The landscape of business travel and vacations would look very different today were it not for hotel franchising. This model of operating hotels dominates the lodging industry (70 percent to 80 percent of hotels are franchised) and has allowed for its rapid expansion and diversification.
The first franchised hotels were The Ritz-Carlton properties in the early 1900s. But franchising really took off in the 1950s, spurred by the creation of the interstate system, which allowed and encouraged people to take to the roads and travel.
Best Western, Holiday Inn, Ramada Inns and Howard Johnson became familiar names and consumers grew to trust them since they offered consistency and similar pricing from one property to the next. Brands like Hilton and Marriott joined the franchising fray in the 1960s, as more consumers began flying, and 20 years later most brands started diversifying into different segments of the hotel industry.
“Hotel franchising is a true pathway to the American dream for so many entrepreneurs,” said Rosanna Maietta, president and CEO of the American Hotel and Lodging Association. “It allows for a dynamic partnership between hotel owners and hotel brands that builds traveler trust and drives repeat bookings. Franchising has long been the backbone of the hotel industry, accounting for over 36,000 hotels and supporting more than 2.8 million jobs.”
Industry Evolution
There have been many changes to the franchise industry over the decades. The most obvious is perhaps the expansion of brand portfolios, as major hotel companies have launched soft brands, giving them entry into different segments of the market.
Franchise agreements have changed, too, said Laura Lee Blake, president and CEO of Asian American Hotel Owners Association. “They’ve grown in complexity, including initial franchise fees, royalty fees, marketing assessments, technology fees, loyalty program participation, training and conference fees, property management fees, and even sustainability compliance costs,” she pointed out.
Brands have also introduced property improvement plans, requiring franchisees to keep properties updated, with changes often required every five to 10 years.
And franchise fees have become a notable percentage of room revenue, “so owners must navigate these agreements carefully to protect and enhance profitability,” she said. “Owners must analyze their performance data, benchmark against peers, and develop clear strategies to maximize returns.”
Franchise agreements are still typically written for ten years or more, but the exit provisions today are more complex and often more forgiving, said Bryan Younge, managing partner, Horwath HTL, a hospitality consulting and strategic advisory firm in New York City. “Franchisors would rather work with an owner to improve performance or move the property into a different segment than force a termination,” he explained.
Industry Segments
The diversification of brands into different segments of the market with soft brands under their main umbrella has allowed operators to build diverse portfolios. It’s also led to more loyal customers who can now find something for all of their needs — from business travel to a family vacation to an all-inclusive resort — all under one brand.
For the brands, it’s important to make sure “there’s differentiation between the [soft] brands,” said Amit Sripathi, chief development officer, Wyndham Hotels & Resorts.
Why Hyatt launched its first soft brand, The Unbound Collection, in 2016, it learned that it could partner with more owners, since different brands suited different needs, said Paul Daly, global head of franchise and owner relations, Hyatt Hotels Corp.
Franchising in different tiers allows hotel brands to play across the entire spectrum, from economy motels to luxury resorts, said Younge. “Families of brands give them coverage at multiple price points while keeping loyalty ecosystems strong. But as new niches emerge — wellness resorts, boutique concepts, hybrid lodging — franchising has had to adjust its playbook. It’s become much more segmented and competitive, but still the main driver of growth.”
On the owner side, the soft brands, he explains, “let owners keep individuality but still tap into distribution and loyalty.”
Added Blake, the soft brands have meant “more opportunities, but also more complexity as they juggle multiple brands and requirements.”
Younge also expects to see more halo brands — such as Hilton’s Waldorf Astoria — that improve the reputation of a hotel chain’s soft brands at a lower tier.
Technology Advancements
Technology has had an enormous impact on the franchising industry. Consumers are now much more in control, being able to see pricing across the board, thanks to the internet. “This has led to the population more frequently traveling and to the consumer being much smarter,” said Jeremy Griesbach, president of development and co-owner of Cobblestone Hotels.
However, the internet has also cut into revenue for hotel franchisees. Online travel agencies often take 15 percent to 25 percent percent in commissions, said Blake, “cutting deeply into profitability.”
The OTAs have also brought more competition, said Younge, “so franchisors had to double down on digital marketing and direct booking strategies.”
While OTAs have brought expenses, they also have created a whole new avenue of marketing, said Will Loughran, COO of Concord Hospitality. “It’s a marketing vehicle we can tap into … in a region when we’re suffering. So it’s quite beneficial for the hotel space.”
The internet and GPS have had a profound impact on hotels in a very positive way, said Sripathi. “Guests have a new-found freedom to decide on a whim where they want to stop.” To help customers and to sell more rooms, Wyndham has introduced a road trip planner on its app so users can plot their journey and see Wyndham properties along the way.
But with the growth of technology, he said, “brands have invested hundreds of millions of dollars in technology so guests have a seamless ability to look at hotels, read reviews, have a quick price comparison and be able to book.”
And the growth of platforms such as Airbnb and VRBO have also brought changes for franchise companies, Sripathi said. Since those platforms offer the promise of guests immersing themselves in a local culture, now soft brands are offering this, and are providing an “authentic local experience,” he said, that share the culture and heritage of a location with the hotel guest. Wyndham’s Trademark and Registry hotels, for example, “allow the hotels’ unique identity to shine, versus a more hard branded hotel which looks the same everywhere.”
An aspect of technology that’s had a whopping effect on the success of brands and their soft brands is loyalty programs. Hotel guests more than ever want to build their points for a free stay, dinner, breakfast or drink. Guests can now check their points in real time through an app, and hotels can use the loyalty programs to market directly to customers and track their behavior.
Hyatt’s program “has been on fire,” said Daly, and has grown 21% in the past four years to more than 58 million members. The strength of that program, World Of Hyatt, “really helps drive reservations to your property,” he said. “One of the most important things from a business perspective is helping franchisees achieve and drive topline revenue.”
Wyndham is broadening its Wyndham Rewards loyalty program, giving more options for its loyalty members to redeem their points at sporting events or restaurants. “We’re making sure all of their needs are addressed and we have affiliations with places they can go. I think you’ll see more affiliations like that,” said Daly.
Democratization
Franchisor-franchisee relationships have changed enormously in the last few decades and have become more of a partnership, said Loughran.
Today’s owners, he explains, “are very engaged, from asset management levels to weekly calls to reviewing P&Ls to weighing in on decisions at the property level.” And this brings positive changes, he said, such as “creative solutions, broader perspective and pushing the hotels where they didn’t go before.”
In fact, suggestions from owners regularly make their way from one hotel to the entire chain of a hotel company. “Innovative owners challenge a standard or how things have been done and that has been a great benefit to us as an industry,” he said. For example, adding coffee shops to hotels was largely an owner-driven idea, he pointed out.
Overall, he said, “there’s been a democratization of the process because we spend a great deal of time in meetings with brand, owner, designer, operator.”
At Hyatt, leaning into owners is super important, said Daly. “Over last four years we’ve not rolled out one major initiative without hearing from owners. We bring great ideas to them but they bring ideas to us as well and it’s a great collaboration.”
Many brands have introduced owner boards, which allows information to flow both ways between the franchisor and the franchisee, said Suraj Bhakta, CEO of NewGen Advisory, a hospitality brokerage and advisory firm.
Now, for the most part, he said, “it’s a synergistic relationship that’s evolved. When it started it was mostly the franchises pushing it down. It was only later they understood the value of having the two-way street. They’ve realized owners are running the operations and hearing the complaints from the customers.”
The Future of Franchising
Franchising may have changed a lot since its inception more than a century ago but there will be many more changes on the horizon.
Loughran expects to see partnerships with external services for more focus on food and beverage capabilities, health clubs and spas, some of which could be freestanding.
“These are adjacencies we can have a positive impact on and we can roll them into the hotel platform: laundry, labor, accounting and marketing, combining resources.” This, he pointed out, could be a big win for owners. I see us expanding further to drive performance and reduce expenses.”
He also expects to see more unique apartment offerings through hotel brands, putting them in direct competition with Airbnb and similar companies.
There will be more amenities offered in hotels, said Griesbach. “As Gen Z and younger become a bigger part of our guests they are going to expect the conveniences they have at home to follow them to their hotel room. “It’s gone from a heated room with bed and bathroom to custom mattresses, big screen smart TVs, free wi-fi and everything else under the sun.”
Younge said technology will sharpen the guest experience “and hotel operations, and owners will continue pushing for more flexible agreements (and fees) tied to performance. The future is less about rigid structures and more about partnership — balancing scale with individuality.”
Blake expects the next wave of franchising will be shaped by AI-driven personalization, and more aggressive direct booking campaigns.
Technology will also change the shape of the front of house. Guests can expect to see robots colleting garbage, said Younge, which can be “a signal that a property is trying to be cool.” We’ll also see more keyless room entry, with guests instead using their phone.
Technology will become more prevalent in the back of house too, he said, “with predictive marketing and predictive pricing, that will be a little more exact and more responsive on a day-to-day basis.”
And franchising, he said, “will keep expanding into lifestyle and niche segments because that’s where the growth is.”