide a remarkable experience coupled with unbeatable convenience.
Owner-operated hospitality businesses
Owner-operated businesses are frequently found in hospitality and particularly common with boutique hotels. The owner-operated model has a long history. While it may seem old-fashioned, these establishments, which can range from charming bed-and-breakfasts to high-end resorts, often showcase adaptability and resilience in their operations.
To truly understand the concept of an owner-operated hospitality business, it’s important to recognize that this type of establishment can be a setup whereby the individual responsible for your morning cup of coffee or ensuring the cleanliness of your room is often the owner.
Characteristics and benefits
The primary characteristics that set owner-operated businesses apart include these:
- Hands-on management approach: Owners are intricately involved in day-to-day operations, enabling direct control over service quality, which is crucial in any hospitality business.
- Unique personal touch: Owner-run establishments often exhibit individual personality with distinctive experiences for guests.
- Enhanced flexibility: From quick decision-making to adapting services based on customer feedback, this model allows huge flexibility.
Owner-operated businesses can demonstrate benefits that traditional hotel models may lack. The connection between ownership and management can lead to superior results since the success of operations has a profound impact on personal income. Furthermore, being closely attuned allows owners to build stronger relationships with customers leading to better satisfaction rates and potentially more repeat bookings.
By maintaining meticulous attention to the customer experience while navigating the nuances of owner-operations, individuals can orchestrate successful careers in hospitality. It’s possible your venture could be the next paradigm-shifting model, much like when Airbnb made its debut. If you want to improve your skills to improve the chance of a successful hospitality business, you can enrol in a hospitality school.
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Franchised hospitality businesses
One of the most robust examples in proven hospitality business models is the franchise business model. This model stands out due to unique and lucrative features. If you’ve ever stayed at hotel chains like Hilton or Sheraton, then you’re already familiar with this model. These establishments operate on a franchise basis.
Concept of franchising
Franchising in the hospitality industry involves a legal and commercial relationship between the entity owning the brand (the franchisor) and an individual or company (franchisee). The former allows the latter to use its trademark, operating systems, and support mechanisms in exchange for ongoing fees. So when did Airbnb start using this model? Simple answer is that they didn’t. Airbnb operates under an entirely different asset light strategy in stark contrast to traditional franchise businesses.
Advantages of franchising
Let’s examine why opting for a franchise has its benefits, and why it has become a popular hotel model globally.
- Risk minimization: An attractive aspect of franchises is their inherent capacity to mitigate risk. Purchasing a franchise from an established brand gives entrepreneurs access to tried-and-tested operational formats.
- High success rates: Franchises have demonstrated comparatively good results.
- Brand recognition benefit: Instead of spending resources on establishing brand credibility, franchised hospitality businesses enjoy immediate recognition and customer trust courtesy of their parent brand.
- Training and support infrastructure: Every new endeavor faces teething issues, but a franchise ensures such challenges are relatively minor given the robust training and support system provided by franchisors.
Brand-owned hospitality businesses
These businesses operate under a well-known brand name, where both operations and ownership are controlled by the parent company.
The concept is straightforward. Large players in the industry, such as Marriott International, prefer this model because it offers economies of scale, control over quality, and a streamlined experience for guests. These accommodation giants fully own and manage their properties.
One of the key advantages of staying at a brand-owned property, such as the Ritz-Carlton, is the control they have over service delivery. No matter which Ritz-Carlton you stay at around the world, you can expect consistent touchpoints and experiences. This uniformity is particularly appealing to certain customers.
Aside from maintaining consistent service standards, hotel owners who are directly involved in the daily operations gain a deep understanding of hospitality which enables them to make quick decisions based on real-time insights.
Despite the various benefits, there are challenges that make entrepreneurs hesitate before choosing this business model. The high investment costs and longer payback periods often discourage potential investors when they compare models like franchising or leasing, which are considered more asset-light approaches and are increasingly appealing.
‘Strata title’ hospitality businesses
Strata title is a business model innovation that has carved out its own place in proven hospitality business models. Imagine buying a portion or ‘strata’ of an accommodation property. As an owner, you not only have ownership of the space within your four walls but also enjoy shared ownership of common areas such as lounges, pools, and fitness centers.
Investing in these hotels offers owners two advantages: a tangible asset that has the potential to increase in value, and cash flow from renting it out. This model works by having owners lease their units under a management contract to operators who treat it like a regular hotel, while operators generate revenue through customer services provided on a larger scale.
The rise of digital platforms has revolutionized the way people search for properties that align with their specific needs. This enables prospective purchasers to explore the lucrative opportunities offered by the hotel industry, without being burdened by the traditional operational challenges associated with hotels. This often leads to an entirely digital business model.
However, owning a strata title also comes with its challenges. Owners can face disagreements when it comes to building maintenance or upgrading expenses, as well as issues related to the fair distribution of revenues, particularly during peak seasons.
Managed hospitality businesses
Now, let’s look at managed hospitality businesses. As the name implies, these establishments entrust the management and daily operations to a skilled professional or an experienced hospitality company. This model effectively bridges the gap between investors with limited industry knowledge and knowledgeable individuals who can efficiently run the business.
So how does this work? Well, the owner of this type of business hands the management of their hotel, resort, or other hospitality establishment to a dedicated manager. This manager could be an experienced individual in the industry or a well-known brand that brings its reputation and operational expertise to the table.
Why opt for this business model? Here are three compelling reasons:
- Reducing operational hassles: With experienced professionals at the helm, owners are relieved of daily operations.
- Ensuring quality standards: It brings about consistency in service offerings which develops customer loyalty.
- Increasing efficiency: Outsourcing various functions such as marketing or housekeeping often results in more streamlined processes.
Though rewarding, managed models also have challenges. Managing cost structures effectively is often cited as a common hurdle when an extensive range of services are involved.
How to manage a hospitality business
Managing a hotel successfully requires a diverse skill set that combines both hospitality expertise and strong managerial capabilities. Key skills needed to excel in hotel management include these:
- Leadership: A crucial quality for effective hotel managers. They must set a positive example, inspire their team members, and make strategic decisions to ensure the smooth functioning of the property.
- Customer service: Providing exceptional service to guests is the foundation of effective hotel management. Managers must possess a thorough understanding of guest expectations and demonstrate unwavering dedication to delivering extraordinary experiences.
- Effective communication: This is essential in a hotel environment. Communication ensures coordination among staff members, addresses concerns from guests, and facilitates smooth interaction with different departments within the hotel.
- Handling challenges: This is a regular part of a hotel manager’s job, as they often face unpredictable issues daily. These can range from guest complaints to operational problems. It is vital for hotel managers to have strong problem-solving skills to effectively address these situations in a timely and efficient manner.
- Financial skills: Successful hotel management requires strong financial acumen. This includes effectively managing budgets, accurately forecasting revenue, and optimizing expenses to maximize profitability.
- Managing time: Efficiently managing time is important in hotel management as handling multiple tasks and priorities is common. With effective time management, hotel managers can ensure that every aspect of the hotel’s operations receive proper attention.
- Marketing and sales: These play a key role in promoting the hotel and maximizing occupancy and revenue. A strong understanding of effective marketing strategies and sales techniques is essential for success.
How to learn hotel management
To excel in hotel management, a comprehensive approach is essential. Start by pursuing formal education in hospitality management or a related field to establish a strong theoretical foundation. Augment this knowledge with hands-on experience gained through internships or entry-level positions at hotels, which offer valuable insights into daily operations. Embrace continuous learning by actively participating in workshops, seminars, and hospitality industry conferences to stay abreast of the latest trends and best practices.
Additionally, seek guidance from seasoned professionals in the field who can provide invaluable mentorship. Developing skills in leadership, customer service, financial management, and problem-solving is crucial for mastering hotel management. Ultimately, a successful career in this field requires a combination of education, practical experience, ongoing learning opportunities, and mentorship.
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To select the hospitality model for your own venture, it’s important to first identify your own key strengths. Are you skilled at managing operations or developing a strong brand identity? Maybe you excel at fostering community-based experiences. Once you have determined your core competencies, you can examine proven hospitality business models and make an informed choice.
Whatever path you choose, Glion can equip you with the knowledge and skills needed to succeed in running a hotel or tourism business through its hospitality degree programs. Find out more about the many reasons to work in hospitality.
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