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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 104 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?


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 We also discuss several other topics like What is bride price payment?

NOT - Chipotle, Cheesecake Factory, Olive Garden

4. Franchise with largest percent sales decrease: Long John Silvers Don't forget about the age old question of Which movement began in italy and spread to the rest of europe?

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 Hotels

● 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 If you want to learn more check out What is a person who hides their feelings called?


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 If you want to learn more check out According to the 1922 new york times article, which european leader influenced the nazi movement in bavaria?
If you want to learn more check out How many identical facades are shown in andrea palladio's villa rotonda?

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 

Modified American Plan - breakfast and lunch or dinner 

Continental Plan - breakfast 

Bermuda Plan - Full breakfast 

European Plan - room only 

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 Don't forget about the age old question of What is a physical landmark?

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 

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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