Is hotel franchising no longer worth it? Why many owners are walking away from major brands

For years, hotel owners paid major brands for visibility, distribution, reputation and security.

Today, many are discovering that this security may cost more than the value it creates.

This is the real issue raised by Skift’s recent analysis of the US hotel market: a new generation of franchise agreements in the economy and midscale segments is coming up for renewal, and many owners are questioning whether it still makes sense to stay with the large hotel chains.

This is not an ideological debate.

It is not a battle between independent hotels and major brands.

It is a far more practical question: does the brand truly increase the net value of the hotel, or does it absorb margin, impose investment obligations, limit ownership autonomy and reduce strategic control over the asset?

This question is directly relevant to the Italian market as well.

Because every hotel owner, investor, bank and advisor should start reading franchise agreements not as simple commercial contracts, but as instruments that directly affect the capital value of the hotel.

The name above the door is no longer enough

For a long time, the equation seemed simple.

An independent hotel joined a major brand to gain access to a stronger system: international distribution, loyalty programmes, technology, operating standards, commercial recognition, greater customer trust and stronger credibility with lenders.

The brand became a shortcut to the market.

In many cases, it still is.

But not always.

Technological transformation, the growth of OTAs, and the evolution of independent PMS platforms, channel managers, booking engines, hotel CRMs and revenue management systems have radically changed the balance of power.

What used to be almost exclusively controlled by major groups can now be purchased, integrated and managed by an independent owner, provided that the hotel has competent management.

Distribution is no longer a brand monopoly.
Technology is no longer a brand monopoly.
Revenue management is no longer a brand monopoly.
Visibility is no longer a brand monopoly.

The true competitive advantage is no longer simply having access to a system.

It is knowing how to use it.

And this is where the issue becomes industrial: a brand can still create value, but it can no longer be automatically considered synonymous with performance.

The real cost of hotel franchising

When an owner evaluates a franchise agreement, the focus is often on the royalty.

That is a serious mistake.

The royalty is only the most visible part of the cost.

The real cost of a major brand may include:

royalties on revenue;
marketing fees;
reservation fees;
technology fees;
loyalty programme contributions;
commissions on proprietary channels;
audit costs;
mandatory training;
imposed operating standards;
technology upgrades;
mandatory supplier arrangements;
product revisions;
compulsory renovations;
property improvement plans.

The PIP is often the most delicate point.

A property improvement plan required by the brand can turn an apparently sustainable contract into a very significant financial commitment. The owner may be forced to invest hundreds of thousands, or even millions, of euros not because the market truly requires it, but because the brand imposes a global standard.

The problem is not the standard itself.

The problem is understanding whether that standard generates a proportionate economic return.

An owner should not ask:

“How much does the brand cost me?”

The right question is:

“How much incremental GOP, incremental EBITDA and additional capital value does this brand generate compared with its total cost?”

If a brand costs 8%, 10% or 12% of total revenue, but does not generate a measurable increase in occupancy, ADR, RevPAR, direct channels, international demand, profitability and exit value, then it is not a commercial investment.

It is a structural loss of margin.

The real indicator is net value, not gross revenue

One of the most common mistakes in assessing hotel brands is focusing on gross revenue.

A branded hotel may generate more revenue than an independent hotel, but that does not necessarily mean it is worth more.

Margin matters.

GOP matters.

EBITDA matters.

Required capex matters.

Commercial freedom matters.

Exit value matters.

Bankability matters.

Contract quality matters.

A brand that increases revenue but absorbs margin through fees, restrictions, standards, mandatory costs and imposed investments can weaken the hotel’s net profitability.

Conversely, an independent hotel with lower gross revenue but stronger cost control, lower fee leakage, more efficient distribution and a solid reputation can generate greater economic value.

In hotel real estate, value is not measured by the name above the door.

It is measured by the asset’s ability to generate sustainable, defensible and transferable cash flows.

This is the core editorial position of www.investimentialberghieri.it: a hotel is not just a property and it is not just a tourism business. It is a complex operating company whose value depends on the interaction between contracts, management, market, capital and control.

Territorial protection does not always protect the owner

One of the traditional advantages attributed to franchising is territorial protection.

In theory, an owner joins a brand also to prevent the same brand from opening another competing hotel too close by.

In practice, this protection is often much weaker than many owners believe.

Many agreements protect only against the exact same brand, not against other brands belonging to the same hotel group. This means that a large chain may not open a second hotel under the same flag, but may place a sister brand nearby, targeting a very similar demand base.

The result is paradoxical.

The owner pays to join the system, but the system can also become a competitor.

For an investor, this is a decisive point.

A franchise agreement must be read as a risk allocation document.

Who controls the customer?
Who controls distribution?
Who controls pricing?
Who controls digital reputation?
Who decides future standards?
Who imposes investment obligations?
Who can open other brands in the same area?
Who pays for the PIP?
Who truly benefits from market growth?

If the owner carries the real estate risk, the financial risk, the operating risk and the investment risk, while the brand retains strategic control over the commercial relationship, then the contract must be analysed with extreme caution.

Brand dependent or management dependent?

The most important question an owner should ask is this:

is my hotel brand dependent or management dependent?

A hotel is brand dependent when demand is materially driven by the brand, the loyalty programme, the group’s CRS, centralised corporate contracts and the chain’s distribution power.

In these cases, leaving the brand can be dangerous.

A hotel is management dependent when value is mainly driven by location, reputation, product, operations, cost control, revenue strategy, commercial capability, staff quality and the direct relationship with the market.

In these cases, the brand must be assessed as a tool.

Not as a religion.

The brand should be kept when it produces net value.
It should be renegotiated when it produces partial value but at excessive cost.
It should be replaced when another model offers a better balance.
It should be abandoned when it absorbs margin without generating a return.

This is the true industrial maturity of the hotel sector.

When to keep the brand

A major brand can still be highly valuable when the hotel operates in a strongly international market, when it captures corporate demand, when it is located near airports, convention centres, global destinations or areas where the loyalty programme genuinely influences customer choice.

It can be valuable when the owner needs financing, refinancing or institutional investor interest.

It can be valuable when the hotel does not have an autonomous commercial structure.

It can be valuable when internal management lacks sufficient expertise in revenue, distribution, marketing, standards and operational control.

It can be valuable when the brand brings real demand, not just theoretical visibility.

In these cases, the brand is not a cost.

It is a platform.

But even in these cases, the contract must be measured. It is not enough to say “we are with a major group”. The owner must prove that the group increases the value of the asset by more than it costs.

When to renegotiate

Renegotiation becomes necessary when the brand still produces value, but the economic balance is no longer fair.

This happens when fees have become too high, when the required PIP is disproportionate to the market, when territorial protection is weak, when the imposed technology is less efficient than what is available on the open market, when the brand’s direct distribution does not justify its cost, or when the owner has developed independent managerial capabilities.

In these cases, the issue is not necessarily leaving the brand.

The issue is rebalancing the contract.

The owner must negotiate fees, term, PIP, operating restrictions, standards, territorial exclusivity, exit clauses, investment obligations, review management, customer database rights and channel control.

Anyone who renews a contract without renegotiating it is often signing an extension of their own weak negotiating position.

When to leave the brand

Leaving the brand may be rational when the brand no longer produces measurable incremental value.

This may happen when the hotel has a strong independent reputation, a dominant location, a healthy channel mix, efficient distribution control, competent management, a recognisable product and a customer base that is not materially tied to the chain’s loyalty programme.

It may also happen when the brand imposes investments that are unsustainable or inconsistent with the local market.

It may happen when the property has greater potential as an independent hotel, boutique hotel, soft brand or lifestyle product.

It may happen when the affiliation limits more than it helps.

But leaving must never be improvised.

A hotel that exits a brand without a commercial plan, a new positioning, a digital strategy, revenue management, OTA control, review management and a new identity risks losing demand, reputation and value.

Independence is not automatic savings.

It is managerial responsibility.

The hidden risk: digital reputation and commercial continuity

One of the most underestimated risks in leaving a brand concerns digital continuity.

The owner may lose control of Google listings, reviews, OTA pages, rankings, reputation history, photographic content, databases, tracking systems, corporate channels and commercial recognition.

The transition from branded to independent must be managed as an extraordinary operation.

Changing the sign is not enough.

The hotel needs a new distribution architecture, an SEO strategy, a new website, a booking engine, a CRM, a pricing policy, a communication plan, an OTA review, review management, a repositioning campaign and a clear market narrative.

On these issues, www.investhotel.it is a useful reference point for exploring hotel operations, distribution, revenue management and hotel operating value, while the hotel guides published on www.robertonecci.it provide practical tools for reading contracts, KPIs, governance, asset management and hotel valuation.

In Italy, the issue is even more delicate

In the Italian market, the issue is particularly sensitive.

Many hotels are still family-owned. Many assets are undercapitalised. Many properties need repositioning, renovation, new distribution, new management and stronger management control.

In this context, the brand can be a solution.

But it can also become an excuse.

The owner may believe that joining a chain will solve problems that are actually managerial, financial, organisational or capital-related.

A brand does not automatically fix a weak profit and loss account.
It does not eliminate an out-of-control labour cost.
It does not replace non-existent revenue management.
It does not compensate for an obsolete product.
It does not resolve conflicted family governance.
It does not make an asset bankable if the numbers are not credible.

A brand can amplify good management.

It cannot replace it.

This is why, before signing, renewing or exiting a franchise agreement, the owner should carry out a true industrial analysis.

Not an aesthetic assessment.

Not an emotional assessment.

Not an assessment based on the prestige of the name.

What is needed is an analysis of numbers, margins, capex, debt, market, contracts, channels, reputation, staff, governance and exit scenarios.

A hotel contract is a capital decision

A franchise agreement is never just a commercial contract.

It is a capital decision.

It can increase or reduce future sale value.
It can make the asset more or less bankable.
It can increase or compress profitability.
It can impose significant future capex.
It can limit the owner’s strategic freedom.
It can strengthen or weaken the entrepreneur’s negotiating power.
It can make the hotel more liquid or more rigid in the event of a sale.

A serious investor does not buy only rooms, location and revenue.

A serious investor also buys contracts.

And the wrong contract can turn a good hotel into a less attractive asset.

In the same way, a well-negotiated contract can increase cash flow stability, reduce perceived risk and improve the value of the transaction.

This is where hotel franchising must be read through the lens of hotel investment: not as a marketing issue, but as a lever for capital value creation or destruction.

The owner’s decision framework

Before renewing, signing or leaving a brand, the owner should answer a number of decisive questions.

Does the brand generate real incremental occupancy?
Does it allow the hotel to increase ADR?
Does it improve RevPAR compared with independent competitors?
Does it bring measurable loyalty demand?
Does it reduce distribution costs?
Does it increase GOP?
Does it increase EBITDA?
Does it improve bankability?
Does it increase the sale value of the asset?
Does it impose sustainable capex?
Does it guarantee effective territorial protection?
Does it leave the owner enough strategic control?
Does the required PIP have a measurable return?
Are the fees proportionate to the value produced?
Does the contract improve or weaken the investor’s future exit?

If the answer to these questions is not clear, the contract should not be signed.

It should be analysed.

If the answer is negative, the contract should not be renewed by inertia.

It should be renegotiated or replaced.

The future will be hybrid

The future of the hotel market will not simply be branded or independent.

It will be hybrid.

Some hotels will remain within major international brands because the value created by the brand will exceed its cost.

Some hotels will move to soft brands to retain visibility and distribution without completely losing their own identity.

Some hotels will choose full independence because ownership will have developed autonomous managerial, digital and commercial capabilities.

Some assets will change model more than once during their life cycle: independent in one phase, branded during development, soft branded during repositioning, independent again in maturity.

The real competition will not be between chains and independents.

It will be between informed owners and passive owners.

The former will use the brand as a tool.

The latter will suffer it as a destiny.

Conclusion: the brand is no longer enough. Owners need a capital strategy

The era in which placing an international sign above the door automatically increased the value of a hotel is over.

The brand can still be decisive.

But only if it produces net value.

The question is not which brand is more famous.

The question is which brand is more useful for that asset, in that market, with those costs, those revenues, that debt, that capex, that ownership structure and that exit objective.

For some hotels, the answer will be a major international brand.

For others, it will be a soft brand.

For others, it will be independence.

The difference will not be made by the logo.

It will be made by the owner’s ability to measure the real value of the choice.

Anyone who owns, buys, sells, finances or turns around a hotel can no longer think in terms of perception. They must think in terms of numbers, contracts and scenarios.

Hotel franchising is not dead.

What is over is the era in which it could be accepted without analysis.

Are you evaluating a franchise agreement, a renewal with a major brand, an exit from a chain, a soft brand, a management contract or an independent strategy?

Before signing, renewing or terminating, have the contract, the numbers, the fees, the restrictions, the PIP, the hidden costs, the distribution structure, the digital reputation and the impact on asset value properly analysed.

Hotel Management Group assists hotel owners, investors and operators with strategic decisions on brands, operations, contracts, turnaround, management control and capital value creation.

Visit www.hotelmanagementgroup.it or write directly to r.necci@robertonecci.it.

Roberto Necci 

If your hotel is paying significant fees without knowing how much real value they produce, you do not have a brand problem.

You have a control problem.

And if your contract has never been measured, you are not governing the asset.

You are enduring it.