Major hotel chains like Marriott, Hilton, and Hyatt have significantly expanded by shifting their business model. Instead of owning most properties, they commodify their brand name through franchising. This allows them to grow rapidly, with owner-operators like MCR buying the real estate, employing staff, and running operations, while paying a franchise fee to the hotel brands.

This business model separates hotel names (flags) from property ownership. Owners pay to use these flags, allowing brands to avoid asset costs and scale faster by removing the financial risks associated with real estate and economic cycles. Marriott and Hilton now own less than 1% of their properties, and Hyatt owns about 2%.

Owner-operators pay 5-15% of their revenue in franchise fees to the hotel brands. In return, they gain access to valuable data on hotel design, amenities, and dynamic pricing systems. These systems optimize room rates based on market demand and events, maximizing revenue, and help manage occupancy to avoid selling out too cheaply.

Franchising also provides owners with better fees for booking platforms and access to large hotel loyalty programs (e.g., Marriott and Hilton with over 180 million members). These programs incentivize guests to choose branded hotels, increasing customer bases, especially in smaller markets where points earned can be redeemed in larger cities.

Two-thirds of US hotels are branded, but independent hotels can outperform in high-demand markets like Manhattan, especially smaller properties with greater elasticity of demand. While budget-friendly properties are often franchised, luxury hotels are primarily brand-operated to maintain control over the guest experience due to complex amenities. Brands strategically purchase some properties for innovation and renovation before selling them.

The outsourcing of ownership and operations has led to a greater variety of branded properties for consumers, offering more choices for earning and redeeming loyalty points. This trend has also resulted in significant consolidation within the industry, with a few major hotel families dominating the market, and the number of branded hotels is expected to continue increasing.