Building a fairer future for hotel franchising
At the time of writing, concerns about inflation have seen the Federal Reserve raising interest rates by a quarter-point, the ninth increase in a year. Meanwhile, all eyes are focused on recent bank failures to see how this will impact the cost of borrowing money to fund mandatory PIPs and purchases from approved suppliers.
With the added pressure of rising operational, labor, and insurance costs, hotel owners are calling out the additional burdens imposed by hotel franchisors as unsustainable.
Unfair business practices in hospitality industry
Thomas Magnuson, CEO of Magnuson Hotels, is frequently dismayed to learn how unfair franchise agreements imposed by popular hotel brands impact independent hotel owners’ businesses.
“I know a hotel owner from Moses Lake, Washington, who was fined thousands of dollars by his franchise just for running out of bananas on a Saturday morning,” says Magnuson. “Another hotel owner in Iowa told me they are forced to buy 40-inch Samsung TV sets from his franchise at a cost 25% higher than market price. He could buy the same TV sets much cheaper down the street.”
Magnuson is also quick to highlight the fact that many hotel brands have very little loyalty to their hotel owners.
“I recently met a hotel owner from Napa Valley, California, who was a Hilton franchisee for 20 years,” says Magnuson. “He was totally brand compliant, but he was not allowed to renew his contract. He later found out that a competitor from the same brand was opening up just a block away.”
According to Magnuson, hotel owners have had enough and are fighting back.
“Hotel owners by the thousands are rising up against publicly traded corporations,” says Magnuson. “They are complaining about what they feel are unfair business practices. They are also instituting class action lawsuits at the federal level and even legislation at the state level. The demand for fair Franchising is well underway.”
What does Fair Franchising look like?
Fair Franchising Reform calls for:
- The removal of mandatory brand standardization renovations by corporate hotel chains. These can cost a midscale owner up to $20,000 per room.
- The move from 10-20 year contracts in favor of more flexible arrangements with transparent fees.
- An end to brand procurement mandates. These require hotel owners to purchase hotel furnishings and only work with approved franchise suppliers and vendors at significant markups.
- The availability of fair fee structures. Asian American hotel owners say that paying a big brand franchise of up to 20% of the room sales just isn’t sustainable in today’s economy. They are seeking a franchise option with all the benefits of a corporate but with a more affordable, fairer, and transparent fee structure.
Big hotel brands don’t play fair
“Franchise reform cannot be solved by major corporations turning their backs,” says Magnuson. “Hotel franchise corporations need to embrace franchise reform to ensure an economically sustainable future for hotel owners and the thousands of small businesses, families, and communities who helped build these chains into the success they are today.”
According to Magnuson, Asian American hotel owners are a particularly influential voice in the industry. More than 60% of total hotel rooms in the USA are operated by Asian American hotel owners, who also employ 4.2 million US workers and are responsible for 1.7% of the US GDP.
Despite the power of this collective voice, along with the rising demand for Fair Franchising from all hotel owners across the industry, an increasing number of hotel brands are turning their backs on their hoteliers’ demands.
In 2022, a period when hotel owners had only just started emerging from the impact of the COVID-19 pandemic, two major hotel brands, Choice Hotels and Marriott, dropped their support for the Asian American Hotel Owners Association (AAHOA) for Fair Franchise Reform.
Magnuson Hotels champion Fair Franchising
Fair Franchising has been at the heart of Magnuson Hotels’ business ethos from the very beginning.
“We formed Magnuson hotels 20 years ago to help hotel owners succeed without the burden of PIPs, extensive franchise fees, long-term contracts, or mandatory suppliers,” says Magnuson. “If you need help succeeding at your hotel dream – we’ll be right behind you. Not by telling you what to look like or what to be. But instead, by helping you achieve your dream in your own way.”