For generations, the franchising model has helped thousands of AAHOA hotelier members achieve the American Dream of running their own business.
Franchisees get the chance to run their hotel businesses with the financial resources and recognizable brand name of a franchisor. But, for too long, corporate franchisors have taken advantage of the hardworking people on the front lines of their businesses.
That is why AAHOA is at the forefront of advocating for legislation in New Jersey, Assembly Bill 1958, that will ensure greater fairness in the franchising system for our hotel owner members. The New Jersey Assembly passed the bill in May handily by 41-28-2. It now awaits action by the New Jersey Senate before it can become law.
This legislation is in line with our Four Core Pillars of Franchise Advocacy to reform rules involving mandated vendors, rebates, loyalty programs, and new fees. But, the groundbreaking nature of this bill is why allies of corporate franchisors, and their lobbying association – or what we refer to as “Big Lodging” – are spreading disinformation to uphold a one-sided and frequently rigged system.
Contrary to the four “problems” identified by Big Lodging in a recent September LODGING magazine article, we want to set the record straight with the facts about exactly what this NJ franchise bill will accomplish.
FACT #1:
NJ FRANCHISE BILL WILL NOT WEAKEN BRAND STANDARDS. IT WILL ALLOW COMPETITIVE PRICING, BUT A FRANCHISOR WILL HAVE DISAPPROVAL RIGHTS FOR NEW SUPPLIERS.
Big Lodging is falsely asserting that the NJ franchise bill will weaken brand standards. But significantly, in their published articles, they have failed to cite to a specific provision of the NJ franchise bill that will weaken brand standards. And for good reason: There are none.
While the original 2021 franchise bill had provisions that might indirectly have impacted standards, what Big Lodging failed to disclose is that last year the AAHOA Board of Directors voted unanimously to recommend amendments to the NJ franchise bill to eliminate provisions impacting brand standards. AAHOA leaders then worked closely with the NJ franchise bill’s sponsor, NJ Assemblyman Raj Mukherji, to make and adopt widespread amendments regarding same.
The amended NJ franchise bill specifically provides in A1958, section 2(b), that to promote competitive pricing, a hotel owner will be allowed to purchase goods of “comparable quality” that are available from sources other than those designated by the franchisor. Moreover, it still provides “a reasonable right of the franchisor to disapprove a supplier.” (See, NJ bill section 2(b).)
Consequently, no brand standards will be weakened or impacted. In fact, hotel owners will be able to obtain competitive pricing on products and services with corresponding savings that can be used to increase employees’ wages and decrease room rates.
The claims pushed by Big Lodging and others that these changes would prevent franchisors from requiring compliance with brand standards are false. The truth is transparency will only strengthen brand integrity.
FACT #2:
NJ BILL WILL NOT RESTRICT LOYALTY POINTS. RATHER, FRANCHISORS WILL BE REQUIRED TO FAIRLY COMPENSATE FRANCHISEES WHEN POINTS ARE SOLD AND REDEEMED.
Big Lodging falsely claims that the New Jersey bill ultimately will eliminate loyalty-point programs in the state. Nothing could be further from the truth. Again, they failed to cite any specific provision of the NJ franchise bill that will restrict loyalty points because none exist.
Instead, the NJ franchise bill will require franchisors to compensate franchisees for the sale of loyalty points at either the lowest publicly advertised room rate or value of points sold when a guest redeems these points. It also will prevent franchisors from imposing fees on hotel owners for failing to enroll a minimum number of guests in a loyalty program. The truth is loyalty point programs will only be subject to rules ensure hotel owners are fairly compensated. (See, NJ bill sections 2(f), (g).)
Given there are no restrictions whatsoever on the loyalty points themselves or the guests who want to use them, any assertions otherwise are false and misleading.
FACT #3:
COSTLY LITIGATION WILL NOT ARISE UNLESS A FRANCHISOR FAILS OR REFUSES TO COMPLY WITH THE NEW LAW.
Big Lodging further asserts the NJ franchise bill will trigger costly litigation. But, the only reason litigation might arise will be if a franchisor fails or refuses to comply with the newly passed law. (See, NJ bill section 2(f), (g).)
FACT #4:
NJ BILL WILL NOT UNDERMINE VENDOR RELATIONSHIPS. INSTEAD, IT WILL REQUIRE ALL VENDOR FEES AND KICKBACKS TO BE FULLY DISCLOSED.
Big Lodging alleges that the NJ franchise bill will undermine crucial vendor partnerships.
The important truth is that this bill will require franchisors to disclose the tens of millions of dollars of fees (aka, kickbacks) paid annually by vendors to franchisors based on franchisees’ purchases. (See, NJ bill section 2 (a).) But importantly, franchisors will not be restricted from negotiating beneficial agreements with partners and vendors.
AAHOA Members know full well that unexpected costs can take the form of undisclosed kickbacks and fees when they have to pay more for prices from mandated or qualified vendors. These fees are not inconsequential.
By way of example, in the 2022 published Franchise Disclosure Document (FDD) of Choice Hotels International, Inc. (Choice Hotels), it was disclosed in Item 8 that “Revenues attributable to franchisee purchases were $86.9 million, or about 8.14% of our total revenues in 2021, which includes revenues from Qualified Vendors and choiceADVANTAGE, installation and support fees.”
Significantly, Choice Hotels revealed it receives nearly $90 million in fees paid by Qualified Vendors attributable to franchisee purchases and for related IT installation and support fees – but there was no disclosure concerning each of the Qualified Vendors who paid these fees or the amounts paid by each one.
Regrettably, these disclosures by Choice Hotels are not unusual. Other hotel franchisors also have stated in Item 8 that they receive tens of millions in funds from vendors from whom their franchisees purchase products and services. But without full disclosure, these untoward practices will continue.
MAKING FRANCHISING FAIR
AAHOA is doing everything in our power to bring this important legislation over the finish line in New Jersey, where our members own 45.4% of hotels. We believe that this NJ franchise bill will help set a nationwide standard for franchising that is balanced and fair.
As we fight for passage of this important bill in the New Jersey state Senate, we encourage all our AAHOA Members to join us in sharing the true facts of how this bill will strengthen hotel franchising for the long term and for the benefit of our future generations.
Watch: 4 Pillars of Franchise Advocacy
Click here to watch the Four Pillars of Franchise Advocacy video, where AAHOA Chairman Bharat Patel explains how each pillar guides our advocacy work toward fairness in franchising. These four Pillars of Franchise Advocacy represent the primary issues for which AAHOA advocates on behalf of its member Franchisees.
