From Hyatt Hotels to Netcare: Leveraging Franchise Models for Expansion
Former Health Minister Dr. Aaron Motsoaledi once likened private hospitals to high-end specialized hotels. That comparison might not be far-fetched. In fact, financial analysts often utilize similar metrics when evaluating both hospitals and hotels, such as the number of days spent in these facilities and bed occupancy rates. It's important to note that hospitals are subject to stringent regulations and standards to ensure patient safety and quality of care. They must adhere to medical guidelines and protocols set by healthcare authorities, and they require highly trained medical professionals such as doctors and nurses. On the other hand, hotels also uphold standards, albeit primarily related to cleanliness, customer service, and hospitality rather than medical care.
The most valuable property of the hospital is the brand trust. Patients seemingly prioritize name recognition over measures like "risk-adjusted rates of death" when selecting hospitals. Hospitals do not directly hire most medical professionals working there and so their business models is very similar to that of hotels.
Hotel groups such as Marriott International which owns brands such as Marriott Hotels, JW Marriott, Sheraton, Westin and Ritz-Carlton have triple in size in the last few years through franchising. Franchising offers several advantages for both franchisors (the company granting the franchise) and franchisees (the individuals or entities purchasing the franchise rights). Some of the key advantages include:
Established Brand Recognition
Big Healthcare groups such as Netcare, Mediclinic, Life Healthcare have established brand recognition and franchisees benefit from partnering with them. This can significantly reduce the time and resources needed to build brand awareness in the market.
Proven Business Model
Franchisors typically provide franchisees with a proven business model, including professional support mechanism, operational systems and marketing strategies. This reduces the risk associated with starting a new business from scratch. These hospitals has built expertise that could be valuable to new players.
Training and Support
Franchisors often offer comprehensive training programs to franchisees, covering aspects such as operations, marketing, and patients care. Additionally, ongoing support is usually provided to help franchisees navigate challenges and optimize their business performance.
Economies of Scale
Franchise systems can benefit from economies of scale in purchasing, marketing, and other areas. Franchisees may have access to bulk discounts on supplies and services, which can help improve profitability.
Shared Risk and Responsibility
Franchising allows for a shared risk and responsibility between the franchisor and franchisee. While the franchisor retains control over the brand and overall business strategy, franchisees have the autonomy to manage their individual locations.
Access to Financing
Franchise opportunities may be more attractive to lenders compared to independent startups, as they typically have a track record of success and a recognizable brand. This can make it easier for franchisees to secure financing for their businesses.
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Local Market Knowledge
Franchisees often have a deep understanding of their local markets, allowing them to tailor products and services to meet the specific needs of their communities. This localized approach can contribute to the success of the franchise network as a whole.
Ownership and Entrepreneurship
Franchising allows individuals to own and operate their own businesses while benefiting from the support and resources of a larger organization. It provides an opportunity for entrepreneurship within a structured framework.
Expansion Opportunities
For franchisors, franchising offers a scalable model for expansion without the need for significant capital investment. Franchisees fund the establishment of new locations, allowing the franchisor to grow its brand presence rapidly.
Diverse Revenue Streams
Franchisors can generate revenue from franchise fees, royalties, and other sources associated with granting franchise rights. This diversified revenue stream can contribute to the financial stability of the franchisor.
It costs almost a billion to build a hospital in South Africa, and most hospital groups have scaled back their expansion plans. Some companies are even closing certain hospitals. Franchising could enable prospective operators to establish hospitals under a franchise arrangement, with companies like Netcare and Mediclinic charging franchise fees of up to 15%. A decentralized model would permit investors to purchase a franchise and leverage the expertise of the group. This approach could facilitate an asset-light business model that emphasizes data and digital support.
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Radiographer in a Private practice.
7 个月It is always a pleasure reading your articles as they always have well-researched insightful material. Keep it up.