Vantage Talks One-Year Franchise Agreements
SAN DIEGO (Blue MauMau) - Roger Bloss, CEO, president and founder of the Vantage Hospitality Group, a family of nearly 800 franchised hotels, speaks in an exclusive interview about its innovative one-year franchise agreement. According to Mr. Bloss, Vantage Hospitality is the 12th largest hotel group in the world, with its budget Americas Best Value Inn (ABVI) and four-star Lexington Collection hotels.
This is part two of a three-part series.
[Sniegowski] Vantage Hospitality makes unusual promises to its franchisees that one doesn't hear in other franchise systems. Can you tell us about one?
[Bloss] Vantage is the only brand that promises hotel owners a 100% return on investment (ROI). Vantage will send more business to your hotel than you pay in fees. What we are saying is that we will provide resources and help deliver heads in beds for you. If we do not, we will fix it. If we don’t fix it, then don’t pay us.
Please note that I use the word promise, rather than guarantee because when you guarantee something, it means that both parties have to adhere to strict guidelines, rules and regulations. We promised it because it takes both of us working together. That’s what our brand is about – working together. Not us mandating how you should run your business but rather sitting down and working out what’s best for your property in your market place.
[Sniegowski] One would think that with a flat fee structure like yours, when occupancy rates are low in a hotel, it is better to be part of a chain that pays a percentage royalty since the monthly fee will be low. In contrast, when the business cycle is good and occupancy rates are high, your flat fee would be a better deal because it is lower.
[Bloss] Vantage's flat fee is a phenomenal deal when times are good. When a franchisor takes a percentage, as a franchise’s incremental income goes up, royalty payments will also go up. In contrast, Vantage’s fees stay stagnant so more money falls to the bottom line.
But we are really different when times are tough.
Let’s say a hotelier has a property that is doing a million dollars in a given month. We'll be conservative and say franchise royalties are 10%.
That's a hundred thousand dollars.
With Vantage, fees would be roughly 20% of that ($20,000). Even when times are bad, the franchise fees may go down because the percentage stays the same but the revenue went down so the payment goes down. But they are still paying that percentage, but with me the fee is 20% of the average. And I’m still offering the ROI promise.
[Sniegowski] Some in the industry think that ABVI has been innovative in converting independent hotels or unhappy franchisees of other hotel brands to ABVI. For example, your one-year membership agreement that can be opted out with 90 days notice is popular, but critics say that new franchise owners hands down want the protection of a 10- or 20-year agreement to give them enough time to recover their millions in investment. They say that its the franchisee, not the franchisor who wants long-term agreements. Can you tell us why a new property developer should be looking at Vantage Hospitality?
[Bloss] About two to three years ago, I was standing on stage and members asked, “We want a better way to add more new construction property to the system. "
We got to work and hotel developers can now do it under our free style lodging model. The result of that new model was that in 2006 I won the Entrepreneur of the Year Award by Lodging Magazine. If you build a new construction [hotel property], the first year of membership fees will be waived to help offset your costs in grand openings, invitations to mayors, sales blitzes, billboards, whatever it takes to make sure that when you open the doors you have a jump start.
A lot of companies say that they offer property investors an incentive to build out product. But they lock them into a 20-year agreement. With Vantage, you still have a year-to-year agreement because if you are successful, you are not going anywhere.
[Sniegowski] But if a franchisee puts five million into a Vantage property, wouldn’t they want protection that the America’s Best Value Inn marquee will hang outside for a while so that they can recover their property investment?
[Bloss] ABVI agreements automatically renew unless the owner gives 90 days notice. By the way, I’ve had this issue come up before the economic times we are in. I’ve had lenders come back to me saying I want to protect my loan. Will you sign this person to a five-, ten- or whatever year agreement.
I don’t limit agreements to one-year agreements. If an owner wants a multiyear agreement, not only will I honor that request, but if he signs a multiyear agreement with me, his fees will be locked for three years. So not only does he get the protection, but he gets the benefit of the discount.
It has now reached the point where I receive calls regularly from operators who are building or converting. They say, “My bank made me call you to see if there is available territory in my area." Banks know that our operators have more money on the bottom line to pay their mortgage than any other similar brand.
[Sniegowski] America’s Best Value Inn had a lawsuit brought against it by Best Western a few years ago. What was that all about? Upset the competition?
[Bloss] First and foremost, Best Western has been around for some sixty years. They are a fine organization.
I don’t know the reason behind why Best Western sued me. My personal belief is that they wanted to put a roadblock in front of America’s Best Value Inn.
I started this company with less than $50,000. You talk about entrepreneurial spirit and taking risk. Here we are in this election we are going through. You can imagine how I feel when one party is talking about spreading the wealth, when I went out there and had to sign personal guarantees and was willing to lose my house and everything.
So we started this company with very little money and set this industry on its ear. Even my friends predicted and said Roger, you’re nuts, you can’t compete with 320 hotel brands. You can’t compete with the big boys. I’m one of those guys that when you tell me I can’t, I have to.
Our model is that we really work well, and as I said, the hotel industry is very cyclical. Our model works extremely well in good times and during these down cycles. After September 11, when people had to dig deep to search for ways to improve their viability, stability and livelihood, my brand was out there. We grew so fast after September 11 because people realized what we could do in the age of the Internet and all the resources that we had put together. I think Best Western was fearful that we were going to take a huge piece of the pie.
I had my trademarks. Everything was above board and legal. The only thing they could do to slow me down or take me out of the competitive arena was to file suit against me. They knew that I couldn’t fight a multimillion dollar lawsuit.
But they didn’t know me very well.
[Sniegowski] What was the outcome of the lawsuit?
[Bloss] I wish I could tell you publicly. But at the end of the day it was settled because no one can own or trademark the word “Best.” What we agreed to, and quite frankly, when I created the brand, it was going to be Best Value Inns of America, but it was hard to put on a sign. So I just called it Best Value Inn. The part I can share with you is that they wanted us to add something in front of “Best” to give a different feel to the word Best. So we’ve added America’s Best Value Inn.
Our members loved it.
You don’t get on Inc Magazine’s 500 list three years in a row without doing something right.
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Part 1 of the Series: Interview with Vantage's CEO
