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Franchise War Brewing at Wyndham?

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Is now the winter of discontent for Super 8 franchise owners? photo/bmm: A Super 8 franchise in central Kentucky during Friday's snow storm

PARSIPPANY, N.J. — Super 8 hotel owners are up in arms with their franchisor, Wyndham Hotels Group. Hundreds of franchisees have been asking for additional time and flexibility in upgrading an expensive property management system, a sort of hotel point of sales and inventory solution, that they allege not only has major glitches but also will cause considerable financial hardship to its hotel owners.

Wyndham says the upgrade is necessary and more secure.

The Owners 8 Franchisee Association has tried to work with senior management for a year to change their mind. In a December 27 email to Mr. Eric Danzinger, president of Wyndham Hotel Group, the independent franchisee group wrote of their frustration and possible next step. “Many members have come forward urging some form of legal action to stop this forced upgrade,” the email warned. “While we debate the pros and cons of the new systems, several bugs in SoftHotel still needs to be addressed,” the letter continued.

Wyndham has not been pleased with the questioning of their decisions and the impertinence that comes from an independent franchisee association. Likewise, the association is not pleased with the franchisor’s lack of responsiveness. The people spearheading the matter for the 900 hotel owners in such Wyndham brands as Super 8, Microtel and Howard Johnson frustratingly conclude to their members: “Despite our repeated requests, the franchisor is not entertaining the extension of the deadline for the system upgrade.”

Owners 8 Survey

The result of the impasse is that nearly 68 percent of the hotel owners who took a recent survey said they are so unhappy with the franchise system that they are not likely to renew their franchise agreements when they expire. But Jeff Johnson, founder and CEO of the Franchise Research Institute, a firm that regularly surveys franchisee satisfaction for chains, cautions that these charts may not be representative of the full network. These are 146 franchisees out of 215 that have anonymously selected to answer that they are unlikely to renew. “It’s hard to understand the real level of franchisee unhappiness unless the survey results are from the whole system, not just the dissatisfaction in the franchisee association," says Johnson.

Wyndham, which encompasses more than 7,000 hotels in 65 countries, may well think that the 146 franchise owners of the association's 900 members are simply a small blip of disgruntled franchisees out of Wyndham’s roughly 1,800 Super 8 franchisees, so why bother dealing with these ingrates?

Wyndham’s traditional franchise advisory board model brings it headaches

Franchisees are also unhappy with the chain’s franchise advisory board, whose members are picked by the franchisor.

Stan Turkel, a hotel consultant, declares the problem with the typical franchise advisory council (FAC), the kind Wyndham and much of the franchise industry use. "FACs are powder puffs that have no real power to negotiate with the franchise company. The evidence for my conclusion resides with the use of the word ‘advisory’ in its title. Franchisors select the majority of the members and the venue for the office, which is usually in the franchisor's own headquarters. The franchisor funds the FAC's budget. It selects the subjects that are permissible for discussion and the subjects that are not permissible — such as terms for franchise termination, liquidated damages, territorial protection, choice of venue, litigation vs. arbitration, etc."

Turkel's description seems to follow the reality of what Owners 8 franchisees have found.

“We met with the franchise advisory board in August. It was a fluff meeting without substance,” describes Jay Patel, Owners 8 Franchisee Association president.

Turkel observes of the situation, “It seems clear to me that the dissatisfaction with the Super 8 franchise arises out of the frustration with the franchise advisory board and with the failure of Super 8 to distribute vendor rebates to their franchisees.”

Owners 8 Association franchisee survey about Franchise Advisory Board

“Super 8 members don’t trust the FAB because its people are selected by Wyndham," says the Owners 8 president. "Franchisees do not see them as representing their concerns. But even when the FAB makes a recommendation, Wyndham may not act on it." Patel concludes, "The way many franchisees look at it is that the FAB is an illegitimate board.”

Franchisee insiders estimate that the new mandated property management software equals big bucks to the franchisor. “Income to Wyndham for mandating the replacement of our current system for 2100 Super 8 Motels is over $31 million dollars,” says one source. “And this is just for the initial install. There will be another $6 million a year in maintenance fees. Now add the other Wyndham brands to the mix and we are talking about hundreds of millions of dollars of income to a company that lost one billion dollars last year.”

Jeff Johnson stresses that his collected data show a very high demand for franchisors to bring together contrasting groups. “World class leaders of franchise networks are able to unite an array of individuals, particularly those who are alpha-leader entrepreneurial types. It's essential that both sides read off the same playbook and follow the plan because they both buy into it.”

Another criticism of the old franchisee advisory council model is that its members' inhibitions (because of the selection process and anticipated negative consequences from the franchisor for saying the wrong thing) can actually quash innovation for the entire network.

“We don’t see anything innovative in managing and engaging its franchisees,” confirms Patel about the management practices of Wyndham in working with franchisees towards operational excellence.

Playing with fire by ignoring a disagreeable franchisee association?

Communication has broken down to such an extent that in November the franchisor broke off all contact with the independent franchisee association.

The president of the Owners 8 Association states, “They closed off communications with us in November. We asked tough questions that Wyndham did not want to answer. They said to speak just through our attorneys. [Since then] I’ve sent them two letters from our attorney that they have not responded to.”

“No wonder that so many franchisees are unlikely to renew their agreements,” says consultant Turkel, referring to the survey results (see chart). “Wyndham's treatment of its franchisees is destructive of good relationships. It's good to remember that fair franchising is not an oxymoron.”

Christine DaSilva, Wyndham Hotel Group’s director of media relations, responded after contacting a number of company officers, “We listen to our owners and value their opinions. They are able to express their views through their brand's franchise advisory boards, through interactions with the brands' team members and through organizations such as AAHOA [Asian American Hotel Owners Association]. We encourage franchisees to discuss any concerns they may have with us on a one-on-one basis.”

Johnson says that the evidence he’s collected on the creation of high franchisee satisfaction shows that cutting off discussion with a franchisee association can easily lead to system wide resentment.

“This is not what world-class franchise CEOs do,” observes Johnson.

Some industry insiders think that shunning the chain’s own independent franchisee association while engaging the independent Asian American Hotel Owners Association is playing with fire. The problem to the franchisor is that a number of Owners 8 Association leaders and members are also leaders and members of AAHOA, a powerful independent franchisee association that make up 40 percent of America’s hotel owners. AAHOA grades every franchisor on the performance standards of its 12 points of fair franchising. One fundamental stipulation is that franchisors need to work “with the various councils and associations that represent the franchisees.”

AAHOA considers it unacceptable for franchisors to select members of their franchise advisory councils. The 12-point standard directs its franchising members, “Franchisors should encourage and support the establishment of independent and democratic FACs, which are comprised of a representative group of franchisees who are elected by the franchisees themselves.”

Turkel says, “If AAHOA asked their members to sign no franchise agreements with Wyndham for a year, how long do you think it would take for Wyndham to comply fully with AAHOA’s 12 Points of Fair Franchising?”

Adopting democracy to herd cats

Franchisor executives often complain about their job being like “herding cats” in managing entrepreneurial franchise owners. Some franchisors are thriving by incorporating tools of democratic governance rather than an early twentieth century paradigm of corporate committees selected from the top down.

Vantage Hospitality has operated successfully with a different advisory board model.

A notable innovator to not just hotel franchising but all of the franchise industry, Vantage is franchisor to America’s Best Value Inn and the upscale Lexington hotel chain. Where chains have seen an average decline in franchised units in 2009 by 0.8 percent, according to the International Franchise Association, the firm has seen its hotel owners increase by 10 percent. In stark contrast, its system has been riding high during the deepest recession in eight decades. It has grown from 809 America’s Best Value Inns on December 1, 2008 to 890 as of December 1, 2009.

As 2010 starts, it is now the nation’s tenth-largest hotel chain.

Both of Vantage’s brands are overseen by a member-led Advisory Board and Advertising Council, which meets several times throughout the year to discuss and approve expenditures and opportunities. Vantage does not compensate its Board and Council members. These elected members are required to travel, at their own expense, to the annual December conference in Las Vegas and a Spring Board Conference in Coral Springs, FL. They also must be available for phone conferences and any other incidental travel that may occur during the year.

“I don’t want these elected members to feel indebted to me or my staff because Vantage paid for their conference expenses,” says Roger Bloss, CEO of Vantage Hospitality. “I want them to tell me what I need to know — not what I want to hear. And they can only do that by representing the members in their regions without any outside influence.”

Where the corporate world has a top down model of paying employees to work and manage, in contrast, franchises have a bottom up model in which a franchise pays a franchisor in royalties to manage the system. That is similar to a population with largely equal rights paying the government in taxes and then demanding a say in how they are governed. Rather than using grafted corporate models from twentieth century Wall Street, franchising seems to be now reaching back to the tools of government to more effectively manage.

While franchisees allege that Wyndham sells products at their expense as their franchisor receives large kick-backs, Vantage has another model.

“Our Preferred Vendor program is not a profit center for Vantage, as it is for other hotel brands, yet it continues to grow and remain a win-win situation for the vendors and our members,” says Bloss. “We are not out to profit from every vendor and hotel owner with hidden fees and agendas. Our goal is not to have the highest profit margin in the hotel industry. Instead, we continue to reinvest in our people and technology so that we can bring our owners the most comprehensive resources to increase their ROI.”

Consultant Johnson calls world-class franchise executives “authentic leaders” because these franchisor directors are given an implied “authentic” authority on the part of franchisees to orchestrate initiatives from the ground up. “The conductor of a franchise organization must be trusted and understood by the franchisees as the keeper and promoter of their best interests,” he states.

But those are the practices of another hotel chain. In Super 8 and other Wyndham brands, there appears today’s harsh reality for many hotel owners. “They don’t really care what we have to say,” observes the Owners 8 Association president about his franchisor, Wyndham Hotel Group.

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