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ATLANTA — In a turn of events, angry franchisees are terminating a franchisor. The Asian American Hotel Owners Association has informed Choice Hotels that the nefarious franchisor will be stripped of its membership unless long outstanding grievances from franchisees can be resolved within the next 90 days.
In a letter addressed to Choice's chairman Steve Bainum and the board of directors, the board of the Asian American Hotel Owners Association (AAHOA) stated that there were a number of "egregious and unfair policies and practices" that violated principles of good faith and fair dealing with Choice's franchisees. AAHOA's board wrote, "Our AAHOA Board has decided that it would be best to go our separate ways and not renew Choice's membership for 2012. This means that AAHOA would not accept any membership, sponsorship or related funds from Choice, and would not invite or authorize your Choice representatives to appear on any panels, exhibit at our Trade Shows, or otherwise have access to our AAHOA members through our Annual Convention, Regionals (Conferences) or any other AAHOA-related events or periodicals, including advertising in our AAHOA Lodging Business magazine."
Hotel analyst and consultant Stanley Turkel observes, "It's about time that AAHOA finally spoke the truth regarding Choice's anti-franchisee policies. It has been clear to me for a long time that Choice failed the 'fair franchising' test."
Franchisees say that one of the biggest issues is a one-sided franchise agreement that allows Choice, for example, to arbitrarily encroach on the territories of hotel owners, placing new hotels next to existing franchises with impunity. Franchisees also say that Choice Hotels discriminates against Asian Indian franchisees and AAHOA members from participating in leadership positions.
The association is giving Choice Hotels 90 days to cure its franchising problems. "In light of these significant concerns, we request an opportunity to meet with you," AAHOA's letter to Choice's board concludes.
In an email to Blue MauMau, CEO Steve Joyce of Choice Hotels responded to the AAHOA letter regarding termination of Choice's membership. "Choice Hotels has had a long standing relationship with AAHOA and was one of the organization's founding members," he declared. "We have worked with AAHOA over the years though different leadership and changing economic environments with the same goal of maintaining a fruitful relationship with the organization. In many cases, we have been able to work with AAHOA on specific issues and come to mutually beneficial agreements. We have a responsibility to our franchisees and guests to make sure that we are always doing the right thing for our business. We appreciate and respect AAHOAs as a business organization. It is our hope that we will be able to work out the current issues through our leadership and continue to work together in the future without public debate."
But insiders say that Steve Joyce has a stubborn streak and that they do not expect him to bend, even if it breaks the company.
How much is at risk for Choice Hotels?
Choice franchises Comfort Inn, Sleep Inn, Quality, Clarion, EconoLodge, Rodeway Inn and other well-known roadside hotel chains. Out of its 6,100 hotels in the United States, more than 50 percent of its properties are owned by franchisee members of AAHOA.
The potential loss to Choice Hotels has competitors licking their chops at the thought that so many franchisees might come their way. Roger Bloss, CEO and founder of Vantage Hospitality Group, a fast-growing chain of over 1,000 hotels, agrees that this is an opportunity for some. "I don't like the industry being divided, but Vantage will certainly look at the opportunity," says the CEO. Bloss thinks part of the problem with the Choice Hotel network is that there is a real divide between what is best for a franchise owner's bottom line profit and what is in the short-term interest of Choice Hotel's public shareholders – i.e. increasing revenues for a location to increase the franchisor's royalties.
"If AAHOA really stands behind their letter, it will definitely impact Choice," says Bloss. He thinks if Choice could bend a little, the company could actually build a much stronger relationship with its franchisees. "I am thrilled that AAHOA is finally standing up for what their members believe in and what they've said they were going to do. Quite frankly, I think it is long overdue." He thinks that his own company, Vantage, has tried hard to comply with AAHOA's twelve points of fair franchising, all while Choice has been given a free ride in noncompliance.
Michael Webster, a long-time consultant to franchisee associations and current chair of the strategic committee for the Toronto/Indianapolis-based International Association of Franchisees and Dealers, thinks this is a good move by AAHOA. He has said for years that independent franchisee associations can negotiate successfully for fairer franchisors by using the same techniques as AAHOA. He argues that franchisee associations should state that they believe in the brand, but that current egregious franchising practices make the brand unprofitable for the operator. He concludes that franchisee groups should publicly declare, "If those changes are not forthcoming, the association and its franchisees will not be recommending that operators renew or expand."
Turkel, an author of several books on the industry and a widely respected hotel expert, thinks this is not only a gutsy move, but also crucial for Choice franchisees and AAHOA. Franchisees may be understandably concerned that the value of their businesses will go down as the public watches the civil war between franchisor and franchisees. But Turkel emphatically declares that this is only a short-term problem. He declares, "AAHOA members have taken it on the chin for years. Finally, they are telling Choice, 'no more.'" He urges AAHOA members to persevere in their efforts to create a new franchisor/franchisee relationship that fully complies with AAHOA's Twelve Points of Fair Franchising and the Universal Franchisee Bill of Rights. Turkel points out the strength of the franchisees' position. "Choice cannot last as an ongoing hotel franchising entity if AAHOA members do not renew expiring license agreements and do not sign new agreements."
Fred Schwartz, president of the Asian American Hotel Owners Association, looks forward to improving franchisee conditions. "My objective as president is to address the challenges and improve the relationship. Everyone wins if we can work together," he declares.