Hotel Online Special Report 

Newsmaker interview: Bob Hazard
Bob Hazard on...
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? 

A sample: 

  • "[Franchise contracts] contain as many rights and as few responsibilities as possible for franchisors, while just the opposite is true for franchisees." 
  •  "The stronger the brand, the more one-sided the franchise contract tends to be."
  • "Liquidated damages are simply a way for the franchisor to discourage a challenge from a franchisee and gain the upper hand in a legal dispute." 
  • "Preferred-vendor revenue goes directly to the franchisor's bottom line."
  • "[Franchise-company lawyers] prefer the status quo, the current master-slave relationship, with its imbalance toward the franchisor." 
It might have been easy to assume that once Hazard left Choice and formed Creative Hotel Associates-a developer, investor and manager of limited-service and full-service hotels-he would start to take a different point of view relative to the franchisor/franchisee relationship. The extent of that change, though, is amazing. 

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 
change the way they do business. 

"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." 

Bob Hazard on... 
Book most recently read: "American Journey" by Colin Powell 

All-time favorite movie: "High Noon" starring Gary Cooper. "That's because it showed that individual character and integrity count." 

Favorite music: Theme song from "Chariots of Fire" 

Favorite hotel amenity: Big, soft, fluffy, thirsty towels 

Biggest hotel gripe: "Dark shower with moldy plastic curtains and shower controls contrived by an evil genius." 

President Clinton: "We have a rabbit in the White House." 

When I was 12, I wanted to: "Hit .300 on my Little League baseball team." 

First newspaper read each day: "Hotel & Motel Management, of course." 

Hobbies: Golf. "Life's a game; golf is serious." 

A poem I know by heart: "The shortest poem in the world, 'Ode on the Antiquity of Fleas.' The poem is: "Adam had 'em.'" 

First movie seen in a theater: "An 11-cent, Saturday morning western at the Avon Theater in Baltimore where the first four rows were saddles." 

Nation's biggest problem: "Creating a world-class education system free of teachers' unions and teenage graduates who cannot read." 

Rather, Jennings or Brokaw: Brokaw 

Political philosophy: "Government has become too large and too inflated. It no longer fears disgruntled customers who can't take their business elsewhere." 

Taxes: "With the end of the Cold War, the total state, federal and local tax burden can be reduced to 25 percent." 

Corporate welfare: "Cut it with as much vigor as we cut other unnecessary government spending programs." 

Affirmative action: "Quietly, coolly phase it out. Ability counts more than gender, ethnicity or sexual orientation." 

Biggest concern: "The erosion of America's core values, especially the loss of individual responsibility and personal accountability." 

Campaign funding: "The current system corrupts." 

Air travel: "Airport congestion, chaos and cattle-car seating are guaranteed when nearly a billion people fly U.S. carriers in the next decade." 

Cocktail hour: "Keep it short." 

In New York, I stay at: "Any hotel under $200 a night."

Hotel & Motel Management
Jeff Higley, Managing Editor
email: [email protected]

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