Identity, commercial decisions drivers of franchise in Nigeria’s hospitality industry

Franchising has become more pronounced in the Nigerian hospitality industry than any other sector. Many hotels now prefer adoption of foreign and established names with annual huge payout fees running into several billions of naira associated with it, against developing their own local brands.

Though, there are some local brands in the hospitality business doing well, but those that go for franchising want to identify with global best practices and standards in similar brands across countries, as consumption loyalists will easily associate with the brand anywhere in the world.

Analysts agree that there are a number of positives that come with obtaining a franchise, but it is said that the arrangement encourages capital flight and discourages promotion of indigenous brands. John Ehiguese of MediaCraft agrees the concept of franchising is to cash in on the equity of the mother brand, as a verifiable track record firm is more likely to attract customers than one that is obscure and unknown, saying that franchising goes with major draw-backs such as the huge fee and that it is a disincentive to the growth of local brands.

Despite the fact that franchising is a wonderful way to go into business and it has been a successful model, analysts say the franchisee pay a set fee to buy into the franchise and there are often regular administrative fees as well. “There is also no guarantee that you will be offered a renewal at the end of the contract term and if you are, then you may need to pay the same first fee amount again in order to renew. You should also remember that you are required to pay the fees even if your business does not make any profit,” Ehiguese says.

A manager of a popular hotel in Abuja expressed worry that as franchising business dominate the hospitality industry, “there may not be original local brands in the industry,” as entrance of franchise into a sector has assisted to develop that sector and the economy.

Stating that franchising is purely a business decision, entirely at the discretion of the entrepreneur, John Awe of XRL8, a brand management firm, earlier told BusinessDay that it would be a great idea for Nigeria’s local businesses to contemplate building their own brands from scratch. “But we must recognise that we can only encourage them, we cannot criticise anyone who decides not to. Potential business owners should consider their options and do what they think is best for their businesses,” he says.

According to him, franchise arrangement is not as easy as people think, “as it involves rigourous quality standards that are set to be met and sustained by local franchisees in various areas ranging from the location of the proposed business to the size and general look and feel of the property to be used, the furnishings and decor, the level of ICT infrastructure, ratio of staff to guests, etc. As a local franchisee, you have to meet all these standards, in order to be allowed to put the brand name on your property.”

A business is established to make profit. If at the point of establishing a hotel business, the entrepreneur believes his best shot at success is to opt for a franchise arrangement, so be it. It will be wrong of anyone to criticise this decision.

We must admit it, a franchise offers a hotel business a better chance at succeeding. The brand is already established and associated with certain operational standards. A local business in Nigeria can jump on an already established platform and operate with a history of 100 years of unassailable operational efficiency. Many international travellers coming into Nigeria would readily opt for the local hotel here in Nigeria on the strength of their pleasant experience of the brand elsewhere in the world.

Apart from benefiting from the established brand name, successful business strategy and practices, the local business gets to enjoy staff training, mentoring and grooming required for optimal performance from the owner of the brand name. The generic advertising done internationally by the brand also rubs off on the local operations. So, in essence, you wouldn’t in all honesty query the fees the franchisors collect from their franchisees.

The managing director of Quadrant Company, Bolaji Okusaga had said the game of franchising in the hospitality business was a game of quality. The British, the French, the American and the Japanese can talk about having a local standard that is aligned with global best practice, but sadly, the Nigerian cannot, at least at the moment, talk about having a local standard that can be defined as best practice.

The investors decide what options available to them, he said, as “you either have a capacity to deliver best practice or you hire or buy that capacity. In this regard, hotels have chosen the second option and until we get our acts right, the buying capacity option remains the best.”

By: Daniel Obi