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IHG is the world’s largest hotel company by the guest room count. It describes itself as an “asset-light” company as more than 80% of its hotels are franchise-owned—strict franchise regulations by IHG control these franchises.
In recent years, InterContinental has been the subject of many anticompetitive and fraudulent practices. As a result, many franchisees have been disgruntled and upset with the company. In light of these allegations, buying an investment in IHG may not be such a good idea after all.
There have also been various accusations against the InterContinental group for mistreating its franchisees by making them spend a lot of money unnecessarily and operate at blown-up price rates. The company could face much more backlash from its franchise owners if it does not address its long-standing grievances.
InterContinental Hotels Group, the parent company to Holiday Inn, continued to struggle in its last financial year, recording a loss of $153 Million. As a result, the hotel brand reduced the number of hotels in operation, shut down over 100 locations, and laid off thousands of employees.
IHG Hotels & Resorts Business Overview:
InterContinental Hotel & Resorts is a flagship brand of IHG (InterContinental Hotels Group) and among the largest hotel chains in the world that franchises, owns, and leases or manages hotels that are typically located in resort destinations, major markets, or important secondary cities. With over 5,600 hotels and resorts in 100 countries, they have 836,000 guest rooms across the globe.
IHG continues to strive for growth, with an additional 1000 hotels in the pipeline. Their growth strategy is a combination of acquisitions of hotel chains as well as direct organic expansion. They focus on the luxury, upscale and mainstream segments of the hotel industry.
The brands that make IHG’s portfolio include:
- InterContinental Hotels & Resorts
- Atwell Suites
- Crowne Plaza
- Regent Hotels & Resorts
- Kimpton Hotel & Restaurants
- Hotel Indigo
- EVEN Hotels
- HUALUXE Hotels & Resorts
- voco Hotels
- Holiday Inn and Holiday Inn Express
- Holiday Inn Club Vacations
- Holiday Inn Resort
- avid hotels
- Staybridge Suites
- Candlewood Suites
- Six Senses Hotels Resorts Spas
Financial Requirement & Fees For IHG Franchise
- Initial Franchise Fee – $75,000
- Initial Investment – $78,138,100 – $113,654,675
- Royalty Fee – 5%
- Term of Agreement – 20 years (average)
- IHG rewards program, which is IHG Rewards Club, is the world’s first and largest hotel loyalty program and has a membership of more than 100 million people worldwide.
Why You Should Not Take A IHG Franchise:
In recent years, there have been many instances of the hotel brand and franchisees’ ties turning sour under management contracts. So, before you think of investing in an IHG brand, read our analysis on the franchise opportunity.
Fransmart has researched various platforms and taken franchise complaints and feedback to bring a comprehensive view of the risks involved with the IHG brands. Here are the main reasons why you should not buy the IHG franchise.
#1 Accusations of Unfair and Fraudulent Practices by the company:
The IGH requires its franchises to undergo frequent renovation, remodeling, and construction under the guise of maintaining the brand standards. The company has been facing various lawsuits for using unlawful and fraudulent practices to enrich its shareholders by making money through these practices.
The franchisees by the contract could use only the mandated suppliers for procuring required goods and services to run the hotel. These suppliers and service providers charge the franchisees exorbitantly by selling goods and services above-market rates and frequently requiring them to make costly renovations.
The company has been accused of taking Kickbacks from these suppliers for themselves.
Furthermore, these suppliers’ goods bought at inflated prices are of inferior quality even without considering the above-market rates paid for them.
#2 Allegation of Discrimination by the Company:
The IGH company faces severe charges of discrimination against the Indian-American and the South Asian- American communities. The lawsuit claims that the company frequently demeans, discriminates, and is hostile towards these races. These allegations certainly damage the reputation of the franchisor and demotivate franchise buyers.
#3 IHG loyalty programs benefit only the company:
InterContinental has been accused of running a loyalty program that benefits only the company while the franchisees give rooms at a loss-making rate. The franchisees claim that IHG offers loyalty points to its guests for cash payments. This payment goes directly into the company’s account while the franchisees have to pay sales tax on the total value of the room where he is getting only discounted rates on these rooms. The loyalty program of the InterContinental group leads to losses for the franchisees.
#4 Uncooperative and Anticompetitive practices by the company:
One of the major grievances of the franchisees is that they were exasperated during the pandemic period as the company was trying to cover up its losses. The company was majorly concerned with its profit and loss when the entire industry and franchisees suffered. In this period, the company saw an operating loss of $153 million.
#5 Incidences of customers’ breach of data:
The IHG has been accused of not protecting its customers’ credit and debit card data from hackers. The company recently settled the dispute by paying $1.55 million to those who could prove the breach of their personal information. Being the major issue plaguing today’s generation affects the reputation and business of the company negatively.
Conclusion:
Owning a Hotel franchise can be difficult, may it be for Hilton, Marriot, Choice hotels, Homewood hotels, or any other. The initial investment is high, but once the hotel is open to the public, it’s running independently. Managing the day-to-day operations of the InterContinental Hotels Group franchise can be difficult if you haven’t worked in hospitality before. Buying an IHG franchise has both pros and cons, making it essential to consider them both before making your final decision.
The franchisee’s issues with the company are being compared with labor disputes where the franchises are being subjected to similar mandates where they cannot fight back the non-competitive policies of the company.
Sources:
https://www.franchisehelp.com/franchises/ihg-intercontinental-hotels-group/
https://www.ihgplc.com/en/about-us/how-our-business-works
https://www.entrepreneur.com/franchises/intercontinentalhotelsresorts/335296
https://www.asianhospitality.com/louisiana-hotelier-sues-ihg-over-franchise-practices/
https://www.nola.com/news/business/article_afd96c76-c540-11eb-a308-cfc3beb857f8.html