InterContinental Hotels Group faces a class action over its apparent mandate that franchisees use only certain vendors and suppliers for virtually all goods and services needed to maintain and operate their hotels.
InterContinental Hotels Group (IHG) faces a proposed class action over its apparent mandate that franchisees use only certain vendors and suppliers for the purchase of virtually all goods and services needed to maintain and operate their hotels.
Filed by a New Mexico Holiday Inn Express & Suites operator, the 53-page antitrust complaint contends defendants Holiday Hospitality Franchising (HHF) and Six Continents Hotels, who together operate as IHG, the world’s largest hotel company by room count, have unlawfully, abusively and fraudulently forced franchisees to use only certain vendors and suppliers under the guise of keeping up with the companies’ “brand standards.” What franchisees have received in return are overpriced products and services of overwhelmingly inferior quality, the case says.
“These low-quality ‘IHG Approved’ purchases are forced upon franchisees and disingenuously characterized as meeting supposed brand standards of quality, when in truth the sole purpose is to maximize kickbacks for IHG/HHF and unjustifiably run up costs on their franchisees in bad faith,” the suit alleges.
According to the filing, IHG, who maintains roughly 5,600 hotels spanning 15 brands, represents to franchisees that it selects vendors with the goal of using the hotels’ bargaining power to secure a group discount and ensure adequate quality and supply of products and services. The lawsuit claims, however, that IHG’s negotiation with vendors “has little to do with the best interests of its franchisees,” and is designed instead to “secure the largest possible profit and kickback (or ‘rebates’) for itself,” financed by vendors who charge franchisees above-market rates.
InterContinental Hotel Group’s mandate that franchisees use only certain vendors and suppliers imposes upon the hotels “well above-market procurement costs” with the sole purpose of enriching IHG’s shareholders, the suit alleges.
“Upon information and good faith belief, IHG/HHF have each netted tens of millions of ill-gotten dollars as a result of illicit vendor supply arrangements,” the case charges.
Mentioned early in the complaint is what the plaintiff calls IHG’s “onerous and exorbitant” Property Improvement Plan (PIP), which the defendants launched in 2014. Within the PIP is an initiative called “Formula Blue,” a certain type of renovation franchisees must undergo involving certain upgrades to the hotels’ exterior and other minor site and structure updates, the suit says.
As the lawsuit tells it, an effect of IHG’s imposition of its PIP is that the warranty periods on mandated products franchisees must purchase are manipulated and shortened, and the defendants in turn use this as justification for PIP upgrades while, in reality, running up the costs on franchisees.
The case goes on to allege IHG has engaged in other “oppressive, bad-faith, fraudulent and unconscionable conduct” at the expense of franchisees by way of its IHG Rewards Club loyalty program.
Through the program, IHG hotel guests can accumulate points per dollars spent. When those points are eventually redeemed at an IHG hotel, however, only a small fraction of the value is reimbursed to franchisees, the lawsuit claims, with IHG requiring hotels under its umbrella to pay taxes on the full value of the product or service that’s been redeemed by the guest.
Moreover, in instances wherein a hotel guest’s accumulated reward points from a franchisee’s hotel expire, the points never return to the franchisee, the lawsuit says.
The plaintiff also alleges that when a guest calls IHG Guest Relations to complain about poor service, the franchisee hotel is penalized, regardless of who is at fault, without an appropriate investigation into the matter, and charged a case management fee of more than $150 plus the cost of any other monetary reimbursements given to the guest.
Still further, the case claims IHG frequently introduces new marketing programs in which franchisees are led to believe they have a choice to participate, yet hotels who “opt out” face “vindictive, punitive and retaliatory action by IHG/HHF,” per the suit.
The plaintiff hotel goes on to allege that IHG has ceased all of its marketing since the imposition of COVID-19-related restrictions in early 2020 yet has continued to collect marketing-related fees from franchisees.
Overall, the defendants’ actions are “unconscionable and outrageous, and have pushed franchisees to the financial breaking point,” the lawsuit alleges.
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