High interest rates, rising insurance premiums and labour shortages aren’t just squeezing margins - they’re forcing hotel investors to ask more of their brand partners. Once viewed as a sound path to scale and consistency, today’s traditional franchise agreements face greater scrutiny as owners weigh the true cost of alignment.
In response, leading hotel companies are revising their approach. They’re streamlining operations, revisiting standards and offering more flexible, owner-centric terms built to withstand today’s realities.
“There is a lot of pressure on the business model,” says Brian Quinn, Chief Development Officer of Sonesta. “You have to stay in alignment with the guests and the owner. Then you have to constantly ask, ‘where can we help them?’ If it's a regulatory piece, are we doing our part? Can we go after a different segment? Can we help with scale? You have to bring all of that every day, and I think it's just accelerating, because there's incredible pressure on the model.”
This pressure is leading brands to strip back what no longer serves owners. For some, that means loosening stringent brand standards, reconsidering renovation timelines, or offering tech and support services that lower operating costs.
The goal isn’t simply to cut spending. It’s to create a franchise model that is leaner and more adaptable, while still delivering a consistent guest experience.
Doing more with leaner models
Efficiency is no longer a “nice to have” for brands trying to stay competitive (not to mention stay in good standing with their owners). Now, it’s the starting point. With that in mind, franchisors are re-evaluating owner-facing brand requirements to separate what’s essential from what’s outdated or unnecessarily costly.
Mark Shalala, senior vice president of development at Choice Hotels, notes his brand tasks area directors with going property to property in search of savings.
“We had a huge push with our area directors to go out and find as much operational savings through efficiencies as they could,” he explains.
They went out and found about $30 million of operational efficiencies.
“That cost saving that equals about $35,000, $40,000 per property if you spread it across our whole chain,” Shalala continues. “So, that was pretty impressive.”
Choice’s effort also included renegotiating Online Travel Agency (OTA) commissions and leveraging Choice’s proprietary property management system (PMS). At a cost of about $15,000 per install, Choice’s system is resulting in massive savings compared to OPERA Cloud, which Shalala says costs between $75,000 and $100,000.
“We can kind of pass that savings on to the owners,” he adds. “There's big savings up front with the property management system. It's just initiatives like that, where we're constantly focused. It's always rotating, and we're always hearing feedback from owners about where the new pressure is coming from. We're trying to address that.”
Other brands are addressing the issue of cutting costs through sustainability.
“The vast majority of our hotels in the Americas no longer have single-use plastics,” says Ben Kerry, vice president of development at Accor.
The company is also conducting food waste and utility audits to help franchisees improve margins.
“We’ve saved money not only on the operating cost side of the business, but also on the development side,” Kerry continues.
Meanwhile, the idea of fixed brand standards is getting more flexible by the day.
“There’s this idea that a brand standard is just finite,” says Paul Daly, global head of franchise and owner relationships at Hyatt. “The Hyatt point of view is they’re kind of living, breathing standards. They should evolve just as the environment evolves.”
To help guide that evolution, Hyatt formed an operational performance team tasked with weighing whether any new brand standard is both guest-friendly and financially viable for owners.
Profit in the fine print
Of course, operational savings only go so far. Even a cost-conscious franchise model can fall apart in today’s lending environment if the deal itself isn’t structured right.
Owners are drawn to terms that give them breathing room, such as flexible timelines, reduced fees or, in some cases, simply the right kind of capital injection. In turn, franchisors are learning how to meet them there.
Kerry noted that operating costs in U.S. hotels rose 4 percent last year. Meanwhile, RevPAR has only grown by 1.8 percent through April.,
“This is clearly is not good for the bottom line,” he adds. “So, we're already dealing with that challenge.”
To help ease the gap, brands are testing out different approaches. Many are offering fee relief or experimenting with soft brand conversions. These strategies may sound promising, but Shalala asserts that the real conversation comes down to money – or, more accurately, how to structure it.
“We've decided to double down and go really big with key money,” he says, noting Choice has experimented with joint ventures and preferred equity. “Key money is sort of the most impactful, least encumbering way we can participate in the capital stack of the deal.”
Shalala notes Choice is willing to take on some construction risk. The company will fund half of the key money when the franchisee closes on their construction loan. That willingness to invest alongside franchise owners is a major shift – one Kerry believes can be accompanied by major expectations.
“One argument against key money – if you're an owner – is it always comes with strings attached,” he says. “Sometimes I tell owners, ‘Look, do you want key money, or do you want some kind of fee relief, discount, flexible contract where you can actually, you know, monetise the money during the operation of the hotel and there's no obligation to ever pay it back. That'll also boost your bottom line.”
That’s why, for some owners, flexibility can be just as valuable as funding. Plus, the right structure may not only improve operations, but the hotel’s resale value.
“When you're selling the hotel and you're applying your cap rate, your asset value will go up,” Kerry continues.
In some cases, that flexibility also extends to how brands approach property improvement plans (PIPs).
“We are trying to take a little bit more of a strategic look at PIPs,” Shalala says. “Let’s look at the asset... have a candid conversation with our owners [about] how much money you actually have to spend per key, and then allocate those dollars to the most guest-facing areas.”
Others, including Hyatt, are re-evaluating renovation cycles entirely.
“We just changed our renovation policy for our Essentials portfolio last year,” Daly adds. “If you’re on a seven-year cycle for renovation, and we get to year five, and you're performing in those areas, we come to you and say, ‘Would you like to defer a year?’”
Whether it’s key money, contract terms, or renovation relief, the shift is clear: brands are starting to treat profitability not just as a metric, but as a shared responsibility.
Beyond the brand bible
That shift is also changing how brands and owners work together. Mounting financial pressures and fluid market dynamics have made franchisors reconsider how they show up for their owners. The new playbook doesn’t simply include better deals, but better listening, better support and, in some instances, a better brand strategy altogether.
Quinn argues that Step One of the smarter franchise strategy starts with clearer positioning.
“We reduced our number of brands instead of adding additional brands, because we wanted to make sure those swim lanes stood for something,” he says. “When you can bring [margin, demand and guest satisfaction] all together, you’ve got a happy guest, you’ve got a happy developer.”
At Hyatt, collaboration was baked in from the beginning, Daly notes. When the company launched Hyatt Studios, it handed the reins to a former franchisee.
“We let the reins go,” he affirms. “Dan [Hansen]... went out to the development community and said, ‘Hyatt is finally going to take this step into the upper-midscale space. Let’s design this together.’”
That spirit of partnership now extends to how many brands approach design, development and conversion. Soft brands like Accor’s Handwritten Collection give owners more flexibility on standards and lower conversion costs, while still tethering them to a global platform. A bonus is that onboarding costs are sometimes minimal.
“We did a Handwritten conversion in San Francisco recently where the owner only had to fund $60,000 to affiliate and join the core system, and that was to put the PMS in place,” Kerry says.
That level of accessibility matters in times like today when growth is slower and conversions are more competitive. But what matters just as much is how that growth gets managed.
“You have to bring all of that every day,” Quinn argues. “There’s incredible pressure on the model.”
Pressure that – at the very least – is pushing owners and brands to stop writing in different chapters…and start editing the same book.