Budget motels are kind of a necessary evil. No one really likes staying in them, but they provide a service that most of us will need at some point or another. When those times arise, most people like to look for the best value, which is usually the cleanest hotel with the most amenities for the lowest price.
Motel 6 didn’t always fit this bill. For several years, they were seen as the bottom of the barrel and a last resort. Responding to this reputation, Motel 6 revamped their locations in an attempt to repair their reputation and be seen more as budget accomodations and less as a cheap motel.
Motel 6 is now looking for more franchisees to help them expand their brand.
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The History of Motel 6
The concept of Motel 6 was born in 1962. It was the brainchild of Paul Greene and William Becker, who were business partners with a dream to construct a new budget motel chain. The name came from the per night rate they had settled on for guest stays: $6. They knew that that $6 would cover the most basic costs of running the motel.
To keep costs low, they designed their chain to be very basic, with no frills included. Other hotel chains at the time were charging higher rates per night, but were including amenities that Motel 6 did not offer.
For instance, while most other hotel chains were including color televisions, Motel 6 rooms only had black and white sets that were coin operated. They also did not have any restaurants on site, as most hotels in that day and age did. They instead relied on the several restaurants that were usually located nearby. By skimping on these amenities, Motel 6 was able to keep their costs low.
Through the first decade of its existence, the motel chain grew at an ambitious rate that managed to capture the attention of the nation. Other entrepreneurs, captivated by their success, began following their model and opening other budget hotel chains. Even with the new competition, Motel 6 managed to stand out.
In 1968, the chain was sold to a private investment firm, allowing Green and Becker to step down from the day-to-day operations of the chain.
Over the next few years, Motel 6 experienced an even greater expansion at a rapid rate. By 1980, 300 locations were in operation in the United States and they had their sights set even higher. Despite a downturn in business in the 1980’s, due, in large part, to an increase in competition, Motel 6 kept their ambitions high. They began buying other hotel chains and converting their spaces into Motel 6 locations.
In 1990, chain was bought, once again, this time, by Accor, a France-based hospitality company. Under the direction of Accor, Motel 6 would undergo more changes than any other portion of their history before. In 1996, they would begin selling franchise licenses.
Up to this point, Motel 6 owned and operated all of their own locations, which was uncommon for hotel chains. With the introduction of franchising, Motel 6 was able to branch out faster and spread the growth higher.
It was also during this time that the chain began turning a new leaf. They began renovating rooms, updating security features, and selling off locations that were not performing to expectations. They also began buying locations that were formerly franchised under different brand names. These locations, as well as newly constructed Motel 6 locations, feature indoor hallways, instead of the outdoor entrances that had been the standard.
With over two decades with Accor, Motel 6 underwent a complete renovation of the brand that has made it what it is today. They were sold by Accor in 2012 to The Blackstone Group for a huge price tag of $1.9 billion.
Motel 6 found themselves in some hot water in 2017 after some guests had accused employees at two locations of illegally providing information to the U.S. Immigration and Customs Enforcement. They filed a lawsuit pertaining to the arrest of 20 guests who were taken into custody over a seven-month period in 2017 as a result of the information provided by the employees.
Motel 6 acknowledged that the decision to provide the information to U.S. Immigration and Customs Enforcement was made at the local level, despite instruction from the corporate level to not turn over guest information unless required by law. All information that was surrendered was done so voluntarily, and therefore against the company policy. The lawsuit was settled in November of 2018 for $7.6 million.
In April of 2018, the American Customer Satisfaction Index released their study of the most popular hotel chains in America. The study placed Motel 6 at the very bottom of the category for the second consecutive year.
With their public opinion and recent legal troubles, Motel 6 is trying to regain some footing in the hospitality industry. Their low prices make them a good choice for anyone who needs immediate lodgings at an affordable price, but they are rarely chosen as anything but a last resort. Motel 6 is on a mission to change that and make themselves a desirable option for clean, affordable lodging.
Franchising with Motel 6
The road to Motel 6 begins like most other franchise opportunities. The interested party submits an inquiry form to the franchisor outlining some basic information about them. The franchisor then contacts the applicant to have a brief conversation over the phone wherein some deeper information is exchanged. Motel 6 will speak about the process and some of the expectations they have for their franchisees. The applicant will disclose more about their level of interest and qualifications.
Following this conversation, the candidate will be asked to fill out a complete application and the real digging will begin. Motel 6 is looking for franchisees who have previous experience with owning, or at least managing, a hospitality-type business. Their franchisees will face many obstacles and pressures. Having previous experience will help them to navigate that and make sound decisions regarding a course of action.
In addition to the previous experience, the applicant must also be able to demonstrate a certain level of financial strength. It costs a lot of money to launch any business, but it’s an even higher cost construct and open an brand new hotel.
The sheer amount of space required to house the hotel, along with construction costs, furnishings, and all of the daily requirements for running the hotel add up very fast. For this reason, Motel 6 requires each franchisee to have a net worth of at least $150,000. Of that net worth, they will also need at least $100,000 in liquid cash available for investing. The rest of the start up costs are eligible to be financed.
Those that meet these requirements and pass the application process will be welcomed to the Motel 6 team. From there, the real work will begin.
Motel 6 and Their Processes for Franchising
The applicants that are chosen to become franchisees will be welcomed to the team and introduced to the wide world of benefits that accompany a Motel 6 franchise license. But first, they must pay the price.
The franchise license fee for a Motel 6 location will run the franchisee $25,000, which is a pretty common franchise fee, regardless of the industry. To have a hotel chain charge only $25,000 seems low. It may be because Motel 6’s entire philosophy revolves around budget, but regardless, the franchise license fee comes at a bargain price.
On top of the franchise fee, the new owner will also have to pay for the entire start up process. The process for launching the new hotel is estimated to cost between $2.4 million and $3.5 million. These figures will cover the cost of the new construction, stocking the hotel with furnishings, hiring and training staff, additional processes required to open the location. What’s not included in these figures is the cost of the real estate on which the hotel will be built.
Because the cost of real estate can vary so greatly by region and time, this cost is impossible to predict. Motel 6 will assist the franchisee with choosing the perfect location on which to build the new hotel. Their support in this portion of the process is invaluable because they have so many years of experience. They know where their hotels do best and can help the franchisee choose a location that will be conducive to high traffic.
Site selection is not the only area of assistance that Motel 6 will provide. They also assist with marketing and advertising. The Motel 6 website will direct any consumer who is searching for a Motel 6 location to the one that is closest to their desired location. Whether that location is owned by the company or a franchisee, they are benefitting from a corporate-owned website. This assists the franchisee with advertising and drawing in customers, all without having to lift a finger.
Motel 6 also provides ongoing operational support, proprietary software applications, and initial training prior to the opening of the location. These initial and ongoing support and training programs ensure that each franchisee is set up to be able to deliver the best possible guest experience, which will drive the revenue generation of the hotel. Word of mouth spreads quickly and happy customers will drive in more of the same.
For the level of support that they provide, Motel 6 actually charges less than average royalty fees. The national average for royalty fees is 6 percent of gross total sales, but Motel 6 only charges 5 percent. That difference could add up to a large savings over the life of the license.
Unfortunately, their advertising fees more than make up that difference. The national average for advertising fees is 2 percent of gross total sales. Motel 6 charges nearly double at 3.5 percent. While Motel 6 does offer a bit more in the way of advertising and marketing support, it is not enough to justify these rates.
When combining the two ongoing fees, it works out cost more overall to own a Motel 6 location than the average franchise opportunity. Even the lower initial franchise fee can’t make up for what the costs will look like after the 20-year initial license period.
Motel 6’s Performance Review
As a budget hotel chain that has been around for over 50 years, it stands to reason that Motel 6 knows a thing or two about how to stay relevant in the industry. Even with their recent troubles related to public relations and lawsuits, they are still managing to fill their rooms and turn profits.
Motel 6 has been on a steady upward trend in location count for the last several years. Between the years of 2010 and 2015, they managed to increase their location count by over 300 and have continued to grow ever since.
Today, there are 882 operational franchised Motel 6 locations in the United States.
The size of each Motel 6 can vary greatly depending upon the size of the property and how much the franchisee is willing to take on. Of course, hotels with more rooms require more start up capital and more operating expenses, so some franchisees opt to start with a smaller location.
Of the smaller locations, which average about 60 rooms each, the average occupancy rate lingers just below 75 percent, which is pretty high in comparison to the national average of 68 percent. The larger Motel 6 locations, with around 115 rooms each, stick closer to the 68 percent occupancy rate.
It seems that customers are not shying away from Motel 6, despite ranking last in the list of America’s favorite hotel chains.
Motel 6 is also not having any troubles turning profits. The average net operating income for a Motel 6 location is 44.16 percent. This is a large profit margin, as any entrepreneur will agree. The ability of Motel 6 to remain competitive in price but still keep costs low enough to have leave a profit margin this high means that they have perfected the formula for balancing expenses. These are the kinds of things the franchisee can expect to learn in their training.
Motel 6 has had their fair share of problems in the last few years but it does not seem to be affecting their performance in a negative way.
Making It with Motel 6
Motel 6 is a budget hotel powerhouse. They have over 50 years of experience in the industry and are the pioneer for affordable lodging. Their business model has served them and their franchisees well over the years and will continue to do so for as long as their leadership remains vigilant.
Potential franchisees looking to break into the hospitality industry will do well to research the possibilities of a venture with Motel 6. It will require a franchisee who is comfortable with the budget aspect of the chain, as opposed to the higher end hotel franchises that are available.
The statistics of this brand point to a successful chain that has the ability to keep rooms full and keep the cash flowing. Generating revenue is the ultimate goal of any business, so finding a franchise opportunity that has the best chance of doing that well almost makes it an obvious choice.
Keeping an eye on their performance and their standing in the views of the public can be important as well. Their lawsuits and low rankings with customers could have an effect on their future performance, so those that are more concerned may wish to hold off while they wait to see what happens.
After 50 years of success, it’s probably not necessary. They’ve proven their ability to make it through nearly every economic climate and still come out swinging. A few missteps is probably not enough to take this brand down and it should be a safe bet for any new franchisees. Motel 6 is still going strong and should be around for several years to come, providing the same great opportunities for their franchisees.