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ATLANTA — Blue MauMau sat down on May 5 at the Georgia World Congress Center during the 2012 conference of the Asian American Hotel Owners Association (AAHOA) to interview the group's incoming chairman Alkesh Patel.
Founded in 1989, AAHOA has nearly 11,000 members that own 20,000 hotels in the United States. That is 43 percent of all of the nation's hotels. The group is known in the hospitality industry for its focus with franchisors on 12 points that make for fair franchising —curbing abuses like your own franchisor setting up a hotel next door, instantly terminating a franchise at will and without bothering to ask for a cure period, not allowing you to renew your contract because they can make more money churning your franchise, or having franchise salespeople say one thing in order to make the sale you but then legally disqualify it in the agreement.
Patel, an owner of hotels in the state of Washington, talks about why the association welcomed Choice Hotels back to its membership after nearly kicking it out. He also discusses the future of reforming abusive franchising that is so pervasive and why franchise buyers, not just existing franchisees, should get involved with independent franchisee associations.
BMM – Mr. Patel, in your opinion, what is the future of fair franchising and where is AAHOA going with it?
Alkesh Patel: Franchising is not fair. What AAHOA has been tirelessly working on is to get fair and reasonable franchise contracts. That's why we developed the twelve points of fair franchising. At first members thought franchising was a problem with just hoteliers — with Choice, Wyndham, Carlson or an Accor problem. As we became more educated and networked with other franchisee organizations, we were able to get additional insight that this was a common industry-wide problem. We will work together to better understand what the common problems are, and then we need to address it collectively, not individually.
We were doing it individually before. That didn't work.
If you see out of our twenty problems, five are in common with all other franchisees outside of hoteling, then we need to fight together and make it a universal issue. In America, or in any democracy, the way to do it is through legislation. Before, we were fighting by having the franchisees go to the individual franchisors and try to negotiate their issues. Then we'd learned to go as a group and attempt to renegotiate a reasonable contract. That's because franchisors are hard pressed to make any concessions to an individual franchisee. But when you have an organization, which comprises a certain percentage, you can change the status quo. As a chairman, I am a voice of 11,000 members. We have grown to the point where we have found the right way to address these industry-wide abuses.
BMM: What "right way" is that?
Patel: Through legislation.
We see when small business owners aren't engaging in legislative efforts what happens. For example, in hoteling, one of our concerns is about the recent American Disabilities Act that mandates the installation of automated lifts in and out of hotel swimming pools. There probably were five or ten disabled individuals who had difficulty using a pool. They didn't get what they wanted so they hired a lobbying group to represent them. These few were able to have the government mandate that all hotels install pool lifts. It doesn't matter if five of them, or even as much as two percent of the population, went and got it done for the 98 percent. Nonetheless, the fruit of the labor of the few is that this is now mandated and hotels now have to implement a fixed lift in every hotel pool.
BMM: AAHOA just finished fighting for a bill to reform franchising abuse in California, Assembly Bill 2305. Unfortunately, the bill was defeated in committee by one vote. Will there be an attempt in the future to try another bill?
Patel: As you say, in California the bill was defeated by one vote. Meanwhile, the overwhelming percentage of legislators saw that there were flaws and abuses of old franchise laws that need to be addressed and modernized.
AAHOA members are politically involved at the grassroots level — at state and city level. AAHOA will open a lobbying office in Washington D.C. shortly. Our efforts are going to be very aggressive on the Hill. When you cannot accomplish change directly with franchisors, there is the only one option left. What I'm saying is if there is a solution that we can work out with franchisors, then absolutely there is no need for a bill. But if that doesn't happen, then we will have to focus on the final solution — at the state and federal level.
BMM: Will AAHOA lobby all fifty states in its efforts to curb franchising abuse?
Patel: AAHOA will appoint a special team to analyze what needs to be done. If they come back and suggest that we need to lobby all fifty states to create a legal framework for fairer franchising, then we will start working in each state. We will sit down first, give an opportunity with leading franchisors and see if we can jointly resolve abuses that have been tolerated in franchising.
We are regionalized so we will start our efforts regionally. These are efforts that affect all franchisees so it cannot just be AAHOA and hotel owners. This needs to be done collectively with franchisees and other groups.
BMM: But Mr. Patel, you heard groups representing franchisors in California say that if franchisees sign an abusive contract, that's their fault. How can government get between two parties and decide what is fair?
Patel: This country has laws. The contract is binding and we franchisees will abide by it. We are not talking about implementing a law that is retroactive. These practices have to change for future generations to want to come in. As entrepreneurs, I have worked hard and my family has worked hard to get where we are at. We know the franchising tricks and abuse that we have seen. If this continues, we will lose our second and third generations who are coming up to operate our family businesses because they will feel that a franchised business cannot be successful.
We want something put in place so that the next guy who signs a contract won't have the same issues. We want to be fair. If there is no fair in the relationship, then someone has to lose. Right now, franchisees are the losers. That's because franchisees build the business assets and then it is easily taken by the franchisor.
BMM: The IFA and the California Retailers Association argue that franchisees just want to create more regulation in order to feed an army of lawyers to bleed dry and cripple franchisors.
Patel: Look. I think that statement isn't correct. Franchisees as individuals are hard pressed to afford an attorney. A typical dry cleaner or a sandwich shop owner doesn't make enough to spend $50,000 or $100,000 on attorney fees to fight a franchisor.
Whoever made that statement didn't do their research. We are not talking about big box retailers. Every time there is a relationship issue with a franchisor, a franchisee will want to pick up the phone and resolve it themselves before it goes to an expensive attorney. The problem is that many franchisors do not want to give franchisees a chance. The first thing they want to do is fight because that plays to their advantage. They give the franchisee so much of a runaround that the franchisee becomes exhausted in energy and funding. So they throw in the towel.
BMM: In today's panel discussion, Steve Joyce, CEO of Choice Hotels, made no mention of the frayed relations that almost cost Choice Hotels its membership in AAHOA and your endorsement of their brand. That probably would have deeply cost Choice Hotels in future franchise sales as your members stayed away from buying their hotels. Tell me about that.
Patel: If Choice Hotels had not changed, they would have lost their membership in AAHOA. We had several meetings with Choice. The direction that was given to AAHOA was to work with (the franchisee advisory board) Choice Hotels Owners Council because it is the organization that represents hotel owners.
AAHOA said to Choice that we were tired of getting the runaround. AAHOA sat down with senior people at Choice to go over the facts. I have the facts. You have the facts. If you think it is wrong, prove it. It's as simple as that.
I don't think Choice's leadership realized that they did not have a proper governance model in place. Because of that, Choice lacked control, even though Choice built and collected the money to give to their owner's council. We as an independent association operator know governance (how to run franchisee associations). After all, we help create associations for franchisees.
What was unfortunate was that the past CHOC chairman said electing AAHOA members to CHOC leadership positions was like sending your children to college to learn from a bad professor. Some of the members felt it was a racist comment because of the way it came out. My take was that the former CHOC chairman said this because he wasn't educated enough about AAHOA and its members. As a chairman, he didn't borrow ideas from AAHOA on proper governance of CHOC. That was a weakness. He couldn't get himself to think of learning from AAHOA to improve CHOC's own governance model.
BMM: What do you plan to do in your one year as chairman of AAHOA?
Patel: Nothing new. I have been working in AAHOA's leadership for four years and now I'm chair for a year. I'll continue on with what the previous leaders have done. Our e-market purchasing cooperative that we have launched is good. We'll enhance it. The legwork for MyBestHotelRate.com, our online travel agent website, has been done. We'll enhance that marketing program [cooperative].
Finally, it's now time for AAHOA to implement a lobbying office in D.C. Just because I say I want to build a lobbying office that doesn't mean we do a half-baked job. It needs to be done right.
I don't need to rush through my initiatives. I have confidence that the governance that we have in place creates the right dynamics. If the second chairman who comes in doesn't finish it, the third one will, until it is accomplished correctly. AAHOA has a five year strategic plan. There's a business plan in place. There are budgets.
The Political Action Committee that campaigns for candidates and issues is very important during my term. We have set a goal to reach a million dollars in our PAC.
At our convention President George W. Bush today gave an important message to our members. "Get involved," he admonished. He said getting involved means providing support. "If you don't vote, then don't gripe about it," President Bush emphasized. AAHOA wants our members involved. As an advocacy group, we want to make sure our 11,000 members contribute at least $150 per member to our PAC fund. Times have been tough but we hope our members consider this as the cost of doing business, even if they can only give $50. I want our owners to go to their 700,000 employees and educate them on the importance of being involved [in our political initiatives]. Every year in the tax returns, it asks if you want to give $2 or $5. I hope they will mark a contribution. If we start educating our 700,000 employees to give a couple of bucks, they will know the issues. That will help us going forward.
BMM: Do you have any advice to franchisees on how to build a strong independent franchisee association?
Patel: Existing franchisees need to get involved. They must become members and attend their association's meetings. That process will help the franchisee know what he needs to do to strengthen his business.
Prospective franchise candidates, that is to say those looking to buy a franchise, should also attend association meetings and get to know existing franchisees if they want to know the real inside scoop of the industry and the brand that they are considering. These associations are free from the pressure of a franchisor trying to sell them a franchise or guiding franchisees on what to tell them.
It doesn't matter if an investor is looking into buying a pizzaria or sandwich shop, convenience store or gift shop. A prospective franchise buyer needs to see how healthy the independent franchisee association is in the brand and find out how he can use the resources of the association, before he signs any document or puts a dime into the franchise. If he has $50,000 that he plans to spend right away on the franchise, then the first $5,000 should be spent in doing due diligence, with participation in the association being part of that due diligence effort. And only then should he think he can invest in a franchise.
The Coalition of Franchisee Associations is a prime place to go because they have a multiple selection of franchises under their umbrella. Go in and see what resources the CFA has available. AAHOA is geared to hotel owning prospects.
Prospective franchise owners need to stay away from investing in franchises of brands that do not have independent franchisee associations unless they have ample financial resources and market intelligence that they can do everything on their own without the help of those who own and operate the franchise (franchisees). Frankly, a start-up guy needs the help of someone who has done this before. They also need someone to fight for them in having a good arrangement with the franchising company. If they want to do it without the help and insights of an independent franchisee association, then they should plan to set aside $20,000 or $30,000 more in due diligence and attorney fees to get help.