Confessions Of A Franchisor SOB: Former Choice Exec Bob Hazard Speaks Out

For 20 years I headed two of the largest franchise lodging chains in the world and worked with thousands of franchisees. Now I am a multi-unit franchisee myself with 10 hotels open and plans to build or buy 40 more franchised hotels under a variety of brand names over the next three years. While President, Chairman and CEO of Choice Hotels International and CEO of Best Western, my job was to treat our 6,500 franchisees or members fairly, to maximize their profitability and to make them my ?partners for profit.? Now that I am a franchisee, I have found that franchisors? rhetoric and today?s reality are clearly out of sync. When I pay my franchisor 9% to 10% of my gross revenue (compared to half that amount 20-years ago) I?m really paying my franchisor 40% to 50% of my net profits. Even worse, the franchisor takes his fees off the top, while the franchisee may lose money on his bottom line. Each time I raise my room rates 4% to 5%, my franchisor takes none. Over the course of a 20-year agreement, I will pay my franchisor $2 million per hotel or more than $100 million for my 50 hotels. That?s a good deal for my franchisor partners! My franchisors provide me with a recognized and respected brand name, a productive reservation system, national advertising, marketing support, a quality inspection program, architectural prototype plans, purchasing assistance, training and limited operations support. We share a common bedrock belief that both of us have the same vital interest in strengthening the brand, improving quality standards, rapidly terminating substandard franchisees, delivering a consistent, high-quality guest experience and boosting marketing and reservation performance. No one wants to allow substandard franchisees to diminish the value of a strong brand. Where The Problems Are In addition, I expected fair and honest treatment from my franchisor, plus appreciation and respect. I need a partner who helps me to succeed and a relationship that makes life fun and fruitful. Anything less is not acceptable. So where are the problems? Most hotel franchisee concerns can be grouped into three general categories: (1)The fairness of the basic franchise agreement. The franchise agreement should be a partnership agreement of trust and accountability between the franchisee and the franchisor. The reality is that today?s hotel franchise agreements are amazingly one-sided and unfair, heavily-skewed in favor of the franchisor. This should not be surprising since today?s agreements are crafted solely by the franchisor?s highly-paid corporate lawyers whose job is to protect the franchisor against any and all contingencies including any possible litigation by the franchisee. Current agreements contain as many rights and as few responsibilities as possible for the franchisor, while just the opposite is true for the franchisee. Depending upon the brand, there is often no negotiation allowed to change the terms and conditions of the agreement. This is not a fair way to deal with potential partners whose investment capital and fees will build the franchisor?s brand and create billions of dollars in added value for a successful franchisor. It seems that the stronger the brand, the more one-sided the franchise agreement tends to be. Marriott?s agreement runs to 64 legal pages, Promus? agreement runs to 23 pages, while Choice?s agreement is down to 12 pages in fairly straight-forward English. The attitude of some of the stronger brands is, ?We don?t sell franchises, we grant them!? This smacks of unnecessary corporate arrogance. One problem is that under current hotel franchise agreements, hotel franchisors have the unilateral right – without the permission of its franchisees – to sell our franchise organization to anyone they choose, to change brand standards, to impose new fees, to introduce new brands, to invade my marketplace, to extort suppliers, to cut services if needed to boost profit margins and to do just about anything else,

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