REPORT FROM THE U.S.—Companies never get very far standing still, which is why Tom Magnuson is pushing for what he describes as more proactive, owner-focused approach to hospitality.
As the CEO of recently formed holding company Magnuson Worldwide, he shies away from the typical franchise model and instead uses the Magnuson name in an attempt to benefit the membership model he prefers.
“Everything Magnuson does is about helping owners directly,” Magnuson said. “It’s not about growing a giant corporation or satisfying Wall Street. We’re not a publicly traded company. We only have one person to satisfy, and that is our hotel owner. And we’ll stop at nothing to help them,” even if that includes driving reservations, providing free branding or finding a lending partner who is sensitive to the owner’s needs.
|
|
Tom Magnuson Magnuson Worldwide |
Magnuson Hotels, part of Magnuson Worldwide, is an independent membership organization that offers an alternative to traditional franchising. Instead of paying a typical franchising fee, member hoteliers pay 15% on each booking.
That low-cost, straightforward model has attracted nearly 2,000 hoteliers to Magnuson’s global membership portfolio and 100 hoteliers to the company’s new, branded Magnuson Hotel Premier Collection, which comprises: the upscale Magnuson Grand Hotels; the mid-priced to upper-scale Magnuson Hotels; and the economy and upper-economy M Star Hotels.
The company is adding more hotels worldwide than the top chains combined, according to Magnuson, and part of this continued growth comes from Magnuson’s focus on the owner.
“The impetus was to do something right for the industry,” he explained. “Owners face crushing costs of (online travel agencies) and crushing costs of franchises.” Whereas franchised owners barely see any money in their pockets after paying franchise fees and OTAs, with the Magnuson model, owners can “take control of their margins and take that back,” he said.
This is the reason Jack Moyer, VP of operations and development of the 61-room Basin Park Magnuson Grand Hotel in Eureka Springs, Arkansas, likes being a part of the Magnuson family. In 2009, the hotel was unbranded but was looking for a conduit to the global distribution system.
“We felt as though we needed to have a soft brand or authority validate our quality level,” Moyer said. “That why we went for the Magnuson brand.”
Aggressive marketing
Moyer was attracted to Magnuson’s aggressive marketing and revenue-management strategies.
“They’re still aggressive in traditional forums of GDS and marketing, but they’re really cutting edge and being aggressive with revenue management. That’s what it takes in today’s market,” he said.
“They promote the hotel,” said Tony Ruggiero, GM of the Pocono Inne Town, a Magnuson hotel in Stroudsburg, Pennsylvania.
Before joining the company, the property’s weekday occupancy was “only at 20%.” Now Ruggiero sees occupancy of 90% on weekends and around 35% to 40% during the week.
Jim Butler, partner and chairman of the Global Hospitality Group, said although benefits abound with branded hotels, they come with significant costs, including franchise fees (5% of revenues), marketing fees (1% to 3% of revenues), brand loyalty programs (5% to 6% of revenues) and reservation fees, which can vary.
|
| Magnuson Worldwide has nearly 2,000 hotels in its portfolio globally and 100 hotels in its Magnuson Hotel Premier Collection. |
Magnuson owners, on the other hand, pay 15% commission on the direct bookings received through the Magnuson distribution system, according to Magnuson.
“You can control your own destiny (with Magnuson). You can control your own money,” Ruggiero said. “We pay commission to them. We don’t have any fees that we have to pay. We don’t have to worry about franchise fees.”
“In a typical franchise, owners pay a royalty on walk-up and direct reservations. With Magnuson Hotels, all direct business is royalty free,” Magnuson explained.
Keeping up with brands
For Ryan Nofar, owner of the Magnuson Hotel Detroit Airport in Michigan, the Magnuson name gives the hotel a well-known identity with which customers are familiar. But, more importantly, Nofar likes the freedom Magnuson affords.
“Having a franchise, you have to fulfill a (property improvement plan) according to (the brand’s) needs. That’s something we weren’t ready for,” he said, adding that brands saturate the area around Detroit’s airport, so Magnuson helps differentiate the hotel from its competitors.
“The Magnuson brand provides the franchise image, and we provide the rest with quality,” he said.
Magnuson said there are properties “from time to time that are not kept up to market standards,” but it’s not out of the ordinary. Every company runs into that, he said.
“We address those things on a daily basis with our owners, and we run into that just like every other franchisor or hotel chain. Hotels that do not uphold brand standards will be invited to leave.”
What’s next?
With an eye toward global expansion, the company recently reorganized to Magnuson Worldwide.
“It’s for several entities to provide low-cost services … to drive revenue for hotel owners,” Magnuson said.
These entities include Global Hotel Exchange, a free OTA alternative that offers booking services to more than 20,000 hotels in nearly 70 countries; the newly launched GDS1, a low-cost global-distribution-system provider for emerging markets; the Magnuson Marketplace, which connects hotels to as many vendors as possible; and a new hotel lending process for its hotel platform.
Recently, Magnuson announced a partnership with Ascentium Capital, a lending institution backed by Paul Allen, co-founder of Microsoft. This partnership simplifies the complicated hotel financing process to a one-page, one-day application. Because Magnuson works with a large amount of franchise defectors that can’t cope with the traditional cost of franchising, these loans, accessed through Ascentium, will help owners focus on operations while opening up enough capital for renovations, Magnuson said.
Independent hotels as well as hotels branded as a Magnuson Hotel, Magnuson Grand Hotel or M Star Hotel will be eligible to qualify for same-day financing.
All Magnuson branded hotels are eligible to apply for loans up to $250,000. Independent hotels can access up to $150,000. The loans will offer 100% financing from $5,000 and up with 24- to 72-month terms.
The lending partnership helps the company compete with big-name brands by making it easier for owners to get financing, Magnuson said.
Butler said branded hotels comprise more than 80% of hotels in the U.S., but Magnuson said the future is open to franchise alternatives like his.
“I think the thing that’s going to become apparent in the next year, especially in the U.S., is the defection from traditional owners from franchises to alternative models. … There are more and more options out there today for owners to not only survive but turn things around and thrive.”