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Restlessly, Wilson dreamed of building a national franchise chain of 400 motels. He turned for contacts and credit help to a fellow Memphian, Walter Johnson, one of the country's biggest real estate developers and then a director of the National Association of Home Builders. Johnson became vice chairman of Holiday Inns, a job he still holds, and helped recruit franchisees from among his business friends all over the country. Wilson and Johnson sold the first franchise in Clarksdale, Miss., for $500 and a flat fee of 5¢ per night for each occupied room. In return, the franchisee got Holiday Inns' plans and national advertising. Applications began to flow in, many from investment groups made up of doctors and dentists. Meanwhile, the start of the $76 billion federal interstate highway-building program in 1956 gave a great lift to Holiday Inns and its rising competitors.
Franchise Deals. Today, Holiday Inns fields about 10,000 requests for franchises a year, but only 200 or so are granted, mostly to people who already own inns and are proven winners. The cost of land and construction is entirely financed by franchisees, who put up about a quarter to a third of the amount and borrow the rest from banks, insurance firms or mortgage companies. Lenders prefer prospective franchisees over independent owners because there is less risk of failure with a motel (hat is backed by the resources of a chain.
A typical 100-room motor inn in southern Illinois can cost up to $1,100,000, of which the franchisee group puts up $350,000 or less; on this it can expect an after-tax return of just over $50,000—a handsome 15% or more on its investment. For such a motel, Holiday Inns charges an initial fee of $15,000, plus royalties and fees of 6% on the annual gross. In return, the franchisee gets the marketing advantage of a household name, national advertising and a steady flow of customers provided by the chain-wide referral system. The massive Holidex reservations system at Memphis headquarters is the largest on-line civilian computer system in the world. Lines run from every Holiday Inn in the U.S. to two IBM 360 computers in Memphis, which keep tab on every room in the system. In a few seconds, a guest at one inn can get confirmed reservations at other inns anywhere in the U.S. If one motel is full, a desk clerk can punch a few buttons on a panel and find out what openings are available at other Holiday Inns in the area.