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Owners 8 Association Presents Issues to Super 8

Writer's Note: In a letter sent to John Valletta, president of Super 8 Motels, Inc., Jay Patel, head of the Owners 8 Association, presented the top issues concerning franchisee members. The main purpose of the letter was to help Super 8 understand their position and to, hopefully, engage the company in a dialogue and discussion that will resolve the issues.

Top 4 Issues with the Super 8 Franchise System

Dear Mr. Valletta:

We are writing on behalf of the members of the Owners 8 Association (we will refer to the Owners 8 Association as “O8A”), an association of independent Super 8 Motel franchisees located throughout the United States and Canada (we will refer to ourselves as “Owners”). O8A was formed in the spring of 2007, in an attempt to unite many loyal Super 8 franchisees that were concerned with issues in the Super 8 franchise system. We felt that the O8A was a necessary alternative to the Super 8 Franchise Advisory Board, since it did not adequately represent the majority of Super 8 franchisees and was made up of a limited number of franchisees, which served unlimited terms and were hand-picked by Super 8 itself. The O8A is currently 635 Owners strong and is growing at an exceptional pace. Our membership represents a significant percentage of Super 8 Motels that are currently in operation. As you know, we have created a web site that contains additional information about the O8A, and specifically lists the significant issues we, as Owners, face in the Super 8 franchise system. For more information about the O8A, please visit our website, which is located at www.owners8association.org.

The purpose of this letter is to bring the Owners’ most significant issues to your attention and to engage in a dialogue and discussion that, hopefully, will resolve these issues to the benefit of the Owners and the entire Super 8 franchise system. To help you further understand our position from a legal standpoint, we have retained attorney J. Michael Dady and the law firm of Dady & Garner, P.A., a Minneapolis-based law firm that specializes in representing franchisees and franchisee associations who are confronted with issues with their franchisors that are similar to ours. While we, as Owners, desire to improve franchisor-franchisee relations and engage in open and direct communications with you, in order to effect change in the Super 8 franchise system we will call upon our attorneys to assist us, if necessary.

Although there are several issues that we would ultimately like to address, at this time, we have decided to focus on O8A’s Top Four Issues with the Super 8 franchise system. The following are O8A’s Top 4 Issues that continue to adversely affect Super 8 franchisees:

  1. Super 8’s Technology Standards
  2. The TripRewards Guest Loyalty Program;
  3. Guest Services Assessments and Processing Fees: and
  4. Quality Assurance Reporting and Fees.

Below, we have described O8A’s Top 4 Issues in detail and have provided you with our proposed solutions to resolving these issues.

While we realize that many of the Owners were issued different versions of the UFOC and currently operate under different forms of franchise agreements, for purposes of this letter we thought it best to refer to a single set of documents that reflect the current state of the Super 8 franchise system. Therefore, in describing our Top 4 Issues with the Super 8 franchise system, we have referenced the Super 8 Motels, Inc. Uniform Franchise Offering Circular, dated March 30, 2007 (“March 30, 2007 UFOC”), and the current form of Super 8 Motels, Inc. Franchise Agreement (“Franchise Agreement”), which is attached as Exhibit C-1 to the UFOC.

As you stated in your January 7, 2008 memo to all Super 8 owners and operators, “Super 8 always supports any legitimate effort to promote dialogue and discussion.” We are hopeful that this letter will do just that, and help to effect positive change in the Super 8 franchise system.

* O8A’s Top Four Issues with the Super 8 Franchise System *

1. Super 8’s Technology Standards

The high cost and poor performance of Super 8’s technology standards outweigh the benefits Owners receive from this technology. Owners need reliable and cost-effective property management systems (“PMS”) that book reservations, perform check-in and check-out functions, manage rates and inventory, collect certain information about each guest, automate the record keeping of the motel, and interface with other electronic systems at the motel. Despite Super 8’s assertion that the PMS should also relay our guests’ information directly to Super 8, we do not believe this to be the case. Each guest is the guest of the individual Owner and the individual Owner’s property. Therefore, the guest’s information should be held in confidence by the Owner and should not be accessible by Super 8.

The PMS solutions that Super 8 requires its Owners to use do not always suit the Owners’ needs. Additionally, Super 8 frequently changes the PMS solution it requires the Owners to use, which results in a significant expense to the Owners. Most recently, Super 8 is requiring Owners to drop the HSS, MSI, and Brilliant systems currently in use and replace them with the newer, more expensive, SoftHotel system. In addition to paying the high costs associated with the PMS, Owners are also required to pay costly monthly maintenance fees and service fees for the satellite-based Internet access service Direcway, when less expensive alternatives exist.

Issues with Super 8’s Technology Standards

  • HSS, MSI, and Brilliant

Most of the Owners are currently using HSS, MSI, and Brilliant, which are the systems that Super 8 had initially determined to be the best PMS solutions. While these systems may be slow and have some flaws, cost-effective options do exist to improve the systems. In fact, many Owners spent $6,000 to $8,000 during the last year to refresh their hardware and software. Under the March 30, 2007 UFOC, Super 8 cannot require Owners to replace the PMS in their motels for four years after such hardware and software has been installed. Similarly, in order to ensure that Owners are able to recoup their investment on the hardware refresh, Super 8 should not be allowed to require Owners to replace hardware or software until four years after a refresh. When a system refresh occurs, it should be done in a reasonable manner with acceptable costs.

  • SoftHotel

Super 8 has announced that it intends to rollout the SoftHotel system by the summer of 2008, and that, at that time, Owners will be required to purchase both the hardware and software for the SoftHotel system from Super 8. SoftHotel is an expensive system that ranges in price from $14,000 to $22,000 for installation, and costs $50 per month, plus $2.50 per room per month, in maintenance and support fees. Despite these high costs, Super 8 has reserved the right to increase SoftHotel fees up to 5% per year. SoftHotel is not currently used by many Owners, and the owners that do use SoftHotel have experienced significant difficulties with the software system.

  • Direcway

Owners are also required to obtain from Super 8, its affiliate, or its approved supplier, the Direcway satellite-based Internet access service, which includes equipment and software for interfacing with the Central Reservation System, the enterprise data warehouse, and the brand information source. Under the terms of the Satellite Connectivity Services Addendum, which Owners are required to sign, Owners are charged $150 per month for a 60-month term (for a total of $9000 over five years) for the Direcway service. The monthly service fee covers communication charges, installation, and maintenance and support services. Despite the monthly service charge that Owners are required to pay for the 60-month term, Super 8 has no obligation to modify or upgrade any Direcway equipment during the service term.

Proposed Solutions to Issues with Super 8’s Technology Standards

  • HSS, MSI, and Brilliant

Super 8 should continue to use HSS, MSI, and Brilliant throughout the franchise system, since many of the Owners already have these PMS solutions installed in their motels. While HSS, MSI, and Brilliant are not perfect systems, they are functioning, and many Owners have learned specific techniques that allow these systems to thrive. Additionally, many of these existing systems are being utilized by other franchisors. Super 8 should allow the existing software vendors to make the necessary cost-effective updates to HSS, MSI, and Brilliant, instead of requiring Owners to replace them with more expensive, poorer performing systems. If there is a need for any software upgrades, this could be done most cost-effectively with the existing software providers.

  • SoftHotel

Owners are concerned with the hefty price tag of the SoftHotel system. The initial cost Owners incur to simply install the software is extremely high—ranging from $14,000 to $18,000. This huge expense cannot be justified by the smaller motels. The monthly maintenance and support fees are also excessive and are dramatically higher than our current fees. Additionally, SoftHotel, as a relatively new system, has not been adequately tested. It is unreasonable for Super 8 to require Owners to install the expensive SoftHotel system and essentially have us test the product for Super 8. Super 8, as a member of the larger Wyndham Hotel Group, has the financial resources available to test and develop SoftHotel on its own and should not use Owners as test cases. If Super 8 and/or Wyndham is not willing to fund the rollout of the SoftHotel system, SoftHotel should be dropped completely. There are many other similar software solutions available, and Super 8 should do its best to keep software costs down, so franchisees can be profitable.

  • Direcway

Direcway is an overpriced and outdated communication system that does not benefit franchisees. Many of the Owners are not currently using Direcway, and, instead, are using independent systems. The solution to Direcway is simple: replace Direcway with a more cost-effective and up-to-date Internet-based system that utilizes the Internet service Owners already have at their motels. This replacement will save the Owners money and provide the Owners with a more advanced communication system.

2. The TripRewards Guest Loyalty Program

It is important for us to have loyal guests, and we want to reward our guests who repeatedly stay with us and other fellow Super 8 Owners. Guests may be loyal to a particular motel location, but, more than likely, guests will be loyal to the Super 8 brand. Super 8 has offered two different guest loyalty programs over the past several years: (1) the V.I.P. Club; and (2) TripRewards.

V.I.P. Club

Super 8’s first guest loyalty program was the V.I.P. Club. Under the V.I.P. Club, for a nonrefundable processing fee of $3.00, guests could enjoy the following membership benefits:

  • Permanent membership card;
  • 10% discount at all Super 8 motels;
  • Guaranteed express reservations;
  • Payment of room charges by check;
  • Check cashing privileges; and
  • SuperCheck express check-in.

Guests became V.I.P. Club members after specifically applying for a V.I.P. membership card at any Super 8 motel. In order to receive the benefits of the program, a guest had to present his or her membership card upon check-in. If a member did not have his or her V.I.P. card, the guest was not entitled to the program’s benefits, including the 10% room discount. The reason the V.I.P. Club was successful is because members experienced an immediate reward—i.e., an automatic 10% discount on their stay, as well as the other above-listed benefits—thus instilling loyalty among members for the Super 8 brand.

Unlike the V.I.P. Club, TripRewards does not offer guests immediate rewards and many guests are not even aware the TripRewards program exists or that they are TripRewards members. The Owners’ specific issues with the TripRewards Program are detailed below.

Issues with TripRewards

· Guests are not Aware That They are Members of TripRewards and are not Held Accountable for Their TripRewards Memberships.

TripRewards was introduced in 2003, as a replacement to the V.I.P. Club. It was introduced to all Wyndham Hotel Group brands, allegedly in response to “increasing consumer demand for a points-based loyalty program.” A guest can join TripRewards at no cost by visiting the website of a participating motel brand, enrolling upon check-in at any Wyndham brand motel, or calling a toll-free 1-800 telephone number. Additionally, if a guest makes an online reservation, he or she is automatically enrolled in TripRewards, unless the guest opts out of membership by un-checking an enrollment box during the reservation confirmation process. A large number of guests are not even aware that they have a membership in TripRewards, since, typically, they make their reservations online and do not see the checked-box, or do not even think to un-check the box, which automatically enrolls them in the TripRewards program.

After enrollment, the guest receives a membership card that entitles the guest to receive “points” that can be redeemed online for “rewards,” including motel stays, airline tickets, and gift cards, if the guest stays at any Wyndham brand motel (not just a Super 8) and pays a “qualifying rate.” A guest pays a “qualifying rate,” and correspondingly, receives points, when the guest pays any rate that is 80% or more of the motel’s rack rate—i.e., the guest receives no more than a 20% discount on their night’s-stay. Under Wyndham’s current TripRewards policy, a guest is not held accountable for his or her TripRewards membership and does not need to present his or her TripRewards membership card upon check-in, in order to receive points under the program. However, the fine print in the TripRewards brochures specifies that the guest must present his or her membership information upon check-in in order to receive points. Since TripRewards members do not have to present their membership cards or membership numbers upon check-in, in order to receive points, they may not even realize they are receiving points, thus defeating the purpose of the guest loyalty program.

If a guest notices that he or she has not been awarded points for a qualifying stay, the guest has the ability to contact the TripRewards Customer Service Center and request that points be assessed to the guest’s TripRewards account. The TripRewards Customer Service Center issues points immediately when such a request is made, without contacting the motel property to verify that the guest actually paid a qualifying rate. Additionally, if a guest becomes a TripRewards member after staying at a Super 8 motel, the guest may request that he or she receives points for his or her stays prior to the time the guest became a TripRewards member. Even though a guest’s stay may not qualify the guest to receive points, and even though the guest was not a TripRewards member at the time of the guest’s stay, the TripRewards Customer Service Center backdates TripRewards points, and the Owner is charged a 5% Mandatory Marketing Program Charge, as explained below, for the guest’s stay.

  • TripRewards Creates a Huge Expense for the Owners and Provides Little, if Any, Benefit.

 

Owners are required to display TripRewards promotional materials at their motels and are charged a “Mandatory Marketing Program Charge” for their participation in the TripRewards program. The Mandatory Marketing Program Charge is equal to 5% of the gross room sales accruing from each qualifying stay at the Owner’s motel. In other words, for every guest that pays more than 80% of the individual motel’s rack rate—i.e., receives less than a 20% discount on his or her night’s-stay—the Owner is assessed the 5% Mandatory Marketing Program Charge, which is billed on a monthly basis. In reality, Owners are being charged the Mandatory Marketing Program Charge for almost every TripRewards member that stays at the Owners’ motel. Super 8 claims that this 5% charge is “extremely competitive and consistent with most other industry programs,” and is used for the “administration, promotion, marketing, award fulfillment, and any other ongoing expenses” required to maintain the program. In fact, this 5% Mandatory Marketing Program Charge creates a huge expense for Owners and provides little, if any, benefit, except to the extent that such charges benefit Super 8 and/or Wyndham by putting money in Super 8’s and/or Wyndham’s pockets.

As stated above, many guests do not even realize they are TripRewards members, and, accordingly, accumulate a large number of points that will never be redeemed. Despite the fact that these points will never be redeemed, the Owners still have to pay the 5% Mandatory Marketing Program Charge for each TripRewards member’s stay. This defeats the entire purpose of TripRewards, as a guest loyalty program, because loyalty will not be bred in guests that do not even know the program exists or that they are actually being rewarded for their stays at Super 8 motels. TripRewards has not increased Owners’ revenues, but has only increased the amount of fees and charges that Owners are required to pay to Super 8.

Proposed Solutions to Issues with TripRewards

The main purpose of the TripRewards program is to create guest loyalty, but how can guests be loyal if they do not even know they are being rewarded for their stays at Super 8 motels? We, as Owners, are confident that the majority of our guests are not aware of their membership in the TripRewards program. To prove this, we are ready and willing to poll each of our guests, as they check-in to our properties, to determine if the guest indeed knows that he or she is a TripRewards member and to find out if the TripRewards program actually influenced the guest’s decision to stay at the respective Super 8 motel. If, in fact, guests prove to be unaware of their membership in TripRewards, steps must be taken to increase awareness among guests of the TripRewards program.

  • Make Guests Aware of the TripRewards Program

 

In order to fulfill the purpose of TripRewards and increase guest loyalty to Super 8, guests must be made aware of the program. Accordingly, guests should be required to take affirmative steps to sign up for the TripRewards program. Rather than Super 8 “checking the box” for guests who make online reservations, the guests should be required to check the box themselves. Additionally, guests should be required to present their TripRewards membership cards or membership numbers upon check-in, if they are going to receive points for their motel stays. That way, guests will know they are being rewarded for staying at a Super 8, which will further increase guest loyalty to the brand. Without this requirement, points may be awarded to guests, but never redeemed, all at the Owners’ expense. To make it fair for the Owners, Super 8 should be required to review all inactive TripRewards accounts—i.e., accounts with points that have not been awarded or redeemed in the last 12 months—and issue credits to Owners who have been assessed Mandatory Marketing Program Charges for these accounts.

  • Hold the TripRewardsCustomerServiceCenter Accountable to the Owners

 

When a guest contacts the TripRewards Customer Service Center regarding missing points, the Customer Service Center should be required to contact the motel property directly with details and contact information on the guest to verify that the guest actually stayed at the motel and paid a qualifying rate. Without this check on the TripRewards system, guests may be receiving points when they are not entitled to receive those points and Super 8 may be requiring Owners to pay Mandatory Marketing Program Charges when those charges are not justified. Additionally, a guest with missing points should only have 30 days after his or her stay to contact the TripRewards Customer Service Center, report the stay, and receive points. A guest should also be required to be a TripRewards member at the time of the stay before being allowed to receive points. This will eliminate any back-dating of points for non-member stays.

The Customer Service Center needs to have quality assurances in place that will catch duplicate entries of TripRewards membership numbers on a single day. As some Owners have experienced, they will be assessed multiple Mandatory Marketing Program Charges under the same TripRewards membership name and number on a single day. This should not be happening, unless the TripRewards member has booked multiple motel rooms, which is often not the case when such multiple assessments are made. In other situations, Owners will be charged a Mandatory Marketing Program Charge when the TripRewards membership number does not match up with the guest’s name. The Customer Service Center needs to have the ability to cross-check this information so that Mandatory Marketing Program Charges are not being wrongly assessed.

  • Decrease the Cost of TripRewards for the Owners

 

One of the major problems with TripRewards is the cost of the program for Owners. Under the current qualifying rate (more than 80% of rack rate), virtually every guest is entitled to receive TripRewards points, and, as a result, Owners pay the 5% Mandatory Marketing Program Charge for virtually every guest’s stay. The Owners are already significantly discounting the guest’s stay (by up to 20%), and with the Mandatory Marketing Program Charge tacked on top, Owners earn little profit from TripRewards members’ stays. In order for the TripRewards program to be beneficial for Owners, the qualifying rate needs to be raised to more than 90% of rack rate—i.e., less than a 10% discount on night stays. With a higher qualifying rate, Owners can pay the Mandatory Marketing Program Charge and still earn profit from the TripRewards members’ stays.

Owners should also be entitled to the accounting records of the TripRewards program, which include the total number of room nights that are redeemed, total balance of unused points, total costs of the program, and total revenue generated by the program. We should have the ability to evaluate the effectiveness of the TripRewards program since we fund the program through payment of the Mandatory Marketing Program Charges and since it is a marketing initiative. TripRewards should not simply be a revenue generator for Super 8 and/or Wyndham.

Overall, these changes to the TripRewards program will result in a heightened guest awareness of the TripRewards program, a decreased number of unredeemed guest points, an increased number of guest rewards, and increased profitability for the Owners. This will create the desired guest loyalty to the Super 8 brand (as well as the entire Wyndham Hotels Group) and fulfill the purposes of the TripRewards program.

3. Guest Services Assessments and Processing Fees

We acknowledge that top-notch guest services are necessary for the success of the individual Owners and the Super 8 franchise system. We, as Owners, strive to satisfy our guests and pride ourselves on ensuring that each of our guests has a positive experience while staying with us. When guests have complaints, we do our best to address and resolve them, since we know that happy guests will likely return to our motels and stay with us again in the future. Our responsiveness to guest complaints not only strengthens brand loyalty, but also increases our (and Super 8’s) bottom-line revenues.

Issues with Guest Services Assessments and Processing Fees

  • Guest Services Assessments and Processing Fees are Extremely Costly for Owners

Super 8 has recently implemented the “Guest Services Assessment,” which is a fee imposed on franchisees that experience guest complaints. This is how the Guest Services Assessment works: Whenever Super 8 receives a guest complaint about an Owner or the Owner’s motel, Super 8 notifies the Owner of the guest complaint. The Owner is then responsible for resolving the complaint to the guest’s satisfaction. If the Owner does not respond to the complaint within seven (7) business days after receiving notice of the complaint from Super 8, Super 8 charges the Owner a “Guest Services Assessment” of $100.00,[1] plus the costs Super 8 incurs to settle the matter with the guest. Even if the Owner responds to the guest complaint within seven business days, Super 8 may still charge the Guest Services Assessment, plus its costs, if the guest is not satisfied with the Owner’s response. Additionally, if an Owner’s total number of guest complaints exceeds the “Annual Facility Allotment,” which is one (1) guest complaint per 1,000 occupied room-nights, Super 8 will charge the Owner a “Processing Fee” of $60.00[2] for each additional complaint over the Annual Facility Allotment, regardless of whether the Owner is able to resolve the complaint to the guest’s satisfaction.

  • Guest Complaints are Frequently Unreasonable or Invalid

While Super 8 contends that the Guest Services Assessment and the Processing Fee “are not intended as penalties or liquidated damages,” this is exactly what they are. Owners should be held responsible for guest complaints, but only if the complaints are reasonable and valid. In order for such a penalty to be imposed on a franchisee, the guest complaint should fairly be deemed the franchisee’s fault. Currently, franchisees are held responsible for complaints, regardless of their source and regardless of their validity.

Proposed Solutions to Issues with Guest Services Assessments and Processing Fees

  • Guest Services Assessments and Processing Fees Should be Eliminated Entirely, or at Least Reduced, so That Owners can Remain Profitable

Ideally, the Owners would like to see the Guest Services Assessments and Processing Fees eliminated entirely. If an Owner has an abnormally high number of guest complaints, Super 8 should work with, and not against, the Owner to pinpoint the source of the complaints and resolve the underlying issues, so that guest complaints do not repeatedly occur. Super 8 needs to do a better job of supporting its Owners and assisting them in becoming successful operators, rather than issuing monetary penalties against them for every problematic situation that arises.

If the Guest Services Assessments and Processing Fees are not eliminated, an alternative would be to: (1) raise the Annual Facility Allotment; and/or (2) lower the Guest Services Assessment and Processing Fee. After paying the current $100.00 Guest Services Assessment and/or the $60 Processing Fee to Super 8 and issuing refunds to guests who have complaints (there is also a possibility that the Owner is paying the 5% Mandatory Marketing Program Charge if the guest is a TripRewards member who paid a qualifying rate), it is very difficult for Owners to realize enough revenue on the complaining guest’s stay to cover our expenses. With lower fees, Owners, can perhaps achieve break-even in these situations.

  • Guest Complaints Must be Screened for Validity and Reasonableness Before Guest Services Assessments and Processing Fees are Issued

There also needs to be a better system in place for determining which guest complaints are valid and which guest complaints are not. Currently, there is no screening process in place and guest complaints are simply issued to Owners without Super 8 first reviewing the reasonableness of the complaints. As previously stated, the Owners are willing to take responsibility for reasonable guest complaints that are actually the Owners’ faults. However, the Owners are not willing to take responsibility for guest complaints that are wholly unreasonable. Unfortunately, while Owners try to be apologetic and reasonable in dealing with guest complaints, there are times when the complaints are the products of individual guests and not of the Owners or their motels. As all of us in the hospitality industry know, some guests will never be satisfied. As a result, it is unfair for Super 8 to charge a Guest Services Assessment if the complaint is not resolved to the guest’s satisfaction. (In the past, this is how Guest Services Assessments were issued. Owners were only penalized if they failed to respond to the guest’s complaint, and were not penalized simply because the guest was not satisfied with the attempted resolution of his or her complaint.) Guest Services Assessments should not be issued in Super 8’s sole discretion, but rather, the Owners should have some say in determining whether guest complaints are valid.

  • Owners Should not be Charged for Non-Quality Assurance Complaints

Additionally, Guest Services Assessments and Processing Fees should not be charged for non-quality assurance complaints, such as mistakes in billing or reservations. Currently, quality assurance complaints and non-quality assurance complaints are both included in the number of guest complaints against an Owner. Again, the Owners are willing to take responsibility for the guest complaints that are actually our fault, but we are not willing to take responsibility for the guest complaints that are Super 8’s or some other outside party’s fault. For example, Owners should not be held responsible when they, through no fault of their own, experience glitches in Super 8’s required PMS, which results in billing mistakes, reservation errors, and guest complaints. Additionally, Owners should not be responsible for guest complaints stemming from reservation errors that occur through the Global Distribution System, the Internet, or other third-party reservation systems and networks, since the Owner did not have any part in booking these reservations. Fault should be placed on the party responsible for the guest complaint, and the Owners should not be punished with Guest Services Assessments and Processing Fees for someone else’s, whether it is Super 8’s or a third-party’s, mistake.

  • Owners Should Know how Super 8 is Using the Guest Services Assessments and Processing Fees That Owners Pay

Finally, if Owners are going to be charged Guest Services Assessments and Processing Fees, Owners should have a right to know how Super 8 is using these fees. Owners have been told by Super 8 that such fees are being used to fund the Customer Service Center. If this is actually the case, how are these funds specifically allocated? If, in fact, these fees are not being used to benefit the Super 8 franchise system, but rather, are being used to increase Super 8’s and/or Wyndham’s own bottom-line profitability, the fees must be done away with entirely.

4. Quality Assurance Reporting and Fees

The Quality Assurance (“QA”) process was originally created to maintain quality standards throughout the Super 8 franchise system. Under the QA process, QA inspectors randomly inspect every Super 8 motel property twice per year, in an attempt to ensure that Super 8 quality standards are being met. Inspections may occur at any time during normal business hours, without advance notice to the Owner. QA inspectors do not specifically inspect Super 8 motel properties, but rather, inspect all Wyndham motel properties. After a QA inspection, Owners are given QA reports, which contain results from the inspection, as well as the Medalia guest surveys.

If an Owner’s motel fails a QA inspection, the Owner refuses to cooperate with the QA inspector, or the Owner refuses to comply with Super 8’s published inspection System Standards, the Owner is liable to Super 8 for any Reinspection Fee specified in the System Standards Manuals plus the reasonable travel, lodging, and meal costs the QA inspector incurs for a reinspection. Super 8 also conducts paper and electronic customer satisfaction surveys of the franchisee’s guests and includes the results in the franchisee’s final QA survey.

Super 8 also reserves the right to require Owners to make minor renovations to their properties, upon notice to the Owners.

Proposed Solutions to the Quality Assurance Reporting and Fees Issue

Despite the assertion in your January 7, 2008 letter to all Super 8 owners and operators regarding the O8A, we are not “going on record as standing for the tolerance of substandard, non-compliant, dirty, inconsistent properties in the Super 8 system.” Rather, we believe that the cleanliness of the motel should be the primary focus of the QA process, since this is the most important issue for our guests.

  • QA Inspectors Need to Have Identifiable Standards for The QA Inspections

QA inspectors lack adequate training and uniformity in their inspections, which is evident in the fact that different QA inspectors often demonstrate different standards and levels of tolerance. For example, Owners have been told by some QA inspectors that they do not understand why a particular default has been noted by a previous inspector. As a result, penalty point accumulation and doubling should be eliminated from the inspection process. Super 8 needs to have QA inspectors specific to the Super 8 brand, whose sole functions are to inspect Super 8 motel properties. Additionally, objective quality standards need to be in place for the Super 8 franchise system so motel properties know what to expect during an inspection and can strive to meet those known and defined standards. It is not reasonable or fair for Owners and their motel properties to simply be subject to the whims of the QA inspectors. While most of the QA inspectors have demonstrated honesty and integrity in their inspections, unfortunately, some QA inspectors have demonstrated poor attitudes and have failed motels without significant reasons for doing so.

  • Super 8 Should Allow Non-Rated QA Inspections and Announce Rated QA Inspections

If motels do not meet the QA standards, Super 8 should be responsible for working with Owners to improve their properties and help bring them up to QA standards. The Owners would like to have one to two non-rated QA inspections per year, which would allow Owners to communicate possible concerns to QA. This would also help maintain consistent quality standards at individual motel properties and allow potential QA issues to be dealt with and resolved immediately, before they actually become issues.

The Owners would like Super 8 to announce when the rated QA inspections will occur. It is not reasonable for Super 8 to demand that the Owners be available at any time for these inspections, as, often times, we need to focus our attention on our guests, rather than on the QA inspections. During these inspections, a QA inspector should not be able to assess points for issues the Owners are able to resolve before the inspection is completed. The purpose of the QA inspection is to make our properties suitable for our guests. If we can resolve a QA issue immediately, for the betterment of our guests, we should not be penalized on the inspection report. Additionally, when QA issues arise, there should be a point of contact for Owners in the QA department. This would eliminate Owners having to present any issues to our FSMs, who have very little ability to resolve QA issues.

  • Medalia Surveys Should not be Used in Scoring the Owners’ QA Reports

QA reports should not use the Medalia survey results as part of the overall QA scoring system, since Medalia has several flaws. Medalia is the least-used point of contact with guests, yet it is still used to assess points on the QA report. Many of the guests that respond to Medalia surveys are guests that are either extremely disappointed or extremely satisfied with their stays. This skews the QA scoring system because it does not accurately quantify our motels’ performance. Additionally, Medalia is an ineffective scoring system because guests are grading their experiences subjectively, unlike the QA report that has a set of specific, objective parameters. In other words, Medalia gauges the perceived value of the guest’s stay and not the actual quality of the facility itself. In our experience, Owners feel that our scores suffer due to the perception of the motel’s price and/or value. As rates vary during peak seasons, guests taking the survey may place higher emphasis on the price paid, which, accordingly, results in lower scores. Guests’ perceptions may also be based on previous lodging experiences at higher-tier motels. This comparison may make guests perceive our properties as a poor value when, in fact, the rates were based on supply and demand in the market at a particular point in time. Essentially, Medalia is a survey and should be evaluated by the Owners. The results from Medalia surveys should not be integrated into the Owners’ QA reports.

  • Super 8 Must Relieve the Financial Strain on Owners that Results from QA Inspections

Super 8 should not cut off an Owner’s right to reservations through the Super 8 website or other third-party reservation websites pending resolution of QA issues, as it is counter-productive and creates financial strain for Owners. With decreased finances, it becomes more difficult for Owners to address QA issues. Similarly, the issuance of Reinspection Fees has the same result and makes it more difficult for Owners to make the required improvements that will bring them up to QA standards. Reinspection fees should not be charged. Additionally, as fees are already assessed for customer services issues, those issues should not be considered in the QA inspections. Owners should not be penalized twice for customer service issues.

Finally, there needs to be a cap set on the minor improvements that Super 8 requires its franchisees to make. Currently, the Owners feel that standards are being changed with total disregard of the costs of the improvements to the Owners. Owners should have a say in which improvements should be required of the franchise system at large, rather than being subject to the whims of Super 8 and/or Wyndham.

LEGAL IMPLICATIONS

Our attorneys have advised us that, under New Jersey common law, Super 8 is required to act reasonably in carrying out its duties and obligations under the terms of the Super 8 Franchise Agreement. New Jersey common law applies to the Franchise Agreement pursuant to Section 17.6.1, which states, “This Agreement will be governed by and construed under the laws of the State of New Jersey, except for its conflicts of law principles.” Franchise Agreement § 17.6.1.

Under New Jersey law, there is an implied covenant of good faith and fair dealing that requires each party to a contract to deal fairly and in good faith with each other in the performance of the contract. Sons of Thunder, Inc. v. Borden, Inc., 690 A.2d 575, 586-587 (N.J. 1997). Although the implied covenant of good faith and fair dealing cannot override an express term in a contract, a party's performance under a contract may breach that implied covenant even though that performance does not violate a pertinent express term. Id. at 586. Unlike many other states, in New Jersey, “a party to a contract may breach the implied covenant of good faith and fair dealing in performing its obligations even when it exercises an express and unconditional right” under the contract. Id. at 588; see also Bak-A-Lum Corp. v. Alcoa Bldg. Prods., Inc., 351 A.2d 349, 352 (N.J. 1976) (finding that defendant's conduct in terminating the contract constituted bad faith, although conduct did not violate express terms of written agreement).

Accordingly, Super 8 is required to deal with the Owners fairly and in good faith as it carries out its duties and obligations under the Super 8 Franchise Agreement. This means that, according to the implied covenant of good faith and fair dealing, Super 8 cannot impose unreasonable requirements on the Owners in the operation of their Super 8 franchises. Instead, Super 8 must work with, not against, the Owners in order to allow the Owners to enjoy the expected fruits of their relationship with Super 8.

CONCLUSION

In accordance with Section 17.6.2 of the Franchise Agreement, we desire to engage in good faith negotiations with you and Super 8 to effect change in the Super 8 franchise system. We are hopeful that you and Super 8 will treat us as you and Super 8 want and expect us to treat both of you—i.e., fairly and in good faith. Honoring this mutual duty, which we hope you and Super 8 will promptly acknowledge, means Super 8 should deal fairly with the Owners and not impose unreasonable requirements upon us.

As we have noted in the beginning of this letter, there are several other issues that we would like to address, but we have chosen, at this time, to limit the discussion to O8A’s Top 4 Issues. Once you have had a chance to digest this letter, we hope and expect that you will discuss O8A’s Top 4 Issues with us further. If you are unwilling to do this, we are willing to submit this dispute to mediation. In any event, we look forward to visiting with you and working with you and Super 8 to effect change in the Super 8 franchise system. By working together, we can make Super 8 the growing and thriving system it once was—a system that is profitable for both the Owners and Super 8.

Sincerely,

OWNERS 8 ASSOCIATION

Jay Patel Manny Patel

Its: Interim President Its: Interim Vice-President

Lisa Lunsford James Miller

Its: Interim Treasurer Its: Interim Secretary

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[1] The Franchise Agreement, which was attached to the March 30, 2007 UFOC, states that the Guest Services Assessment is $75.00, plus the costs incurred by Super 8 to settle the matter with the guest. However, in October 2007, Super 8 increased the Guest Services Assessment to $100.00, plus its costs incurred in settling the matter.

[2] The Franchise Agreement attached to the March 30, 2007 UFOC states that the Processing Fee is $25.00, but in October 2007, Super 8 increased the Processing Fee to $60.00.

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