|By Robert A. Nozar H&MM Editor-in-Chief November 1998
Could this really be Bob Hazard? It looks like him and acts like him, but he sounds different. Not the voice: It's the same as when Hazard was at the podium before thousands of Choice Hotels International franchisees-at Choice's annual convention-as companychairman.
Rather, it is what Hazard says that is so different. Where he once personified the hotel franchising game, he has done an about-face and taken a starring role as put-upon franchisee. Who would have thought that Hazard, when he led the most dynamic franchising effort in the U.S. hotel industry, would now use franchise companies for target practice?
Hazard even authored a paper on the franchising game that he titled "Confessions of an Ex-SOB Franchisor." Is he being a little hard on himself?
"My loyalty is to the lodging industry," Hazard said. "There are now significant differences among franchisees in how they do business and it's much worse now, but even we weren't perfect. When I was at Choice, I did believe that we were partners in profit with our franchisees, but now when you hear statements like that, you realize that rhetoric and reality are strangers."
Hazard is one of those whose physical appearance barely changes over the years. He lives in Paradise Valley, Ariz., having returned to the desert where he first made a name for himself as c.e.o. of Best Western International.
He loves the Arizona sun and complained one recent day of having had to don a suit and tie to attend to business. His co-founders of Creative Hotel Associates-Gerald Petitt, Richard Kaden and Steve Mullinger-are in CHA offices in Rockville, Md., and Daytona Beach, Fla. What they did is put together a company that wants growth, but has no problem acting as a conscience of the industry.
Describing the U.S. hotel industry as having lost its soul, Hazard has problems with the way most hotel companies do business, and the concern he said they have with shareholder value, but not with customer or franchisee value. It saddens him that more than 50 of his fellow Choice employees have left the company since he departed, but Choice by no means is alone in Hazard's wrath. Marriott International, Promus Hotel Corp. and Cendant Corp. also stand accused of giving short shrift to franchisees, and Hazard said he is committed to changing the way the lodging industry does business.
"When I pay my franchisor 9 percent to 10 percent of my gross revenue-which was about half that amount 20 years ago-I'm really paying them 40 percent to 50 percent of my net profits," he said. "Each time I raise my room rates 4 percent to 5 percent, my franchisor gets a 4 percent to 5 percent raise. That's quite a deal for them."
Hazard said the attitude of strong brands is they don't sell franchises, they grant them; and that's a corporate arrogance that eats away at the franchisor/ franchisee partnership from Day One.
Creative Hotel Associates will build and buy properties at a pace that will give it 50 hotels in the next three years, but plans to do so as an equal partner with the franchise companies with which it does business. While others may see dreary times for the hotel industry, Hazard said there are attractive buys available and he is concerned that there are so many prophets of doom.
"It's not rational that hotel stocks are experiencing severe declines when there are record profits," he said. "Unwarranted fears spook analysts, and constant talk of overbuilding is fanning an irrational fear." Hazard said 38,000 guestrooms become obsolete every year and the industry needs to replace them.
"Travel is still the hottest industry," he said. "How can people say
things are so bad? If you finance conservatively, which we do, you can
be successful. Cash will be king and we have cash." Franchise companies
that want to join Hazard in this success story will need to
"Franchisors provide me with a recognized brand name, a reservation system, national advertising, marketing support, a quality inspection system, and, in some instances, prototype architectural plans, purchasing assistance, training materials and limited operations support," he said. "What I also want is fair and honest treatment, appreciation and respect. I need systems that help me to succeed, and relationships that make life fun and fruitful. Anything less should not be acceptable."
Hazard said when he ran Choice, he did not realize how one-sided the franchise agreements were.
"We hired the best lawyers we could find to design agreements that way," he said. "We built in all the rights for the franchisor, but not the franchisee."
He said franchise agreements that allow no negotiation are not a fair way to deal with potential partners whose investment capital and fees build the brand and create added value for a successful franchisor.
Agreeing with the need to weed out bad franchisees, Hazard wants to stand shoulder-to-shoulder with the franchisor. "I'm not interested in protecting bad franchisees," he said.
What Hazard wants is a universal fair-franchise agreement that allows five-year escape windows with one-year notice. He said notice gives franchisors adequate time to find a replacement franchisee, and the franchisee time to seek another franchisor.
"Franchisor attorneys argue that five-year windows reduce the value of the franchisor because a potential buyer cannot depend on an uninterrupted 20-year stream of royalty income," Hazard said. "In fact, this erosion in value has not proven to be true in practice. However, it's an argument I used myself and it's still a favorite of franchisor corporate attorneys."
Hazard said it is a mystery to him why any franchise company would want to force an unhappy franchisee to stay in its system.
"Best Western has the right idea; they allow their members to terminate from the system at any time," Hazard said. "This imposes a strong franchisor obligation and responsibility to provide meaningful services that add value. It is one reason why Best Western has enjoyed enormous growth and success." Franchisee guarantees
Guarantees of 100-percent customer satisfaction have revolutionized the hotel industry since the concept was introduced by Promus, but Hazard is at a loss to explain why franchise companies don't give their real customers-the franchisees- the same guarantee.
"Why isn't a 100-percent franchisee-satisfaction guarantee equally good for the franchisee and the franchisor?" Hazard said. "Promus, or one of its competitors, should take an emboldened customer-satisfaction position and be the first franchisor to implement a 100-percent franchisee-satisfaction guarantee." What Hazard said would be a nice turnabout is if franchisors agree to friendly change, but he frets that it will take the threat of a concerted franchisee effort by franchisors' best franchisees to negotiate fairness and redress the imbalance.
"The franchisees of the world should unite," he said. "We have nothing
to lose except our chains by demanding fairer franchise agreements and
a relationship that makes rhetoric and reality more closely coincide."