When the Patel family opened a hotel in Dickinson, North Dakota in 2007, they agreed that brand recognition offered by a large franchise chain would be a valuable trade-off to operating independently. After careful analysis, they chose to operate their family hotel as a Quality Inn and Suites with Choice Hotel International Inc. (Choice Hotels). This is similar to the decisions being made by thousands of entrepreneurs each year to become franchisees of large brands instead of working as independent small business owners.
Such franchise agreements, common across hotels, fast-food restaurants, and other retail businesses, provide opportunities for small-business owners like Darshan Patel, who purchased the Dickinson Quality Inn and Suites from his father in 2018.
As Patel learned, however, franchise agreements only work when both the franchisor (in this case the hotel chain) and the franchisee (the hotel owner) operate in good faith and treat each other with respect. As a neutral arbitrator recently ruled, Choice Hotels treated Patel not as a partner in running a successful business, but as a mark to be taken advantage of with both widespread misstatements and misallocations of marketing system fee funds.
Patel’s case is all too familiar to us in the hospitality industry. Increasingly, big chains like Choice Hotels (whose CEO Patrick Pacious received $38 million in salary, bonus, and stock options last year) have lost sight of the partnerships needed to sustain and grow our industry as we deal with workforce shortages, continued recovery from the pandemic, and competition from home-based rental apps like Airbnb and Vrbo. While AAHOA, the Asian American Hotel Owners Association, of which I serve as President & CEO, remains committed to dialogue with the hotel chains on uplifting our industry, we are also turning to partners in government like the Federal Trade Commission (FTC) and the New Jersey Legislature to help restore balance in the critical franchising…
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