Magnuson Hotels thrives with independent owners
February 15, 2008
SPOKANE, Wash. – In the hotel industry, common logic has it that the big chains hold a competitive advantage over their independent counterparts. But, don’t tell that to Tom Magnuson, the founder, principal owner and chief executive officer of Magnuson Hotels Inc., a Spokane-based company that offers independent hotel owners many of the same benefits typically enjoyed by chain hotels, but without the costs and requirements imposed on franchised hotel owners.
“Magnuson Hotels was established as a low-cost alternative to the franchise model, which can be very expensive,” Magnuson said. “How this company differs from the franchise system, and what we provide our affiliates, is somewhat synonymous; we offer complete brand power to our member hotels without the costs and requirements of the major hotel brands.”
The five-year-old company, which bills itself as the “world’s largest independent hotel group,” provides independent hotel owners with low-cost access to a worldwide reservations system, hotel supplies and medical savings networks. Its mission is to help independent hotels compete directly with the big boys by saving them money, and it appears to be working.
In March 2007, the Atlanta-based Asian American Hotel Owners Association chose the Alexis Inn & Suites – an independent property affiliated with Magnuson Hotels located in Nashville, Tenn. – to receive its Independent Hotel of the Year award. Not bad, considering the Alexis Inn competes with more than 147 chain-affiliated hotels in a six-mile radius.
“As an independent hotel, we needed all the help we could get to stand out among the big brands, so we affiliated our hotel with Magnuson Hotels,” Atul Kapadia, Alexis Inn & Suites president, said. “We didn’t want to be subjected to the traditional high fees brands charge; instead, we paid Magnuson Hotels – our hotel marketing and reservations company – only for performance-based results.”
That is the foundation upon which Magnuson, an AAHOA member, started his company. “I grew up working for my parents, who owned franchised and independent properties,” Magnuson said. “At the age of eight, I was either working behind a front desk or schlepping pizzas with my dad, and I still own property with my 85-year-old dad. I incorporated the experience that I gained from working for my parents into Magnuson Hotels. As an owner who writes checks daily, I know what our affiliates go through. That’s how I designed the Magnuson Hotels business model, which is a fee-based system that is dependent on the success of our reservations system.”
Simply put, the company’s fee structure is based on the number of reservations it delivers to its affiliates, who are not bound by long-term contracts. Customers make their reservations via the Internet and Magnuson Hotels’ massive computerized reservations system, which is linked to over 650,000 travel agents worldwide, more than 2,000 Internet booking channels and many major commercial airline Web sites.
Additionally, Magnuson Hotels offers its affiliates guaranteed priority national and international placement on Orbitz, Travelocity, Priceline and TravelWeb; priority search-engine visibility and targeted advertising on Yahoo!, Google, MSN and AOL; and group tour sales and representation via the National Tour Association and other group-tour Web sites.
But the hallmark of Magnuson Hotels is the company’s “Payback Brands program,” which is designed to give affiliated hotels the highest average rates within their competitive sector by clearly communicating the property’s location, service type and quality; it is so named because Magnuson-affiliated hotels that align with one of the Payback brands receive a cash rebate annually. The program, which Magnuson Hotels launched in Sept. 2007 at its own expense, includes: M Star Hotel, Magnuson Hotel and Magnuson Grand Hotel.
“Our mission is to increase our affiliates’ revenues and lower their costs,” Magnuson said. “So we developed this at no cost to our affiliates and it doesn’t cost them anything to join – we don’t charge them any brand fees like chain hotels charge their franchisees. The real key differentiation here is that we are the first company in the hotel industry that gives money back to the individual hotel owners; for every affiliate who joins the Payback Brand program, we set a revenue target with them that we hope they will meet, and every six months we measure their performance. If they meet or exceed it, then the hotel owner receives a brand rebate in the form of a check.”
Magnuson founded the company in 2003 with his wife, Melissa. The couple persuaded 10 independent hotel owners to sign on with the fledgling company, which quickly generated reservations for their hotels. That initial group of hotel owners – thrilled with the results – then told other independent hotel owners about Magnuson Hotels, and the business quickly grew. And it hasn’t stopped – today, the company is the 17th-largest hotel company worldwide, with more than 620 member hotels and 43,400 rooms. It employs 12,500 people in 48 states and Canada. The combined assets of Magnuson Hotels’ affiliate base are worth $3.5 billion, according to the company. Magnuson estimates that 60 percent of the hotels affiliated with his company are AAHOA members.
For Kapadia, the president of the Alexis Inn & Suites, and his business partner, Khirrit Bhikha, Magnuson Hotels has helped the company do more than just survive, which was their goal when they purchased the property in 2003. In the four years since the acquisition – and the Alexis Inn’s subsequent affiliation with Magnuson Hotels – the property’s business has thrived, growing an average 30 percent per year. It currently ranks among the top-10 hotels in the southeastern United States on travel-booking Web site Travelocity.com, it ranks among the top-10 Web searches for Nashville airport hotels on Yahoo! and has maintained a 3-star rating with AAA.
“Magnuson Hotels has been wonderful for our business – their philosophy mirrors ours very much,” Bhikha said. “We don’t think of Magnuson Hotels as a huge company, but how they can improve our business. And when they do that, we win and they win.”
About Magnuson Hotels, the fastest growing hotel chain in history.
In only seven years, Magnuson Hotels headquartered in Spokane, WA has become the world’s largest independent hotel group, representing nearly 1500 hotels and a combined affiliate base with assets in excess of $5.5 Billion. One of the top 10 global hotel chains, Magnuson Hotels was the #1 Hotel Company of Inc. Magazine’s 2009 annual ranking of the 5,000 fastest growing privately owned U.S. companies. With a four year reservation sales growth of 595%, Magnuson Hotels is listed in the top 100 U.S. business services companies.