Travelling on a budget

For Jose Mari del Rosario, it was the wrong time to hear good news. The effects of the Asian financial crisis had just begun to be felt in the Philippines when he received word that his group had bagged the Philippine master franchise for the US-based Microtel budget hotel plus the option for the rest of Southeast Asia.

To clinch the 99-year deal, del Rosario had to pay the franchise fee of $200,000.

"We were very frank with US Franchise Systems, Inc., which holds the Microtel franchise rights worldwide. We couldn’t come up with that kind of money upfront," said del Rosario, whose family controls the Phinma Group.

What was eventually worked out for Microtel’s first franchise in Asia was a payment by installment of the $200,000 over three years at an exchange rate of P40 to the dollar. At that time, the market rate hovered at P45 to the dollar.

Joint ventures

Microtel Inns & Suites (Pilipinas), Inc. spent the next two years looking at viable locations and vetting potential franchisees.

"Ideally, the property should be located in a crossroad trading city outside Metro Manila with access to the national highway. It should be near a convention center or an industrial park. There must be a choice of good but cheap eating places nearby," said MIS-P executive vice-president and chief operating officer Nicanor Vergara IV.

A Microtel franchise costs P1.3 million a room, including the computation for shared facilities such as the generator. At 60 rooms, the investment is P78 million.

"If there are no loans involved, a franchisee can break even at 20% occupancy. With loans, a 60-room hotel becomes viable if 40 rooms are occupied," said Vergara. The estimated return on investment is, however, placed at six years.

To date, none of Microtel’s four hotels are more than two years old. Of the four, one is a full franchise; the other three are joint ventures with MIS-P.

For example, the 60-room hotel inside the First Philippine Industrial Park in Sto. Tomas, Batangas is a three-way partnership. The industrial park’s developer, First Philippine Holdings Corp., put up the land. Batangas Asset Corp. put up the bulk of the money. MIS-P subsidiary, Microtel Development Corp., put in a 20% stake.

"Being a joint venture partner gives our group another source of revenue. As part owner, we are entitled to dividends in the future," said del Rosario. Right now, del Rosario’s group already has two revenue streams: royalties from the franchise, which is paid to MIS-P; and management fees, which is paid to MIS-P sister company, Paramount Property Management Co.

Cost effective

To date, all four Microtel hotels are cash flow positive, in part because there is an unmet need for such hotels outside Metro Manila and in part because expenses are closely watched.

"What we are selling is predictability. A traveling salesman with a daily expense account knows what to expect when he spends the night with us. He gets a clean, comfortable room at a good value rate which he pays in pesos rather than in dollars ," said del Rosario.

A regular room at Microtel is exactly 28 square meters. Aside from a bed that meets chiropractic standards and the standard cable TV, there is a writing desk and an NDD/IDD phone with compatible ports for fax and modem for doing business as well as a toilet and bath.

"We’ve made some adjustments to the standard Microtel design to better adapt to the Philippine environment. For example, we don’t have carpets because they are hard to maintain and they smell in our humid climate," said Vergara.

An overnight stay includes a heavy breakfast. There are no restaurant outlets within the hotel.

"There’s a couple of compelling reasons for not having a F&B outlet. One, F&B is a non-core business. Two, F&B attracts sleazy people at night and we don’t want that. Three, our customers can buy their food at a nearby fastfood outlet or carinderia at more affordable prices than we could have offered. Four, an F&B outlet–with its additional labor and expensive kitchen–would have added to our operational cost, which we would have had to pass on to the customer," said Vergara.

A 60-room hotel can be run by 15 people, including the general manager who holds his office in the hotel lobby. The hotel’s layout and the size of the rooms allows one chambermaid to clean 20 rooms in a day, higher than the industry average of 13 to 14 rooms.

All services, from breakfast preparation to housekeeping to messengerial, are outsourced, either locally or to MIS-P’s sister company, iClean Phils., Inc. "This not only reduces cost but gives us the flexibility to move around people from one hotel to another if someone reports sick or is on leave," said del Rosario.

Having worked out most of the kinks in the system, MIS-P intends to accelerate its franchising program next year.

Next month, construction starts on the fifth franchise, which will be located beside the Victory Liner terminal in Baguio. Microtel-Baguio will open for business in 10 months.

"The hotel will start making money if it can attract more than 3% of Victory’s passengers," said Vergara.

There are ongoing negotiations for properties in Cabanatuan, Dagupan, Laoag and Santiago in the north and Lucena and Naga in the south.

"We’d like to think that we bring additional business to the host city. With a decent place to stay, these travelers will also spend money for food and other services located near the hotel, " said del Rosario. What’s more, these travelers will return.