Choice's Joyce Speaks Out About Rift With Expedia
-- Hotels, 10/20/2009 9:03:00 AM
On October 15, Expedia pulled all Choice Hotels International inventory off its Web sites after contract negotiations broke down. A few Choice hotels that have independent contracts with Expedia still can be found its sites, but just a handful.
In an exclusive October 20 interview with Choice CEO Steve Joyce, he said negotiations remained stalled. “They dramatically looked to alter the agreement,” Joyce says. “We had an agreement from 2005 on, and we would have lived happily with that. They clearly sensed blood in the water and that now was their time to drive agreements. I believe in tough negotiations, but what they came up with was over the top.”
According to Joyce, Expedia—which he estimates delivers about 3% of the system’s business—wanted Choice to literally give up control of its inventory and pricing and wanted to penalize franchisees who did not give Expedia 100% access all the time.
“They were asking for outrageous things,” Joyce says. “They demanded last room availability, meaning regardless of strength of market, if we don’t expose the last room to them at that discounted price, we are not in good standing. And, oh by the way, they said we can never offer a price anywhere we don’t offer to them… They would no longer be our supplier—they would become our revenue manager.”
Joyce says when he looked at those terms, he couldn’t sign the deal. He wanted to continue negotiations but was basically told, ‘take it or leave it.’ “When we said we can’t sign this, they took our hotels off their site within hours,” he says.
At the time of this posting, Expedia said it was working on a response to a number of questions from HOTELS. Meanwhile, the company offered this response:
"At this time, Expedia Inc. is no longer offering Choice Hotels International properties on our sites. This is due to an inability to reach an agreement on the terms of a new contract with Choice, despite numerous extensions granted by Expedia in the hopes of securing a mutually acceptable deal since the original contract expired in May 2007.
"While it is not our policy to discuss the terms of contract negotiations publicly, many of the issues under discussion were principles which both parties had been operating under during the prolonged extension period, and are commonplace throughout the hotel industry. It is very unfortunate that Expedia and Choice were not able to come to an agreement on terms for working together going forward, especially considering the potential adverse effects that this may have on many of Choice’s individual franchisees.
"Expedia enjoys strong relationships with hundreds of hotel chains worldwide that are able to grow their businesses using the unmatched demand, marketing opportunities and revenue management tools offered in our marketplace. Expedia offers customers access to nearly 100,000 hotel properties globally, a robust selection of travel products and services, best-in-class online booking tools and dedicated customer support."
Joyce says he can’t believe Expedia took this difficult moment in time as an opportunity to play hardball. “I don’t understand how they can do this and expect to have anything other than a strong aversion to doing anything with them long term. That being said, we are ready, willing and able to resume negotiations anytime they are ready to do some negotiating.”
Joyce notes that franchisees are expressing concern as well as a lot of anger toward Expedia. “On the hour, we are getting flooded with e-mails and voicemails from franchisees and people at other hotel companies saying, ‘It’s about time you are not knuckling under to these tactics and we will do whatever we can to support you.’”
One Choice franchisee who contacted HOTELS said, “In this economic disaster, these two giants are behaving like adolescent boys. I own several Choice brand hotels. I am an independent business person who will likely not survive this loss in sales I will experience while the big boys are having a pissing contest.”
However, Choice is not standing still while negotiations stand at a stalemate. Joyce says the initial focus will be on resort markets where Expedia has a stronger presence and where some franchisees realize double-digit production through the intermediary.
“This is the first place we are going to drive additional business, particularly on the e-commerce side,” says Joyce, who believes his company’s stepped up efforts on the e-business side can redirect a good chunk of the business going through Expedia. “About 70% of the people that buy online shop at least three sites. If we have the right prices and guarantees in place, all of which are going in this week, we can move a lot of that inventory back to our site.”
In fact, Joyce says Choice has a multi-pronged plan in response to this situation:
• step up advertising immediately
• commence an enormous e-mail campaign to reward members
• expand affiliate marketing program with increased incentives to drive consumers directly to the Choice site
• launch an advance-purchase rate program now instead of next year
• step up paid search optimization
• do more mobile advertising through all touch-points
• strengthen best Internet rate guarantees to make them more attractive
• step up exposure on television
• bring in a new interactive agency for hotels participating in the cooperative program
• create a joint venture with another major group/meeting sales force to sell Choice hotels
“When we saw where this was headed, we put everything we have into launching programs immediately to bring traffic back around and to make this a relatively short phenomenon in terms of big losses,” Joyce says.
By implementing this strategy, Joyce hopes Expedia realizes its tactics that he says put franchisees at risk and demand outrageous levels of control over the Choice inventory are not the best way to approach a relationship.
“We are not an insignificant amount of their business. That 3% is a couple hundred million dollars and real money—even to these guys,” Joyce says. “I hope they realize we didn’t fall apart the minute they yanked us off their site and will come back with something more reasonable.”
Joyce says he will continue to reach out to Expedia and tell them Choice is ready to talk if they can figure out a way to loosen their position. “I hope this settles quickly and we can go back to doing business. They are a meaningful supplier and a very expensive supplier. We are willing to pay the price, but we are not willing to give up our business and control of our ability to maximize our hotel’s performance to get what we get from them. I hope as they go through this and negotiate with different hotel companies that they take a different tact about who is driving the bus.”
At the moment, Joyce says the ball is in Expedia’s court. “They told us there is nothing to be worked out. That is not what I call a negotiation,” he says.
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Seriously, if a hotel thinks they will not survive without expedia there is something terribly wrong with their marketing or their hotel in general.
peter worthy - 2009-5-11 12:37:00 PST -
Well done Steve. It is about time someone stood up to these guys. They took advantage during the last cycle. Let's not let them do it again!
Robert Dann - 2009-29-10 08:29:00 PDT -
Good for you Mr. Joyce. enough is enough. I own a small hotel and rarely use Expedia. they are greedy, gougers, and this is NOT a business model that serve the hotels, or the customers. I wish more of the "big guys" would stop doing business with them or do it under more favorable conditions to the hotel industry.
We gave them the "power" when we were desperate after 9/11 and the industry just discounted away and was open to any distribution method and was willing to sell rooms at any cost. We got Expedia. We need to realize our mistakes and take back the right to control our own pricing and our own inventory. Good for you, I hope more will follow your example.
Joyce Schulte - 2009-27-10 17:06:00 PDT -
Well done Steve, the day you give up control of your inventory it's game over. I admire you for having the guts to stand up to Expedia, let's hope the rest of industry has a similar level of strength. Your requests seem balanced and fair, I fully believe that Expedia thought it was time to twist the knife and yield maximum benefit for them and them only.
Richard Farrar - 2009-27-10 05:55:00 PDT -
Well done Steve - you have highlighted a problem which is a big issue for small independent hotels - we cannot be held to ransom by Expedia - their attitude is sometimes appalling
Martin Kelly - 2009-24-10 08:29:00 PDT
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