Manchise—a Management Alternative

“Manchise” is a buzz word comprising of ‘management’ and ‘franchise’ an excellent model should the expertise and infrastructure be available to investors. There is a variety of management formula and terminology that have evolved over the past decade due to the trends and the structural changes in the hospitality accommodation sector.

Developers and investors must now investigate the options of structuring a management formula very carefully as this decision is the essential driver of the trading viability of the business in its initial phase where an exit strategy may be considered. The formula combined with the management of revenue and expenditure will deliver the net operating profit and the basis on which the exit strategy can be valued. Essential Service Hotels has the specific expertise to advise investors on the structure of the appropriate management formula and establishment of operating terms. Developers and Investors need to place more emphasis on the analysis of the available management formula and consequent trading dynamics at the conceptual stage of the project. In considering some of the options available to investors, Management Contracts / Franchise, Lease and Manchise are the most often considered. The Management Contracts offered by the global chains were the most predominant formula during the past decade. Over the GFC period of 2008 the fiscal spotlight was placed on the terms of Management Contracts. Many of the existing agreements highlighted the “all gain ,no pain” benefits of the model that accrued to the Operators. Under this format the risk was carried entirely by the investors. The terms of MC’s have now been re-structured by the global chains in an effort to extend their brand footprint in a very competitive and more informed marketplace. The lease agreement is an alternative that offers developers and investors a guaranteed return and security for the management of the business however they generally lose control of the trading dynamics. The lease model loses its appeal in a demand driven market where occupancies and average room rates are high with the operator as the benefactor of optimum trading returns whilst the return to investors is constant. The “Manchise” agreement is a new generation management strategy that combines the features and benefits of the franchise model plus the advantages of independent specialist management expertise. The “Manchise” allows the investors to have greater control of the both the asset and the business and consequently total right to the operating profit. The obvious trading benefits of a brand franchise allows for immediate consumer recognition of the product features, a valuable marketing plus for a start - up. This strategy is most suitable to experienced investors with management skill and access to the appropriate infrastructure. As this development cycle continues to bring new product onto the market the necessity for specialist analytical advice on the management options and exit strategies is essential.