AAHOA Needs to Level the Playing Field

Contrary to the position of Hotel Business magazine (June 7, 2012), which urged AAHOA to "back off the criticism of brand executives", I believe that AAHOA needs to push harder to overcome the sharply one-sided franchisor advantage.

  Just in case you need substantiation of this position, take special notice of the typical franchise agreement in which most hotel franchisors, in addition to nonnegotiable termination and encroachment positions, have the ultimate power to arbitrarily:

  • impose higher fees
  • grant new franchises (similar or sister brands) anywhere at its sole discretion
  • impose new physical and design requirements
  • mandate sole - source procurement
  • reduce service to franchisees
  • sell, merge or consolidate the franchise organization
  • impose exorbitant liquidated damages in the event of termination
  • restrict a franchise owner's freedom to sell his or her property
  • require personal guarantees from owners of franchised hotels
  • sell market data, including the names, addresses and preferences of millions of hotel guests
  • control the membership and agenda of the in - house franchise advisory council
  • expand marketing and reservations funds without an independent audit and full disclosure
  • change rules regarding training, technology upgrades, frequency programs, guest discounts, required franchisee services, quality standards, etc.

Impertinent Question:  Given these circumstances, shouldn't AAHOA intensify its criticism of brand executives?

Profile picture for user Stanley Turkel

Comments

Sophisticated Investors

AAHOA should certainly criticize the brand executives. That is their role. But i may be reading more into your message than you intend.

For the sake of discussion i assume that all of the items you think should be criticized are provided for in the written franchise agreement. I also would assume that given the size of the investment the franchisees would be considered sophisticated investors and that they were likely represented by legal counsel that reviewed the agreement before they signed them. I also assume that the franchisees were not coerced against their will into signing the agreements and had they chosen to could have created their own brand and stayed independent instead of becoming franchisees. I assume that if they signed the agreement there was some value for them to become franchisees.

Even if you buy into the argument that small investment franchisee might sign a franchise agreements without reading and understanding them because they were not sophisticated investors, did not have money to hire a lawyer and did not know any better (total nonsense by the way), that would not be comparable for hotel owners. These are generally bigger investments than a Quiznos or a Firehouse Subs.

So - is it your point that AAHOA should coerce the franchisors to change and tortiously interfere with the agreement? Is the franchisor not entitled to the bargain they agreed to with the franchisees and would they be compensated for modifying the agreement? Assuming that many of these contracts allow the franchisees - for a price - to change flags, wouldn't that be a more honorable thing to do? This way they would live within the terms of the written agreement. Curious how you view contracts in general and in the hotel industry in particular?

Franchise agreements are not decreed in Heaven

Franchise agreements are not made in heaven and therefore can be negotiated and modified. Just because some franchisors are powerful enough to ignore such negotiations does not change the basic business tenet: contracts are negotiable

Franchise agreements are not decreed in Heaven

Franchise agreements are not made in heaven and therefore can be negotiated and modified. Just because some franchisors are powerful enough to ignore such negotiations does not change the basic business tenet: contracts are negotiable

Careful, Franchisor Guest, you might get what you wish for

If AHHOA members, who own,- what?-40% of all hotels, feel that the contracts have become so unfair, they very well COULD start their own brand and crush the existing franchised brands.

Better Negotiation Skill Set

I agree with Stanley.  AAHOA should continue to push in public for better franchise arrangements.  However, I don't think that merely complaining in public constitutes a serious negotiation stance.  Their entire Fair Franchising Committee, and perhaps their Board, needs training in sophisticated negotiations.  Readers here can look at any LinkedIn group with the word "negotiation" in it for some examples of useful training exercises.  (I happen to think that the Negotiation War Gamining group is the best.)