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March 16, 2022updated 21 Mar 2022 11:29am

Franchise agreements create a moral dilemma for hotel chains in Russia

ayers in the hotel sector have benefitted from franchise agreements over the years. The model has allowed for rapid growth into untapped markets, and for more asset-light operations.

By Globaldata Travel and Tourism

Locked in agreements with third party franchisees in Russia are causing a headache for hotel giants that are looking to distance themselves from controversy.

Accor has 56 branded hotels in Russia, and Marriott has 30. Many of these are run by third parties under franchise agreements. These numbers account for a minor percentage of their global presence. For example, the number of Marriott properties in Russia accounts for approximately 0.4% of its global hotel portfolio. With just one additional Marriott property in Ukraine, it is evident that the direct impact of the crisis will not have a disastrous effect on the company’s bottom line.

However, the continued operation of branded hotels in Russia could create reputational damage for major hotel companies, and this has the potential to impact financial performance beyond the short-term.  

Hands are currently tied

Major players in the hotel sector have benefitted from franchise agreements over the years. The model has allowed for rapid growth into untapped markets, and for more asset-light operations.

This low-risk strategy has now come back to bite players such as Marriott and Accor. The contracts involved with franchised hotels in Russia means that they cannot simply just shut down their branded properties. If they did choose to do so, serious financial ramifications would follow, as third-party hotels would likely take legal action.

If these major companies cannot find loopholes in their contracts to shut down operations without facing legal action, they will be stuck between a rock and a hard place. Do they risk boycotts from consumers that deem them to be unethical? Or, do they risk being sued by their franchisees?  

54% of global consumers either ‘somewhat’ or ‘completely’ agree that they are more loyal to brands that support social or human rights matters*. This shows that many consumers could be put off from using hotel companies that are still operating in Russia, as they have seen many other major Western companies completely halt business in the country.

These companies must be proactive

Currently, it seems that the likes of Accor and Marriott have little choice but to continue franchised operations in Russia. Hotel companies such as these must be proactive to display to consumers that they are socially responsible, and are taking actions to mitigate the impact of the crisis.

Companies such as Marriott have halted future hotel developments in the country and closed corporate offices there. However, it may have to be on the charitable side of things where these companies go above and beyond to win over consumers.

Accor is working with several organisations to provide humanitarian relief to refugees, with at least 15 of its hotels opening their doors. Marriott is encouraging its Bonvoy members to help support Ukraine by donating points to UNICEF or World Central Kitchen. Marriott will then match donations point-for-point, up to $100 million, for this year.

These socially responsible initiatives are laudable and will be key in counteracting negative consumer sentiment created by their branded, franchisee-run hotels continuing operations in Russia.

*GlobalData’s Q3 2021 Consumer Survey

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