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Franchisees Need To Focus On Real Solutions Not Current Fee Structure

Wednesday August 11th, 2010 - 11:18AM


Dennis Nessler, Editor, Hotel Business

One of the staples of our annual Franchise Report is the comprehensive fees report culled together with the cooperation of all the brand companies. As I pour over the many numbers this year, one thing that jumps out at me is there are few meaningful changes from last year.
To that point, another thing that jumps out at me is a panel from the recent AAHOA conference where a number of leading brand executives were questioned long and hard about their fee structures and the possibility of reducing fees. Disillusioned members maintained that the return on investment isn’t what they were promised when they signed on with their current flags.
But the brand executives on the panel stood firm that there would be no reduction in fees, and in reality, how could there be? Franchise fees have long been their collective bread and butter, but with many companies shedding their real estate in recent months and years, they are more reliant on franchising than ever before. In addition, the development pipeline isn’t exactly overflowing here in the U.S.
There has been much concern over the past two years about potentially distressed properties, and the impact they will have on the overall market as well as the owner/operators. But the health of the brand companies is vital to the industry as well. They may have deeper pockets than
the franchisees, but in many cases they also have Wall Street to answer to.
Owners should know right now better than anyone the damaging effects of lowering prices, so asking the brands to do the same thing doesn’t seem particularly fair. The same way when profits were rolling in a couple of years ago, there weren’t many franchisees volunteering to give more in fees to the brand companies because returns were higher than expected.
The knock from franchisees against the brands used to be that they were only their partners during good times, but when they struggled the brands turned a blind eye. However, that does not seem to be the case any longer.
More than ever before we hear from owners and operators that brand companies are working with them as much as possible. As an example, the lead story of this issue on Property Improvement Plans (PIPs) chronicles how brands have tried to remain patient with cash strapped owners who may not be have the means to implement every aspect of a PIP, but continue to make good faith efforts.
The recovery seems to be taking root slowly but surely, and maybe within a few months this will all be a moot point. But for now, franchisees would be wise to continue to work with the brands on solutions rather than trying to adjust the fee structure.
 

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