Wyndham Hotel Franchise Targets Leisure Travelers Along the Highway (2022)
The franchisee will establish and operate an upscale full-service Wyndham or Wyndham Resort guest lodging facility. You will be franchising with the Wyndham Franchisor, LLC, which was formed on December 4, 2017. Its predecessor has been franchising since 2005. As a Wyndham Hotel franchisee, you would be providing a diverse perspective on the customers’ travel experiences. With friendly services, thoughtful amenities, and a range of options for the everyday traveler.
Who Owns the Wyndham Hotel Franchise?
Wyndham Hotel franchise is currently owned by Wyndham Franchisor, LLC, which is the subsidiary of Wyndham Hotels and Resorts, LLC. Wyndham Hotels and Resorts, LLC is the subsidiary of Wyndham Hotels & Resorts, Inc (WHR). WHR is an American hotel company formed on June 1, 2018, as a spin-off from Wyndham Worldwide, which was created in 1981. Wyndham Worldwide expanded through multiple expansions, including famous hotel brands like La Quinta.
WHR profiles itself as the largest hotel franchisor by hotels worldwide, with approximately 9,000 hotels and 813,000 rooms in 95+ countries and a loyal customer base of over 120 million. Currently, its portfolio contains 22 brands, splitting into 7 categories like luxury, distinctive, upscale, lifestyle, midscale, economy, and extended stay. WHR follows an asset-light, franchised model with only two of its 9,000 hotels being owned, limiting its capital needs.
Business Model
Wyndham Hotel possesses unique characteristics in its business model. With approximately 70% of bookings being leisure-oriented, hotel owners are less reliant on business travel. Its business customers are substantially comprised of truckers, contractors, construction workers, utility crews, and others whose office is on the road and who do not have the ability to work remotely.
These customers provide a steady state of business for the majority of the hotel owners, especially during the COVID-19 pandemic. Unlike other hotel businesses, many Wyndham hotels are located along highways and in suburban and small metro areas, providing a clean and safe environment for travel seekers. Additionally, 96% of the customers originate from the U.S., which leads to an immediate surge in demand in 2021.
WHR (NYSE: WH) was publicly traded on May 21, 2018, at a price of $57.65. It is currently $80.52 as of May 29, 2022. With a market capitalization of $7.416 billion, the stock is relatively volatile with a beta of 1.49.
How is the Wyndham Hotel Franchise Positioned in the Hotel and Residential Industry?
The Travel, Hospitality, and Leisure industries intersect with multiple industries, such as Food & Beverage, Hotel, Recreation, and Tourism. As it is both a capital and labor-intensive industry, it relies on investments in fixed assets. This industry generates over $1.6 trillion in economic output, representing 2.8% of GDP.
The travel and hospitality industry has grown tremendously over the last few years as flights have become more affordable and people are willing to spend their money on vacations and travel. Under the COVID-19 pandemic, the industry can expect some changes in consumers’ demand, where people will tend to travel more within the borders than abroad.
However, this pandemic proves that this is a resilient industry. With rising vaccination rates and the opening of the borders, the industry saw an immediate surge in demand.
Wyndham Hotel competes in the travel industry against other hotel and resort properties, ranging from national and international hotel brands to independent, local, and regional hotel operators, as well as alternative lodging companies that rent residential inventory in a manner consistent with hotels.
What is the Wyndham Hotel Franchise Cost?
The total investment necessary to begin operation of a 301-room hotel typically ranges from $45,285,908 to $78,480,649 for a new construction project and from $1,217,779 to $30,332,717 for a conversion hotel. Land acquisition costs are not included in these ranges. The above amounts include a range of $177,460 to $190,210 that must be paid to the franchisor.
Opening a hotel requires multiple payments that need to be paid beforehand. Franchisees must pay an application fee of $10,000. The initial franchise fee for new construction or conversion is equal to the greater of $50,000 or $500 per room. To note, if your application is approved, the application fee will be credited towards the initial franchise fee.
There are also multiple mandatory support services and fees prior to opening. The mandatory training program will cost $2,250, $4,000 per year of ongoing learning and development support, and a standard photo package for websites and marketing costs $3,560.
Royalty Fees
Once the operations begin, franchisees are expected to pay the company a royalty fee of 5% of gross room revenues and 3% of gross room revenues for marketing and global sales fee.
The average industry royalty fee is approximately 5.2%, while Wyndham Hotel has a royalty fee of 5% of gross room sales. Although Wyndham Hotel has a royalty fee lower than the industry average, franchisees of Wyndham are expected to pay other monthly fees other than the royalty payments.
How Much Do Wyndham Hotel Franchise Owners Make?
Wyndham does not make any representations about a franchisee’s future financial performance or the past financial performance of company-owned or franchised outlets. However, if you are purchasing an existing Wyndham Hotel franchise, the company may provide you with the actual records of that franchise.
Usually, we can estimate sales figures from the average revenue per available room (RevPAR) provided by the FDD. The estimated revenue for hotels can be based on a formula multiplying the chain’s revenue per available room (RevPAR) by the number of rooms and the number of days in the year. However, in 2021, Wyndham did not provide any RevPAR information on its FDD.
Therefore, we can employ the RevPAR provided by the parent company Wyndham Hotels & Resorts Inc., which is $45.19 in 2021, a 50% increase from 2020.
Sales
Estimated Sales: $45.19-301-365 = $4,964,799
We estimate the average Wyndham Hotel franchise owner makes $4.9M in sales a year.
| Initial Investment (midpoint) | %Profit margin of average franchise sales | Estimated profits | Time to recoup investment |
|---|---|---|---|
| $61,833,278 | 10% | $744,719 | 85 years |
| $61,833,278 | 15% | $992,959 | 64 years |
| $61,833,278 | 20% | $1,241,199 | 52 years |
The above estimated sales do not include the cost of financing, depreciation, and taxes. Based on the average sales calculated above, at an average of a 20% profit margin, it will take approximately 64 years to recoup your investment in 2021. We scaled up two years to reflect the time of training and preparation for opening. Usually, the time to recoup investments incorporates roughly a 2-year period to scale up the franchise.
Due to the COVID-19 pandemic, the estimated sales in 2021 were lower than that of the pre-pandemic due to lower RevPAR, resulting in a long time to recoup the investment. However, both cases require a significantly longer time to reach breakeven and make a profit compared to other industries.
Is the Wyndham Hotel Franchise Profit Worth the Cost?
Normally, the hospitality industry requires a large amount of initial investment in assets before starting to make profits. Wyndham Hotel franchise is no exception. According to our estimation above, it requires approximately 64 years to reach breakeven.
However, for an industry with a 12% growth rate, we are expecting the RevPAR to increase which results in higher estimated sales and the value of the hotel assets to grow. The time to recoup the investment will be shortened accordingly. For Wyndham Hotel franchisees, you should be ready to leverage the use of the loan to finance your initial investment to start the business.
We believe that this is a prospective industry. As soon as the pandemic restrictions were loosened, the RevPAR increased from $30.20 to $45.19. The RevPAR of the first quarter of 2022 is 4% higher than that of 2019 and 38% higher than that of 2021. The adjusted EBITDA of core business in 2022 is expected to grow by 7% – 11% to $500 – 520 million compared to 2019.
How Many Wyndham Units Have Opened and Closed?
The number of franchisees is increasing over three years. During the COVID-19 pandemic, Wyndham franchised hotels opened 1 and 12 net new stores in 2020 and 2021, respectively. With single-unit terminations and ceased operations, the Wyndham franchised hotel bears a failure rate lower than the industry average. The average failure rate of Wyndham franchised hotels across three years is 12.3%, which is lower than the average industry failure rate of 15.61%.
| Year | Outlets at Start of Year | Outlets Opened | Terminations | Non-Renewals | Reacquired by Franchisor | Ceased Operations-Other Reasons | Outlets at End of the Year |
|---|---|---|---|---|---|---|---|
| 2019 | 26 | 0 | 0 | 0 | 0 | 4 | 22 |
| 2020 | 22 | 5 | 1 | 0 | 0 | 3 | 23 |
| 2021 | 23 | 13 | 0 | 0 | 0 | 1 | 35 |
Wyndham Hotels & Resorts, Inc Income Statement Takeaways
Net revenues during 2021 increased $265 million, or 20%, compared to the prior year, primarily driven by the $133 million of higher royalty and franchise fees reflecting a 47% increase in global RevPAR due to the ongoing recovery in travel demand and a 2% increase in system size.
Total expenses during 2021, decreased by $227 million, or 17%, compared to the prior year, primarily driven by $200 million of lower impairment charges, and $34 million of lower restructuring charges due to the absence of cost-saving initiatives implemented in 2020 in response to the pandemic. As a result, net income during 2021, increased by $376 million compared to the prior year.
WYNDHAM HOTELS & RESORTS, INC.
CONSOLIDATED STATEMENTS OF INCOME/(LOSS) (in millions, except per share amounts)
CONSOLIDATED STATEMENTS OF INCOME/(LOSS) (in millions, except per share amounts)
| For the Year Ended December 31, | |||
|---|---|---|---|
| 2021 | 2020 | 2019 | |
| Net revenues | |||
| Royalties and franchise fees | $461 | $328 | $480 |
| Marketing, reservation and loyalty | 468 | 370 | 562 |
| Management and other fees | 117 | 64 | 125 |
| License and other fees | 79 | 84 | 131 |
| Other | 120 | 104 | 132 |
| Free-related and other revenues | 1,245 | 950 | 1,430 |
| Cost reimbursements | 320 | 350 | 623 |
| Net revenues | 1,565 | 1,300 | 2,053 |
| Expenses | |||
| Marketing, reservation and loyalty | 450 | 419 | 563 |
| Operating | 123 | 109 | 164 |
| General and administrative | 113 | 116 | 130 |
| Cost reimbursements | 320 | 350 | 623 |
| Depreciation and amortization | 95 | 98 | 109 |
| Impairments, net | 6 | 206 | 45 |
| Separation-related | 3 | 2 | 22 |
| Restructuring | – | 34 | 8 |
| Transaction-related, net | – | 12 | 40 |
| Contract termination | – | – | 42 |
| Total expenses | 1,119 | 1,346 | 1,746 |
| Operating (loss)/income | 446 | (46) | 307 |
| Interest expense, net | 93 | 112 | 100 |
| Early extinguishment of debt | 18 | – | – |
| Income/(loss) before income taxes | 335 | (158) | 207 |
| Prevision for/(benefit from) income taxes | 91 | (26) | 50 |
| Net income/(loss) | $244 | $(132) | $157 |
Wyndham Hotels & Resorts, Inc Cash Flows Statement Takeaways
Liquidity is one of the most important measurements of a company’s ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund business operations, operations, and expansion of franchised locations.
According to the cash flows statement, Wyndham Hotels & Resorts, Inc has a $322 million decrease in cash and cash equivalents, primarily spent on principal payments on long-term debt. At the end of the fiscal year, its total cash and cash equivalents amounted to approximately $171 million.
Conclusion
Unlike other industries, franchising in the hotel and residential industry require a large amount of initial investment, capital structure, and patience. Besides a large amount of money invested on assets at the beginning, the time period to recoup your investment could vary drastically. As a franchisee, you may have to leverage the use of loans.
However, the industry and the Wyndham Hotel franchise prove to be a growing and resilient business. The hospitality industry is prospective and it is an industry that will never go away. If you are a determined franchisee interested in the hospitality industry, the Wyndham Hotel franchise could be a challenging but worthwhile opportunity that requires relatively less investment compared to others in the industry.
