1) What is Asset-Light Strategy?
• Hospitality industry is fragmented, capital intensive and involves extensive quantities of real estate. • Previously, hospitality companies owned and operated units • They had internal resources or stock market resources • Property is an appreciating asset
• Nevertheless, over past few years – particularly amongst international hotel chains – these trends have been changing ownership model: • Shift away from chains owning (and leasing) hotel assets towards expansion by management contracts and franchises • Therefore, chains no longer investing capital in hotels and sometimes not even supplying managers • This is known as using ‘asset-light’ strategies
2) How does it work?
For example - Franchising
• Franchiser grants permission to the franchisee, to use its branded products or services along with strict information and details about a proven method of operating, support and advice on the setting up of the franchisee's business. • The Franchisor – Advantages and disadvantages
• Increased market share
• More advertising
• Up – front fees
• Economies of Scale
• Need a careful selection of the Franchisees (meet their standards) • Difficulty in maintaining quality and service standards
3) Advantages of Asset Lights Strategies
• Preferred by stock market:
• need less capital, achieve higher returns & grow at faster rates = more profitable & less risky investments • Preferred by hotel chains:
• Cannot grow globally by using just internal equity resources, e.g., IHG sold around £3 billion of hotel assets converting mainly from ownership to management contracts & others followed.
4) Implications of Asset of Light Strategies