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PENN STATE / Hospitality Management / HM 201 / What is a franchise agreement in business?

What is a franchise agreement in business?

What is a franchise agreement in business?


School: Pennsylvania State University
Department: Hospitality Management
Course: Introduction to Management in the Hospitality Industry
Term: Fall 2019
Tags: franchising, HotelsMacroStructure, and HotelsMicroStructure
Cost: 50
Name: HM 201 Exam 2 Study Guide
Description: This studyguide covers the material that will be on Exam 2.
Uploaded: 10/25/2019
3 Pages 42 Views 2 Unlocks

Exam 2

What is a franchise agreement in business?

KEY: Definitions, Examples, iClicker Answers 

Overview of Topics:


*The Franchisor sells the Franchise to the Franchisee 

● Pros & Cons

● Cost

● Franchise

○ business organization in which a business(franchisee) pays a fee to operate under the firm’s trade name & guidance 

● Franchisor

○ a person or business offering the franchising agreement 

○ has a successful product/service

○ owns the concept, trademark, business methods

Ex: McDonald’s

How the franchisee will lose his right in operating the franchised business?

● Franchisee

○ -person or business accepting the franchising agreement 

○ -pays for business opportunity

● Refranchising = company “going Franchise”

○ the process of selling off company-owned franchises, usually to multi-unit franchise holders in order to 

○ Decrease costs, Increase revenue - “System Optimization”

● Non-Chain Chains, “Soft Brands”

○ a chain or franchise organization that has a business relying on its original identity 

○ Gets all the perks of a franchise

○ keeps identity unique

Ex: Autograph Collection by Marriott

What was the first hotel founder conrad hilton bought?

Don't forget about the age old question of What does social reproduction theory explain?


1. Largest hotel chain in the world by number of rooms(1.1 million): Marriott International 2. Chain with the most growth in sales: Mod Pizza 

3. Who is a Franchisor?

McDonald’s, Marriott Hotels, Wendy’s 

NOT - Chipotle, Cheesecake Factory, Olive Garden

4. Franchise with largest percent sales decrease: Long John Silvers 

5. Example of a liability to the Franchisor: Potential Litigation - Franchisor is sued for something that a franchisee did 

Hotel MacroStructure

● History

○ 1794 City Hotel NY, NY

○ 1829 Fremant House Boston, Ma - 1st 5 Star Hotel

○ Buffalo Statler - 1st Modern Hotel, opened by Ellsworth Statler(major force in Hotels)

○ 1950’s - Conrad Hilton & J. W. Marriott

○ Holiday Inn = standardization

● Hotel Segments

○ Full Service - includes F&B, Select Service, Boutique Hotels, Suite HotelsIf you want to learn more check out What impact did the hundred years war have on france?
If you want to learn more check out What is a person who hides their feelings called?

● Ownership Structure

○ Hotel Brand - the sign/flag on the building ex: Courtyard, Sheraton

○ Hotel Companies - own the Brands ex: Marriott owns Sheraton, Hilton, IHG ○ Hotel Management Companies - manage their own Hotels and other companies Hotel Brands 

○ Chain Hotels - affiliated

○ Independent- not affiliated

● Market City Types:

1st- Primary Market City ex. Las Vegas, NYC

2nd- Secondary Market City ex. Pittsburgh

3rd- Tertiary Market City ex. Columbus


1. Largest Hotel in the world by number of rooms: First World Hotel,Malaysia - 7,351 rooms 2. Hotel owner who got his start in restaurants and even provided one of the first in flight meals: J. W. Marriott 

3. Hotel that celebrates open spaces: Atrium Style Hotel 

4. Reasons that people stay at hotels: SMERF(s) - Social, Military, Educational, Religious, Fraternal, Sports 

5. Hotel Meal Plans:

American Plan - breakfast, lunch, & dinner We also discuss several other topics like In his address to the court after his attempted beerhall putsch hitler pleaded guilty for what?

Modified American Plan - breakfast and lunch or dinner 

Continental Plan - breakfast 

Bermuda Plan - Full breakfast 

European Plan - room only We also discuss several other topics like Who introduced the palladian style to england?

6. A Double Tree Hotel is owned by Felcor Lodging Trust and managed by Hilton. Who does the Restaurant Manager work for? Hilton 

7. First Hotel that Conrad Hilton purchased: the Mobley 

8. First Hotel Chain to offer 24 hour room service in 1969: Westin 

9. According to STR(Smith Travel Research) there are__hotel rooms in the world? 18.5 million 

Hotel MicroStructure

● Hotel/Lodging Operations

1. Rooms Division

2. F&B(food and beverage)

3. Staff(Non-operational)


1. A typical housekeeper is expected to clean ___ rooms on a daily basis: 14-16 rooms 2. F&B department provides ___% of a hotel’s profit: 15-20% 

3. Largest Department in a Hotel: Housekeeping(50% of all employees) 4. Hotel Sales

Hunting - hunters go out and pursue new business/customers We also discuss several other topics like What is a physical landmark?

Gardening - gardeners maintain existing customers 

5. The most important of all ratios used in the hotel industry because it incorporates both room rate & occupancy: Revpar 

● Formulas:

○ Revpar - “Revenue per available room”

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