Does Embassy Suites negotiate purchase arrangements with suppliers for the benefit of 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. For one of our other brands, Spark by Hilton, HSM is the required procurement service provider.For the fiscal year ended December 31, 2024, HSM had revenues of $19,614,010 in rebates and allowances on purchases made by franchisees of all of our brands.
For the fiscal year ended December 31, 2024, HSM had revenues from sales of goods, services and/or supplies to franchisees of all of our brands of $8,763,692.
Source: Item 8 — RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES (FDD pages 45–50)
What This Means (2025 FDD)
According to Embassy Suites's 2025 Franchise Disclosure Document, purchase arrangements are negotiated with suppliers for the benefit of franchisees. 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. While franchisees may, but are not obligated to, purchase specified items from HSM or such third parties, HSM seeks to negotiate lower prices and preferred terms with manufacturers and suppliers, and then passes these benefits on to franchisees. However, 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 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.
Embassy Suites franchisees are generally allowed to purchase furniture, fixtures, equipment (FF&E), and other supplies from any source, provided the Standards are met. However, Embassy Suites retains the right to mandate the purchase of FF&E and supplies from approved suppliers in the future, or to require the purchase of specific brands or models of supplies or equipment available from only one source.
HSM also has discount agreements with manufacturers and suppliers, receiving rebates and allowances based on total sales volume, including sales to franchisees. These include volume and national account marketing allowances from manufacturers for items like coffee, soft drinks, cleaning compounds, and paper products. For the fiscal year ended December 31, 2024, HSM had revenues of $19,614,010 in rebates and allowances on purchases made by franchisees of all of our brands. For the fiscal year ended December 31, 2024, HSM had revenues from sales of goods, services and/or supplies to franchisees of all of our brands of $8,763,692. In addition, HSM receives cash discounts for early payment on orders it places with manufacturers and suppliers to fill purchase orders placed with it by franchisees of all of our brands. HSM may receive an administrative fee from manufacturers and suppliers that is between 0.5% and 7% of the purchases made by our franchisees (depending on the specific item). For the fiscal year ended December 31, 2024, HSM had revenues of $38,697,912 in administrative fees on purchases made by franchisees of all of our brands.
It is important for prospective Embassy Suites franchisees to understand that while HSM aims to provide cost savings, it does not guarantee lower prices than the market. Additionally, Embassy Suites can modify purchasing requirements in the future, potentially limiting franchisees' sourcing options. Franchisees should also be aware of the various fees and revenues HSM receives from suppliers based on franchisee purchases, which could influence the selection of suppliers and products.