Franchisees in Survey Gripe About Parent

In a survey by the Asian American Hotel Owners Association, nearly half of those responding said they weren't pleased with their decision to purchase a franchise. And when asked if they would invest in the same franchise again, 42% of those responding said no.

The Wall Street Journal
May 1, 1999

Franchisees in Survey Gripe About Parent
Dan Morse

GRUMBLINGS SURFACE from the ranks of hotel franchisees. In a survey by the Asian American Hotel Owners Association, nearly half of those responding said they weren't pleased with their decision to purchase a franchise. And when asked if they would invest in the same franchise again, 42% of those responding said no.

It's unclear how much the dissatisfaction can be tied to inexperience or lack of ability on the part of franchisees. Indeed, fully 83% of those responding admitted they didn't consult a professional adviser, such as an attorney or accountant, before buying a hotel outlet.

Still, it is clear the tensions between outlet owners and the parent hotel chains aren't going away soon.

The group wants to use the study results to pressure big hotel franchisers, such as Cendant Corp. and Choice Hotels International Inc., to give franchisees more say in day-to-day management and long-range planning.

The most common complaint, cited by 92% of the franchisees, is that the companies are creating too many brands and saturating markets. For instance, Cendant owns the Days Inn, Super 8, Howard Johnson, Knights Inn, Ramada and Travel Lodge brands.

For Salesh Patel of Bremen, Ga., that is just too many. Six years ago, he says, he opened a Days Inn, only to run into problems in 1996. The chain cited him for poor housekeeping, problems he said he corrected. Then the chain cited him twice more — undeservedly so, Mr. Patel says — and terminated his contract. After that, the chain gave him a choice: Either leave, and pay $160,000 in liquidation charges, or change to a new brand. "They dumped us to a Travel Lodge," he says. "Nobody wants a Travel Lodge."

Meanwhile, another franchisee opened a Days Inn at the same Interstate 20 exit — converting an existing
Best Western. (Both Days Inn and Travel Lodge are owned by Cendant; Best Western isn't.) Mr. Patel says the hotel chains are simply too aggressive in opening outlets, because they are so focused with reporting rapid growth to investors.

Eric Pfeffer, chairman and chief executive of Cendant's hotel unit, which owns eight hotel lines, declined to comment on the survey.

Mike Patel, chairman of AAHOA, said he was pleased that two hotel-chain companies — Cendant and U.S. Franchise Systems Inc. — now allow their franchisees to get out of their contracts if occupancies fall below a certain level. For Cendant, it is 50%, and for U.S. Franchise, it's 60%, he said.

But other hotel owners contend that they must open franchises lest other chains move in. "We work with our franchisees not to create an impact problem for them," says John Hawkins, a spokesman for Choice Hotels, which owns seven hotel lines. "Frankly, some franchisers do a better job than others in terms of managing this particular issue."

Michael Leven, chief executive officer of U.S. Franchise Systems — which owns the Microtel Inn & Suites, Hawthorn Suites and Best Inns & Suites — says he understands the franchisees' concerns, but counters that parent companies are trying to stay ahead of the competition.

"From a franchiser's perspective," Mr. Leven says, "if it isn't one of his products across the street, it'll be someone else's."

— Joshua Harris Prager and Jeffrey A. Tannenbaum contributed to this article.


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