What is HSM's role in the supply chain for Embassy Suites franchisees?
Embassy_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
this excludes royalty and program fees, pass-through commissions, and the HSM amounts described below).
HSM, a wholly-owned subsidiary of Hilton, negotiates with third-party manufacturers and suppliers for the distribution of hotel furniture, furnishings, fixtures, finishes, equipment and supplies, certain food and beverage supplies, and certain hotel services. You may but are not obligated to purchase specified items from HSM or such third parties, except as described in this Disclosure Document. HSM seeks to negotiate lower prices and preferred terms with manufacturers and suppliers, and then passes these benefits on to franchisees. HSM cannot guarantee that every item sourced under its program will provide a lower cost or better terms than are otherwise available in the market. HSM may negotiate purchase arrangements with manufacturers and suppliers for the benefit of our franchisees, all System Hotels, all Network Hotels, or any subset of each. Occasionally, HSM may negotiate special purchase arrangements with manufacturers and suppliers for franchisees or their management companies that operate multiple hotels. HSM may also permit competitor hotels or their management companies to participate in its purchase arrangements. This is done to help increase HSM's overall purchasing volume and bargaining power.
Except as discussed below, you may purchase the furniture, fixtures, and equipment ("FF&E") and other supplies for your Hotel from any source as long as the Standards are met. However, in the future, we may require you to purchase FF&E and supplies from a supplier approved by us, or we may require you to purchase a particular brand or model of supplies or equipment that is available only from one source, and we may derive revenue as a result of those purchases.
If you are operating an eforea spa, you must sell all the products we specify and perform the spa treatments we require. If you are opening a spa under a concept other than eforea, you must use an approved third-party management company. We and our affiliates may derive revenue from suppliers in the form of rebates based on purchases for your spa, or from a third party that we approve to provide services to your spa. Neither we nor any affiliate currently derive any revenue from these sources.
HSM has various discount agreements with manufacturers and suppliers, under which it receives rebates and allowances based on the total volume of sales purchased from the manufacturer. These fees include sales to franchisees by the manufacturers and in some cases, through suppliers. HSM also receives certain volume and national account marketing allowances from manufacturers in connection with the sale to franchisees of certain items, such as coffee, soft drinks, cleaning compounds, and paper products.
In addition, for two of our brands, LivSmart Studios by Hilton and Tru by Hilton, HSM is an optional approved procurement agency and may receive fees for providing procurement services.
Source: Item 8 — RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES (FDD pages 45–50)
What This Means (2025 FDD)
According to Embassy Suites' 2025 Franchise Disclosure Document, HSM, a wholly-owned subsidiary of Hilton, plays a significant role in the supply chain for franchisees. HSM negotiates with third-party manufacturers and suppliers for various goods and services, including hotel furniture, furnishings, fixtures, equipment, supplies, certain food and beverage supplies, and certain hotel services. While franchisees are not obligated to purchase specified items from HSM, HSM aims to secure lower prices and preferred terms, passing these benefits on to franchisees. However, HSM does not guarantee the lowest cost or best terms compared to the open market.
HSM also has discount agreements with manufacturers and suppliers, receiving rebates and allowances based on total sales volume, including sales to franchisees. These rebates and allowances totaled $19,614,010 for the fiscal year ended December 31, 2024. Additionally, HSM receives volume and national account marketing allowances from manufacturers for specific items like coffee, soft drinks, cleaning compounds, and paper products. For the same fiscal year, HSM's revenues from sales of goods, services, and/or supplies to franchisees across all Hilton brands amounted to $8,763,692. HSM also benefits from cash discounts for early payments on orders placed by franchisees.
Furthermore, HSM negotiates pricing and purchasing terms with manufacturers and suppliers for the benefit of the Hilton system and may receive administrative fees ranging from 0.5% to 7% of franchisee purchases, depending on the item. In the fiscal year 2024, HSM's revenues from these administrative fees totaled $38,697,912. A portion of the revenues collected from rebates, administration fees, and purchasing fees is used to offset the costs of establishing the purchasing programs and supporting HSM's operating expenses. For two Hilton brands, LivSmart Studios by Hilton and Tru by Hilton, HSM is an optional approved procurement agency and may receive fees for providing procurement services. For Spark by Hilton, HSM is the required procurement service provider.
Embassy Suites franchisees must adhere to brand standards when purchasing products and services, including furniture, fixtures, equipment, amenities, food and beverages, operating supplies, and more. While franchisees can generally purchase these items from any source that meets the standards, Embassy Suites retains the right to require purchases from approved suppliers or specific brands in the future. This system ensures quality and consistency across all Embassy Suites locations, while also potentially providing cost savings and other benefits through HSM's negotiated agreements.