A number of Indian American and South Asian vendors for Choice Hotels International are among dozens of Choice operators who have filed suit against the parent company, claiming it is burdening operators with inflated costs for goods and imposing duplicative fees to boost its own revenue.
The Wall Street Journal reports that, in a lawsuit filed June 12, franchisees that run lodging properties under Choice brands like Sleep Inn and Comfort Suites also claim that the company has favored white hoteliers over operators with Indian American and South Asian backgrounds.
Choice vehemently denies the claim.
“We look forward to addressing the unfounded allegations at the appropriate time,” a spokeswoman for Choice said in a statement about the suit, which was filed in the U.S. District Court for the Eastern District of Pennsylvania, the Journal said.
The Rockville, Md., company is one of the largest hotel franchisers in the world with more than 7,100 hotels globally, about 6,000 of which were in the domestic market as of the end of last year, according to its latest annual report, the report said.
A contingent of 46 hotel operators are suing the company.
Like other lodging companies, Choice has faced pressure due to the Covid-19 pandemic, which brought travel to a standstill in many markets. Choice last month reported flat total revenue and operating income for the first quarter as travelers stayed home, the WSJ said.
The franchisees claim Choice has set up its qualified-vendor program, which provides items hotel operators need, to extract payments from suppliers.
The suit says vendors can’t be considered for inclusion in the program unless they pay an initial $25,000 fee, according to the report.
In turn, those vendors pass expenses along to operators, according to the complaint from the franchisees.
Operators of Choice hotels, for example, pay $34.50 for 10 pounds of frozen sausage links, while non-Choice franchisees pay $22.37 for the same quantity of the meat, according to the suit, the report said.
“Choice knows that qualified vendors cannot sell goods and services to its franchisees at competitive prices,” the lawsuit says.
The franchisees also claim Choice finds ways to add fees and impose penalties on them in order to boost its share of the revenue generated at lodging properties they run, the report added.
Franchisees are required to pay Choice royalties and a so-called system fee, amounting to at least 7 percent of their monthly revenue, but with the additional fees and penalties operators end up paying on average more than 20 percent of monthly revenue to the company, the complaint says, according to the report.
The lawsuit also alleges Choice has discriminated against Indian Americans and other people of South Asian backgrounds, more stringently enforcing rules and regulations against them, the report added.
In 2016, Choice said it would no longer allow two-story properties to use the Comfort Inn brand and aggressively enforced the rule with Indian American and South Asian American hoteliers, according to the complaint.
But Choice allowed some white franchisees to begin operating new Comfort Inn properties using two-story buildings, it says, according to the report.