Conflict of Interest Between Hotel Brands and Franchisees Explained

A conflict of interest in hotel franchising arises when the interests of the franchisor (the brand owner) and the franchisee (the individual or entity operating the hotel under the brand) diverge or potentially clash. Here are several aspects of conflict of interest in hotel franchising:

1. Fee Structure: Franchisors typically charge various fees, including initial franchise fees, ongoing royalties, and marketing fees. A conflict of interest may arise if the franchisor prioritizes maximizing these fees over the financial well-being of the franchisee.
2. Royalty Rates: Franchisees pay ongoing royalties to the franchisor based on a percentage of their revenue. If the franchisor raises royalty rates excessively or implements changes without considering the profitability of the franchisee, it can lead to a conflict.
3. Contract Renewal: Franchise agreements usually have a fixed term, and renewal is subject to certain conditions. Franchisors may use the renewal process to renegotiate terms in their favor, potentially disadvantaging franchisees.
4. Supply Chain: Franchisors often dictate the suppliers or vendors that franchisees must use. If the franchisor has financial ties to these suppliers, it may raise concerns about whether the recommended suppliers offer the best value for the franchisee.
5. Marketing and Advertising: Contributions to marketing and advertising funds are common in franchising. A conflict can arise if the franchisor’s marketing strategies do not align with the local market needs or if the funds are not utilized effectively for the benefit of all franchisees.
6. Brand Image and Quality Standards: Franchisors set brand standards to maintain consistency across their properties. However, if these standards become too stringent or costly for franchisees to meet, it can create a conflict between brand image and the financial feasibility of operating the hotel.
7. Territorial Issues: Conflicts may arise if a franchisor allows multiple franchises to operate in close proximity, leading to competition between franchisees of the same brand. This can affect the business potential of individual units.
8. Technology Investments: Franchisors may mandate certain technology systems, and conflicts can arise if the required investments are disproportionate to the benefits provided or if the technology becomes outdated without timely updates.
9. Changes in Brand Strategy: If the franchisor shifts its brand strategy, targeting a different market segment or changing the brand image, it may create a conflict if franchisees do not agree with or benefit from these changes.
10. Legal and Regulatory Compliance: Franchise agreements typically include provisions for legal and regulatory compliance. Conflicts can arise if the franchisor’s directives or policies put the franchisee at risk of violating local laws or regulations.