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St John Harvey, franchise development director at easyHotel, discusses the brand’s growth plans and how it’s carving out its own market in emerging territories
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GF: When did easyHotel start franchising, and how’s that side of business faring?
SJH: easyJet was launched in 1995, and in 2004 Stelios [Sir Stelios Haji-Ioannou, creator and owner of the easyGroup] extended the offering into the hotel and hospitality sector. With easyJet, he made ‘getting there possible’ and with easyHotel, he made ‘being there possible’ for everybody.
Today, we have 40 hotels, 13 of which are directly owned and operated by us, and 27 are franchised. We’ve got a good, growing footprint covering the U.K., France, Spain, Portugal, Switzerland, Germany, Benelux, Bulgaria, Budapest and Dubai.
We’re very much an international brand, and one built on the recognition of the easyGroup and what it stands for. It’s tempting to think that the recognition comes from where easyJet flies to, but our experience is that it goes well beyond that, as people that travel from and to far-flung places that have traveled continental Europe have used budget airlines.
GF: Where are you looking to take the easyHotel brand next?
SJH: We’re growing fast and looking to scale the easyHotel brand internationally into some very interesting parts of the world. We’ve received enquiries from people located in Ghana, Nepal, Morocco, and areas of continental Europe. I was quite recently at a franchise exposition in Saudi Arabia and I was amazed by the interest that we generated over there and how well they understood the brand.
We have 40 hotels open today, and we want another 20 to 25 opened in the next five years. We’re looking to keep with the same one-third company-owned and two-thirds franchised ratio.
“We have 40 hotels open today, and we want another 20 to 25 opened in the next five years”
In a number of countries, especially outside of continental Europe, the budget sector as we know it doesn’t really exist. There are territories like the Middle East, Asia and parts of North Africa where there’s an ample offering of middle-standing and high-end hotels, but once you get into the economy sector, it’s very early stages or completely non-existent. People wanting to book places in that market are looking at guesthouses and similar accommodation that involves a slight element of risk – you don’t really know what you’re getting.
If you want a clean, safe and comfortable room from a brand you can trust, in a lot of these emerging territories and from a hospitality point of view, it doesn’t really exist. We’re not just bringing the brand to the market, we’re creating a market – a lot of our franchisees understand that and recognize that it’s a very fruitful opportunity to get in on the ground floor of.
GF: What is your typical customer demographic?
SJH: Budget hotels aren’t just frequented by people at the lower end of the income scale. There are people in the high end that say they don’t want to spend between £200 to £300 a night on a hotel – they want to use the hotel as a springboard and venture out to explore the cities and towns and spend their money in the local businesses, bars and restaurants.
We’re finding the location of our hotels is all-important. They must be located within a 10-minute walk of local bars, restaurants and transport hubs. What we’re doing is getting our guests into the very heart of cities and towns – the concept lends itself well to guests going to events, where they’re looking for somewhere to stay for one evening and aren’t craving all of the bells and whistles.
“We’re not just bringing the brand to the market, we’re creating a market”
That being said, customers can ‘option up’ their stay according to their particular needs. If they want WiFi access, television, early check-out and so on, then they can pay a little bit more for those options – they can carve out elements according to their budget. However, what we don’t want to do with optioning up is to close the gap between us and the competition – we want a gap where it says this is super budget and distinct from the rest of the market as you climb up the scale.
Interestingly, 46 per cent of our guests across our portfolio are ‘business users’. A lot of business travelers are operating on a daily subsistence allowance and when most of that is being taken up by the hotel accommodation, there’s not a lot left to live on. Business travelers – particularly reps and middle managers – are making the decision to not spend lots of money on putting a roof over their heads for one night, and opt for the easyHotel brand, which offers the certitude of a clean, safe and comfortable room, and gives them a little bit more in their pockets to spend in the local environment.
GF: What kind of investors is easyHotel looking to attract?
SJH: Some of our current discussions are around master agreements, and the typical demographic is high-net-worth investors. Discussions typically start off as a single hotel project, but our experience shows it quite quickly transitions to a master development agreement. In places where we’re already in existence, there are plenty of new enquiries around single hotel developments, and where it makes sense, we’ll introduce existing franchisees to potential franchisees – if there’s someone operating in a territory without exclusivity, we’ll introduce a prospect to them and quite often that will develop into a fruitful partnership.
Sometimes we have property and portfolio investors, and sometimes we have individuals who are owner-operators and have a building that they’re looking to convert into an easyHotel, as we’re able to drive a strong return on investment. We have an investment opportunity that delivers a yield between 10 to 12 per cent as a return on capital employed, which is industry-leading. All of our hotels have operating profits between 45 and 50 per cent, which are very sound figures.
If an individual is sitting on a building, they are usually interested in our conversion costs, as they are considerably cheaper than investing in our competitors, as our rooms as simpler and we maximize the use of the net internal areas. Typically, our rooms are 10 to 12 square meters, so they’re unapologetically compact but entirely fit for purpose. We drive out all of the fixed operating costs as we don’t offer food and beverage – quite often a hotel will sit next to an office or retail space.
It’s not unusual for an easyHotel with 100 to 150 rooms to be only operated by a team of six people, including the hotel manager working shifts. We typically outsource housekeeping and laundry, so we drive out the operational costs, maximize the yield of the building, and convert competitively, which means you end up with a magic triangle that brings you around 50 per cent operating profits and 10 to 12 per cent return on capital employed.
GF: How much does it cost to invest?
SJH: For a single hotel, the franchise sign-up fee is £25,000 – we’d quite often look for a 50 per cent down payment at that point. Master development agreements are more difficult to price, as we’ve got to analyze what you’re specifically putting into the market, the market size, how many hotels you’re looking at opening and so on, but it’s generally a six-figure investment, which includes sign-on fee and an exclusivity fee for the territory.
The biggest costs are the conversions costs of a hotel, which can be anything between £6m to £8m, depending on what needs to be done.
GF: What do franchisees get in return for their investment?
SJH: As well as the aforementioned benefits, we offer our franchisees consultation on how to run their own hotel and how to maximize revenue. Our hotels operate at a rate of 80 to 85 per cent occupancy, which is right at the top compared to our competition.
Training-wise, we work in partnership with the investor to manage front-of-house and the property management system, which is our backbone and how bookings come through and also how we view the entire estate’s bookings and revenues.
During the conversion and construction period, there’s support from our in-house construction and property team and we have our own architects and quantity surveyors, although if a franchisee has their own contractors, we’re happy to work with them, too.
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