Hotelier Discusses Fair Franchising

CEO and founder of Vantage Hospitality Group Roger Bloss, operator of the Best Value Inn and Lexington Suites hotel chains, boasts a record of adding another hotel to …

CEO and founder of Vantage Hospitality Group Roger Bloss, operator of the Best Value Inn and Lexington Suites hotel chains, boasts a record of adding another hotel to its stable every other day and has set records for the fastest-growing chain in the industry. His vision of fair franchising includes affiliation with the brand for flat monthly fees and short-term licensing agreements that allow franchisees to leave the brand within months if they like. Most incredibly is that Bloss offers franchisees a refund of fees if they don’t realize a profit on investment with the brand. Many would not agree with Bloss’s methods, but proof of success is arguably in the numbers. For more on this continue reading the following article from Blue MauMau.

Roger Bloss, CEO and founder of Vantage Hospitality Group, sat down with Blue MauMau during the Asian American Hotel Owners Association’s annual conference in Atlanta for a frank discussion on how to give fair franchising practices teeth and the importance of empowering hotel owners to make collective brand decisions.

What is so unusual about Bloss and his company Vantage Hospitality, with its Best Value Inn and Lexington Suites chains? Consider this: Americas Best Value Inn offers hotel owners affiliation in its brand with flat monthly fees. It has short-term license agreements rather than the 20-year ones that are pervasive in the industry. That means hotel owners can easily leave the flag within months should they choose. And get this: It’s not an autocracy. It has a representative form of chain-wide governance where its hotel owners collectively determine in what direction ABVI will go. A two-thirds vote seals the deal. That is unheard of! And to get real crazy, Vantage Hospitality offers a promise to its hotel owners that if they don’t have return on investment value added by joining the brand, they can be refunded the fees they’ve paid.

Founded by Mr. Bloss in 1999, Americas Best Value Inn has set industry records for the fastest growing major chain in the world. Lodging Hospitality’s National Chain Leadership Award named it the fastest-growing hotel chain in America for a number of years. It’s made the Inc. 500 fastest growing 5000 for 6+ years.

As it gets larger, explosive growth gets harder. But with over a thousand independently owned properties, the now 10th largest lodging chain in the world adds a hotel every other day. "Americas Best Value Inn is adding hotels at a record pace in 2012," says Mr. Bloss. "We had our best first quarter in five years and then enjoyed a solid month in April."

As the company signs away dissatisfied franchise owners from the big chains, critics say what Vantage Hospitality is navigating through isn’t a "true" franchise system because its hotel owners’ license fees are too short term and contracts can be exited too easily for the strict control that they feel proper business format franchising needs. Vantage and a few others that follow this flexible model also find it to their advantage to separate themselves from the reputation of abusive practices that franchise systems have gained. They market the chain’s hotel owners as members, rather than franchises.

Hotel consultant Stan Turkel, author of Great American Hoteliers, Pioneers of the Hotel Industry, thinks that other franchise systems may be unwisely critical of Vantage. "They ignore it and its drive for fair franchising at their own peril," he states. "Vantage Hospitality and Bloss are as smart as can be. They will continue to attract hotel owners to their fair franchising model."

Clearly, the market has rewarded the innovations within Vantage Hospitality brands.

BMM: Over the years, you have been very active with the Asian American Hotel Owners Association (AAHOA), a trade group that represents some 11,000 U.S. hotel owners. You are a major advocate of their twelve points of fair franchising to benchmark franchisors on the reasonableness of their franchise practices and contracts. So let me ask you this: What more do you think AAHOA should do with its emphasis on the twelve points of fair franchising? Right now franchisor CEOs write to AAHOA on what they’ve accomplished on each of the twelve points for the year.

Bloss: If the twelve points of franchising have been around for a decade and a half, why are we still talking about it?

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AAHOA puts out a published report, but franchisors provide the report. Why not take the twelve points and give it to a third party? Let someone who knows both sides, who knows the difference between advertorial that franchisor leaders say versus reality.

I would like to see AAHOA find someone with franchising expertise, hospitality expertise. I’d like to see them do the due diligence for each of the brands. They should investigate and report on not only the corporate side, but also from the franchisee side and the vendor supply side because these are the grey areas in abusive franchising practices that are not addressed openly.

In my younger days working at some of these large franchisor firms, it looked to me like 50 percent of the marketing went to cover (franchisor) corporate overhead. That’s not what franchisees should be paying marketing fund fees for. So I’d like to have someone go through the franchise disclosure document and go all the way through vendors, suppliers, and employee compensation. In other words, find out what are the incentives for employees. Every franchise disclosure document says that a franchisee prospect cannot rely on the statements of an employee. But let’s be honest. Who are franchisees buying from — the franchise disclosure document or an employee? No one reads the franchise disclosure document (FDD).

I’d love to see a third party, outside source that is familiar with both the FDD and the franchisor to really engage in serious due diligence in scoring and ranking each brand. And let them [the third party] give the report to the body of members of AAHOA. Let them go on stage and say, okay, fair franchising point number seven, what is your position on that, Mr. Franchisor President? Why don’t you do point seven? Let the franchisees know why instead of guessing why.

BMM: Here at AAHOA’s annual conference, franchise attorney Robert Zarco moderated a panel of top brand executives this morning. Choice Hotel’s CEO Steve Joyce, Wyndham’s CEO Eric Danziger, Best Western’s CEO David Kong, Marriott and others responded to some tough questions. What was your impression about their answers on the realities of what’s happening in the marketplace and each brand’s fair franchising efforts with its franchisees?

Bloss: The moderator took a pretty aggressive tack. Good for him. But I believe backstage the panelists agreed that they weren’t going to be pulled into a discussion that explored that their franchisor self-interests are separate from the franchisees’ interests.

I go year after year. It’s always the same brand presidents on stage. I’d like to see it stirred up a bit. The panel turns into a big infomercial. I don’t believe the attendees and AAHOA members are there for an infomercial. They really want to know substance — that is to say, what does this issue mean to me?

The audience was expecting and wanting to hear about the Choice Hotel settlement in which Choice was almost dismissed from AAHOA membership because of bad franchise practices it engages in. The panel didn’t discuss that.

You heard the audience when they did get away from the infomercial, when they did touch on some of the nuts and bolts, you heard the audience’s reaction. There was some applause and some pretty loud booing and hissing on other answers. [BMM Note: The audience booed when Choice Hotels’ CEO Steve Joyce dismissed a question by answering that there weren’t any problems between Choice Hotels and franchisees and that Choice always tried to look out for franchisee interests]. I think the audience wants more tough questions and honest answers. That’s a challenge because you have hotel chain leaders who know how to look good on stage.

BMM: Tell me about your system. I understand that hotel owners in your system vote to decide what direction the brand should take and that you must abide by a 67 percent vote on any issue. Who would have thought that a major hotel chain could be run through a governance structure of a democratic republic? That’s wild!

Bloss: People still don’t believe it to this day that America’s Best Value Inn lets our members vote on brand issues. They even vote on license fees. Until you see it, you won’t believe it.

You should have seen Bernie’s face the first day I told him that Vantage Hospitality was going to ask our members to direct what our fees [royalty, license fee, etc] should be through voting. [Bernard Moyle is co-founder, partner and COO of Vantage Hospitality.] Bernie pulled me off stage. He was still a lawyer and wasn’t my partner yet. It was only our second year of a convention. He goes —"Are you out of your mind?" I said, "Yeah, but you already know that." We’ve been friends a long time so he knows I’m out of my mind. The attorney in him spoke out: "Don’t do it. We’ll never be able to get out of it."

I said, "Yes, I know."

These are smart business people. We are better for it by having our hotel owners make informed decisions on where the chain should go.

It’s the gutsiest thing I have ever done.

BMM: Tell me about the governance structure of your hotel licensees. One criticism of franchisee advisory councils is that they are biased towards franchisors and another is that these councils easily become a fossilized old boys club, where new people and innovation are stifled. How long is your advisory board chairperson elected for?

Bloss: We have no head. Representatives of the hotel owners are all equal. Some hotel owners decide they want to make a difference in where the brand is heading. They run for board membership, give campaign speeches and the audience votes on who they want. Our two representative organizations, the advisory board and the advertising council have equal voting rights. Delegates typically serve three- to five-year terms. Every year new leaders are elected, and every year there is a percentage that must turn over. That’s why we don’t get the good old boys that get stuck in leadership.

Franchisors typically compensate their board members, to the point where people fight to keep those positions. You are talking about around the world trips for wives. When you are incentivized for participating in boards, human nature is such that it says I’m not going to bite the hand that feeds me. That loads the advisory board with bias towards the franchisor and less representation of their own constituents, franchisees.

We don’t do that.

To my knowledge, my board is the only council in which its members are not compensated for participating. Americas Best Value Inn board members pay their own air fare. They pay their own expenses to attend board meetings.

This article was republished with permission from Blue MauMau.


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