The change came about after hotel consultant Stephen Rushmore, Mineola, NY-based president of HVS International, reviewed the changed franchise agreements. He told a group of Radisson franchisees gathered in Las Vegas for the annual business conference of Carlson Hospitality Worldwide, Radisson's parent company, that all major hotel chains demand liquidated damages when a licensee decides to terminate the contract. Those penalties can average three times the amount of fees the franchise company collects from the franchisee during the previous 12 months.
Rushmore said the new provision amounts to "satisfaction guaranteed" on the part of Radisson. It gives the franchisee the ability to leave the chain without penalty, but it also "keeps Radisson focused on keeping its franchisees happy," Rushmore said.
Jay S. Witzel, Radisson's president and CEO, termed the new agreement as a way to "level the playing field" between franchiser and franchisee. Relationships are sometimes rocky in the lodging universe. "If we are asking the franchisees to give guests 100% satisfaction, then the franchiser should do the same to its customer," Witzel said.
However, this freedom comes at a higher price. According to Witzel, Radisson's royalty fees will increase from 4% to 5% of room sales. "They will be paying a bit more up front, but we are betting people will stay in the system," he said.
Rushmore pointed out Radisson's franchise costs are roughly 8.2% of room revenue based on 2000 numbers. That figure is comparatively low within the industry. For Marriott, that number works out to 11.3% and Hilton, 10.1%.
Current Radisson franchisees will be able to switch to the new agreement, stay with their old contract or negotiate changes to parts of their existing pact, Witzel said. He admitted the new provision gives Radisson a potentially powerful differentiating tool when trying to lure new licensees at a time when hotel development is on a down swing. But, he also maintained that owners should have the ultimate control over their assets.
Currently, Radisson has more than 430 properties spread throughout 59 countries. Other lodging brands within Carlson include Country Inns & Suites by Carlson, Park Plaza, Park Inn and Regent International Hotels. However, Witzel said those brands declined to initiate the no-penalty option for their franchise contracts.
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