Is a War Brewing Between Hotel Franchisors and Franchisees?

It’s been nearly 15 years since full-scale warfare broke out between hotel franchise companies and the franchise community, led by activists within the Asian American Hotel Owners Association. The beef was the franchisors’ unwillingness (said AAHOA) to conform to AAHOA’s 12 point of fair franchising, a manifesto crafted to hold brand companies’ feet to the fire over issues such as impact, liquidated damages, transferability, ownership of customer data, dispute resolution and more.

The dispute came to a head in the spring of 1999, when Cendant (now Wyndham) unilaterally withdrew its support from AAHOA one week before the group’s annual conference. The two sides eventually kissed and made up, but an undercurrent of us versus them remains to this day among AAHOA’s membership. Ultimately, it was two things that pushed these issues to the sideline. First was a rapidly improving hotel industry that through most of the 1990s made a lot of AAHOA members rich and happy. Nothing like a fat bank account to alleviate other issues.

Secondly, and perhaps more crucial, was the ascent of the hotel membership model in the 1990s. Pioneered primarily by Americas Best Value Inn, these new style brands mostly gave hotel owners what they want, and what AAHOA advocates: lower, evenly applied fees, cost-effective marketing and support programs and a real voice in the operation of the brand, particularly when it comes to brand standards. It’s no wonder ABVI has grown to 1,000 hotels and its Vantage Hospitality parent is perennially listed on the Inc. magazine 500/5000 list of fastest growing private companies.

Yet, after more than 10 years of relative peace between AAHOA and its franchise company sponsors, a new skirmish broke out last month. AAHOA sent a letter to Choice Hotels, saying it would sever ties with the franchise giant unless Choice addressed a couple of issues AAHOA says violates the principles of good faith and fair dealing on which the franchise covenant is built. AAHOA set a 90-day deadline for Choice to resolve the issues or lose its 2012 membership in the organization and its ability to participate in the AAHOA annual conference. In a boilerplate response, Choice affirmed its legacy as a fair franchisor and its willing to address the issues. We’ll know by the end of the year whether the problem is solved.

While these are serious charges, and I’m sure Choice is considering them to be, I’m not sure AAHOA carries as much clout with its members as it did in the 1980s and ‘90s. Many Asian-Indian hoteliers in the U.S. are no longer Mom-and-Pop operations that rely on AAHOA guidance to make their decisions. Rather, they’re large, very sophisticated corporations that make branding decisions based on a variety of factors, not just pronouncements from AAHOA. Still, should this enmity spread to other brand companies we may see another full-fledged war between franchisors and franchisees. If, however, business continues to improve for most hotels, a lot of these issues will again fade to the background. The whole mess is a lesson to franchisors not to take their licensees for granted and for hotel owners to realize the power they can wield when necessary.

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