Suite Freedom-Magnuson Hotels’ independent affiliate model promises economy-segment owners a different

August 14, 2007

by Len Vermillion
Lodging Magazine

The way Tom Magnuson sees it, hoteliers these days are dealing with a classic paradox. They have higher operational costs and lower demand. That means many hotel owners are not really able to pass along higher costs in terms of room rates. It also means they’re not really able to absorb costs associated with franchising.

For a small independent hotelier, the direct and indirect costs of a chain can be overwhelming. Those direct costs often include a percentage of gross and room revenues, while the indirect costs often include compliance with a growing number of expensive renovation requirements. “Every year [a hotel group] keeps upping the ante or the bar owners must jump,” Magnuson says. “So the indirect costs are variable from property to property.”

Magnuson didn’t see the standard franchise model as beneficial for everyone. But the alternative to being part of a brand chain—independence—often creates a long death spiral for a hotel because there is no longer a strong reservation system or other support services. So Magnuson, a seasoned hospitality veteran decided to do something about the situation.

“I’ve been in the hotel business since I was eight and still own properties with my dad, so I have firsthand experience not only as an owner, but also as a member of a brand,” Magnuson says. He is a former Best Western governor and former member of the Best Western marketing committee. “Everybody in life has been in a situation where they experience frustration and says, ‘Why doesn’t someone invent fill in the blank?’ I guess we just happen to be the ones that did.”

The “we” he refers to is himself and his wife, Melissa, who four years ago booted up their PCs and created a reservation system for economy-segment independent hotel owners. Today, Magnuson Hotels is the largest independent hotel group in the world—with more than 600 affiliates and growing—and has set a new model for how economy-segment hoteliers can compete.

Magnuson says the model allows hotels to stay independent but still reap the benefits of an advanced reservation system and support that they would normally receive from a franchise. It’s a way to level the playing field for the economy segment.

“We know hundreds of owners, and I don’t know how many owners that you talk to that say ‘You know, these costs are too high. These regulations are too stiff. I’m not getting what I’m paying for.’ We were experiencing that firsthand,” he says. “We just figured out how things work and we negotiated access to many of the same reservation system backbones as the chains do.” Those systems include Expedia, Orbitz and Travelocity.

The original Magnuson Hotels started with a pool of about a dozen owners, including Magnuson’s own properties. “We tried a different model, and they went valiantly with us because we were an unproven concept,” Magnuson admits.

The unproven concept didn’t take long to prove itself, however. Magnuson says the concept immediately worked. It created a large reservation distribution system and provided personal service to manage inventory and rates. The difference from the standard model is the affiliates only pay based upon the production of the system. “It was a concept where most owners had nothing to lose and everything to gain,” he says.

Of the concept’s beginnings, Magnuson says, “We did not have any preconceived notions of what would work and what would not. We really don’t have an operating manual in that we’re not a bureaucracy that’s 60 years old. We can find out what works and what doesn’t, change, and be very fluid.”

He says the success of the model went well beyond his wildest expectations. “I had no thinking four years ago that we’d be the world’s largest independent hotel group,” he admits. “We started with a dozen properties and had an idea that we wanted to help hotels, but we never realized how big this market is.”

So four years later, has the concept caught on with other members of the industry? Judging from the fact that Magnuson sees 1,000 affiliates by 2008 as a viable target, the answer is yes. “It’s really not unlike the growing transparency we all see when we shop on the Internet,” Magnuson says. He thinks that provides proof that consumers are fine with the concept and will easily stay with independents if they can find them. “After a certain point you really don’t care where you buy from, just as long as you’re promised a certain base criteria of your purchase requirements,” he continues.

He also believes that the concept is growing because it gives owners something they desire—independence—while still answering the basic paradox of higher costs and lower demand. “As more and more independents become affiliated with an organization such as ours that promotes and educates the value of the independent,” he says, “that independent can have all the same quality, all the same service, but at a lower cost because they do not have the high franchise costs. I think it’s already proof that the concept is working.”

Earlier this year, Magnuson told Lodging that he thought the concept, in essence, has done for the economy end of the lodging spectrum what Preferred, Leading Hotels and Worldwide Hotels have done for the higher end.

For economy-segment hotel owners, the concept has become a way to maintain their own identity while still turning profits. It is also a way to keep control of their property, change things as they see fit, and keep moving at their own pace.

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.

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Magnuson Hotels