Sheldon Kastorne and his wife Emelda have just purchased the Regent, a 65 room hotel in the Cape Cod area. Sheldon has just retired at the rank of sergeant from the US Army and Emelda has retired as a grocery store clerk.

The Regent was formerly a franchise of the High Life Hotel Group but the franchise was discontinued mutually. High Life charged the Regent with failing to maintain their quality standards for cleanliness. The previous owners of the Regent charged the High Life reservation and referrals were not substantial to cover their franchise fees.

The Regent does not have a food and beverage outlet but offers a continental breakfast in their community room. The Regent has a strong tourism business in the summer months and attracts a mix of business professionals and tourists throughout the year.

The first three months of operation found that the occupancy rate for the Regent was 58% with an average rate of $63. Local occupancy rates for hotels with a franchise are at 79% with an average ADR of $93. Local hotels without franchises have occupancy rates of 72% with an average ADR of $71.

The Kastornes are considering franchising with the Imperial Hotel group. Imperial would like to have the Regent join their group. The Imperial requires a $20,000 franchise fee that Regent would have to pay to join. They would also charge $9 for each rented room as a referral fee. Imperial hotels have an average occupancy rate of 75% with an ADR $77 and will enable the Regent to join their reservation system, incorporate their operating systems, marketing and training program.

What recommendations would you have for the Kastornes? Should they franchise or stay independent?

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