Franchisee Concerns
Many hotel owners, including Bharat Patel, the chairman of the Asian American Hotel Owners Association, have voiced their opinion that the merger is unnecessary. Patel, who owns two Choice hotels, explained that he is not against either Choice or Wyndham but feels that the interests of franchisees should be taken into account. The concerns of hotel owners could present a hurdle for Choice as they seek approval for the merger from the Federal Trade Commission. It appears that economic and legal dynamics within the franchising relationship have increasingly favored brand owners over franchisees.
Franchise Chains and the Concerns of Hotel Owners
Franchise chains, such as Marriott, Hilton, InterContinental, Best Western, Choice, and Wyndham, account for approximately 80 percent of all branded hotels in the United States. Unlike fast-food franchises, hotel owners typically invest in or develop their own buildings, with most owning only a few hotels. The Asian American owners’ group, for example, has an average of just two hotels, usually in the economy or midscale segment, where Choice and Wyndham dominate. Being part of a franchise network provides the benefits of a recognized name, a business plan, and collective purchasing power. However, franchisees pay fees, royalties, and other charges to the brand owners, effectively making them customers of the hotel brands.
Hotel owners are concerned about the reduced competition between hotel chains, which limits their options and bargaining power. Consequently, they have less leverage to demand better services at lower costs. Bharat Patel highlighted this issue, expressing dissatisfaction with Choice’s charges and declining service quality. His profit margins have become thinner, and he is considering switching to a different brand when his franchise agreement ends. Other hotel owners share similar concerns about Choice’s acquisition of Wyndham and doubt whether negotiated lower prices would benefit them.
Franchisees’ Legal Challenges
A group of franchisees filed a lawsuit in 2020, accusing Choice Hotels of not passing along rebates from contracts with vendors. Although some hotel owners pursued separate arbitration cases, most avoid litigation due to the associated expenses. Rich Gandhi, a New Jersey hotelier, is supporting state legislation that improves the rights of franchisees in the hospitality industry. He has converted some of his Choice-branded hotels into non-Choice brands, such as Best Western and Red Roof Inns, which he believes offer better support, fewer restrictions, and more reasonable fees.
Concerns Over Choice’s Ability to Absorb Wyndham
Choice Hotels’ ability to acquire Wyndham may be negatively impacted by the dissatisfaction among hotel owners. If more franchisees switch to other brands, it could jeopardize the merger. The franchisees’ sentiments are crucial, not only in terms of consumer interests but also in influencing federal regulators’ views on the merger’s impact. The merger proposal is set to conclude in March, with Choice Hotels aiming to replace Wyndham’s board members with individuals who support the sale.