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Franchisees Create Online Purchasing Cooperative

NEWPORT BEACH, Calif. — The Asian American Hotel Owners Association announced in late spring that their online purchasing cooperative had been completed and launched. AAHOA's "eMarket" is an Amazon.com-like purchasing portal contracted by franchisees for franchisees.

Its builder, BirchStreet Systems Inc. of Newport Beach, California, says that hotel owner-operators are using the online portal in record numbers to shop from a large number of hospitality suppliers that give deals on a wide variety of products, from television sets to toilet paper.

Doug Sanborn, president and COO of BirchStreet Systems, says that his firm built the platform, and others like it, that connect buyers to 160,000 suppliers. It has created similar portals for franchisors since the firm's beginnings in 2002. "Since then we have gathered most of the major hotel companies as customers," states Sanborn. "We have about 5,500 hotels on the system in something like 40 countries around the world."

Hotel franchisees from different brands work together

What AAHOA hotel franchisees have done is the equivalent of getting Dairy Queen, Baskin Robbins, Cold Stone Creamery, TCBY and Ben & Jerry franchisees to form a cross-brand purchasing association. It is like having thousands of McDonald's, Burger King, Wendy's and Hardee's franchise owners deciding to purchase goods together to drive down their individual store costs.


BirchStreet's inventory ordering screen.

In the restaurant sector of 2012 it is hard to imagine Subway franchisees cooperating with Quiznos.

Franchisees within brands typically don't want to share product specifications or prices with competitive brands. But the thought behind eMarket is that together, franchisees of the various brands can use the increased volume of purchases to drive down prices further. Such a platform for franchisees, by franchisees and of franchisees is unheard of in franchising. Franchisors dictate what essential products they will buy from preferred vendors, where there is typically a kickback to the franchisor.

AAHOA's 11,000 hotel owners and franchisees now use it to quickly search, compare prices, purchase equipment and products and receive delivery from suppliers. Featuring streamlined process flows and a dashboard view of product categories, users may search across multiple suppliers to find the lowest pre-negotiated price. Users also have the ability to customize "favorite product lists," making it easy to re-order frequently purchased products. The self-enrollment process allows AAHOA members to add their properties to the system and provision additional users if they wish.

Franchisees went directly to vendors to take advantage of their numbers without asking permission from their franchisors. If a hotel owner and member of AAHOA wanted to purchase a commercial Bunn pourover coffee brewer, she could do so, provided it was not a requirement by the franchisor that it be purchased only through the franchisor.

What's unusual is that the pioneering cyber store is coming from hoteliers. "In my opinion, the hotel franchising world is stodgy, backward and heavily one-sided," says Stan Turkel, a New York City-based hotel consultant. "The major hotel franchise companies — Marriott, IHG, Hilton, Starwood, Wyndham, Choice, Carlson, Accor — are the Emperors of the World."

That may be, but the purchasing portal that is led by franchisees for franchisees is taking off.

Hotel franchise owners announced last year that they were investing in an online purchasing cooperative for all brands through BirchStreet. Over the summer, AAHOA's eMarket enrolled 500 hotel owners. It estimates that there will be a thousand members using the service by the end of the year.

"The growth is unprecedented," announced Birchstreet's vice president of North American sales Bill Hirsch in the September issue of AAHOA Lodging Business.

Restaurants next?

Franchisees in some of the largest franchise chains have national purchasing cooperatives. But is an Amazon-like portal in the works for them too, just like the one the hotel franchisees have just implemented?

Steve Johnson, president of Tacoma, Washington-based Foodservice Solutions, thinks such online cooperative solutions for franchisees are coming to the food service industry. "I don't think it is revolutionary, but I do think it is the next step in the development of the food services supply chain," says the grocery guru.

Johnson stresses the bricks and mortar part of the supply chain — the warehousing and distribution — rather than just the ordering portal. He thinks that the supply chain in the food service industry will evolve from national to regional sourcing for freshness, localization and quickness, much like Amazon built warehousing capabilities throughout the country. "Procurement will go from a national contract to a regional contract where a local supplier will deliver," stresses the prolific blogger who pontificates about grocery trends and how it impacts restaurateurs. "Local hot houses can grow standard size tomatoes that a Wendy's franchisee can use in their sandwiches. They can be delivered to the franchisee through the cooperative's supply chain and online purchasing system." He adds, "They can all get their tomatoes from the same set of farms."

Meanwhile, the AAHOA board are encouraging their members to sign up for the service. The more the merrier. They think that 11,000 members pooling together to buy products through eMarket will mean a lot of savings for each individual hotel owner.

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