19-The Brand is Worth More than the Land

In 2008 I argued that the worldwide hotel industry was at least two businesses, and that the one with the brand beat the one with the land. Eighteen years on, the brand owners have proved it. Marriott now owns or leases less than one percent of its system, and the Western leaders have built Economies of Scale that smaller competitors cannot match. The Asian hotel market runs on a different logic, with far higher Volatility. Here is the story of the brand, the land and two very different markets.

Posted 5/8/08

The modern hotel industry is really two separate businesses. The first business includes companies that have the hotel brand names. These companies manage and operate hotels. These companies include InterContinental Hotels Group, Starwood, Wyndham and Marriott. The second group are companies that are owners of the hotel properties. Most of these are REITs.

In a deteriorating market, the hotel operators, the first group of companies, perform better than the hotel owners because they have far lower capital employed and higher margins. These operating companies maintain higher operating margins over an extended period of time.

At one time, the operators both owned and operated hotels. Most of them concluded, in the late 80s and early 90s, that they made far more money managing a brand than they did owning the land. They sold off the ownership of the hotels to people who would add a great deal of leverage in order to get an attractive return.

In any normal market, it is better to be the brand owner with the customer than to be the holder of other assets. The company closest to the consumer’s mind usually makes the best return on investment.

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Update 2022:

Through several acquisitions at different Price Points and organic growth, Marriott has become the world’s largest hotel company in 2021, with 1.4 million rooms. Other brands familiar to western consumers include Hilton, at number three, IHC at number four and Wyndham at number five. All of these companies now follow the same cost approach of managing a brand while letting other people own most of the assets. A successful cost management approach in an industry is copied wherever possible by all industry leaders over time. The only really sustainable cost advantage in an industry usually comes from superior Economies of Scale and a locked in relationship with the customer.

We have found that the leaders in many industries fail to create economies of scale. HERE are some thoughts on creation of sustainable economies of scale.

Short audio thoughts: HERE and HERE

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Update 10/26

The top leaders in the Western hotel market have been wildly successful in serving their larger customers with unique benefits of scale and low unit costs. Returns are high and Volatility is low in that market. The Asian market offers quite a contrast where Volatility is high and competition is more chaotic. The comparison of the two markets illustrates how industries evolve from periods of high Volatility driven by Function benefit wins to a period of low Volatility with customers moving primarily due to failures on Reliability. The brand owner’s edge in 2008 and the Western leaders’ edge today are the same: Economies of Scale and a locked-in relationship with the customer.

Marriott’s 2025 Form 10-K states the brand-versus-land point in the company’s own words: it owns or leases less than one percent of its system. Of its 9,805 properties at year-end 2025, 7,644 are franchised or licensed and 2,017 are company-operated, almost all under management agreements. The other 144 are branded residential properties.

The 2008 list of brand operators has changed. Marriott completed its acquisition of Starwood in September 2016. Wyndham Hotels & Resorts became an independent company in 2018, when its former parent, Wyndham Worldwide, was renamed Wyndham Destinations.

Below is a ranking of major hotel companies by number of rooms. There are a number of familiar names and a few you might not know. Jin Jiang and H World are major Chinese companies. OYO is an Indian company. The Asian competitors are growing rapidly as they introduce their upgraded products to their markets. The Volatility of those Asian markets appears high, especially in contrast to the lower Volatility levels of the Western headquartered hotel companies. The Asian market is really a separate business from that of the Western market. OYO completed its $525 million purchase of G6 Hospitality, owner of Motel 6 and Studio 6, from Blackstone in December 2024, giving an Indian competitor a US budget brand. OYO is only just entering the US market, and its impact is unclear. OYO might do something with Motel 6, though Motel 6 is already a Price Leader. The Asian market is still a different market. To create Volatility in the West, these Asian competitors would still have to create it, likely with small and medium customers. They are unlikely to have much impact on the far larger commercial market of Large and Very Large customers.

Worldwide Rank (by number of rooms):

Rank	Group	Hotels	Rooms	Growth (2024-2025)
1	Marriott International	9,805	1,779,936	+4.3%
2	Jin Jiang	14,985	1,547,366	+6.6%
3	Hilton Worldwide	9,044	1,330,947	+6.5%
4	H World Group	12,262	1,190,879	+17.1%
5	IHG (InterContinental)	6,963	1,026,177	+5.0%
6	OYO	32,754	940,973	+59.2%
7	Accor	5,836	881,427	+3.7%
8	Wyndham Hotels & Resorts	8,389	868,899	−3.8%
9	Choice Hotels International	7,575	656,825	+0.5%
10	BTH Hotels	7,802	554,919	+7.0%

 

Sources: Marriott is from its Form 10-K, year-end 2025 versus year-end 2024. All other companies are from MKG Consulting’s 2026 ranking, with growth as MKG reports it. OYO has a business model, built mostly on small and unclassified properties, that keeps it out of the coverage of regular hotel industry analysts. Hotels magazine does not list it, so its MKG figures (excluding vacation homes) have no second source.

In the Western market, the top competitors have created large moats around their businesses, making it difficult for others to take share from them. Volatility in the Western industry appears relatively low while Volatile customers are likely to move on Reliability. The leading hotel companies have used their size to their advantage.

– They have covered a wide range of Price Points used by Large and Very Large customers, the commercial markets, home of the industry’s major room purchasers. By covering these many price points, employees of Large and Very Large companies can use these leading hotel companies in their leisure time, adding to their loyalty points.

– They have expanded globally wherever their larger customers needed geographic coverage.

– They have invested in technology to improve revenues from pricing and increase customer retention, using AI. The leaders have developed real-time pricing capability, which adjusts daily pricing according to expected demand. This technology also enables these larger hotel companies to offer personalized packages to their best customers. These technology investments have advanced the digital experience of tech savvy customers and have supported sophisticated loyalty programs across all Product Price Point lines.

– They have created and exploited Economies of Scale. The smaller hotel competitors cannot afford to match these economies to keep major investments low on a per room basis. The larger hotel companies use their superior scale to offer direct booking incentives to their customers, thereby reducing the costs they incur for their middleman distributors. The industry’s return on invested capital is impressive, about 23% for Marriott and about 29% for Hilton. These high returns reflect low industry costs, enabling the largest competitors to continue investing in their Economies of Scale and implying a threat of a punishing price war against anyone who would discount against them.

Volatility in the Western market appears low. The industry’s modest growth rates suggest limited organic growth accompanied by the industry’s ability to raise prices with real-time pricing.

It is likely that whatever Volatility occurs in the Western market centers on Reliability on the Customer Buying Hierarchy. The top few competitors offer nearly identical Function and Convenience benefits. Price competition does not seem to be creating Volatility. Instead, it is likely that a hotel competitor must fail a customer in some way in order to initiate an instance of Volatility.

The Asian markets offer quite a contrast. The growth of the Asian competitors implies substantial Volatility, as the four Asian companies in the table grew their rooms a combined 18%, from 3.58 million to 4.23 million, and the three Chinese companies alone grew 10.2%. This is an inference from room growth. Acquisitions and conversions of existing hotels only shift ownership of customers and do not create new ones. New rooms that create new Function, Reliability, Convenience or Price benefits create Volatility, and room growth alone suggests it. These high Volatility levels imply a market where Function and Convenience benefits attract both new customers entering the market as well as some customers of competitors. The leading Asian hotel companies are creating wins as they expand in their markets. In such a Volatile situation, we would expect to see some Price competition from hotel companies losing market share to the market share leaders.

A hotel competitor would follow completely different strategy in the Asian market than it would in the Western market.

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Quick Hits

Five patterns from the StrategyStreet system this story confirms.

1. The Asian market is a Developing Market with high Volatility due to new and existing customers changing suppliers. The new rooms alone added to the market exceeded 10% of the rooms available in the existing market. In addition, there is also an underlying Volatility due to current customers shifting suppliers to take advantage of new Function and Convenience benefits.
2. Most of the Volatility in a Developing Market is Positive, the result of one set of suppliers winning share outright on the basis of superior Customer Buying Hierarchy benefits. The expanding Asian hotel companies offer better Function and Convenience. This is an example of a Win Market. The key in this market is to lead on Function and Convenience.
3. The Western hotel market is a Stable Market with relatively low Volatility. The Customer Buying Hierarchy differences from one of the major competitors to any of the others are relatively small. There is relatively little to choose among them, so customers tend to remain with their longer-term hotel companies. They see no reason to change suppliers.
4. In a Stable, low Volatility market, most of the Volatility is Negative, the result of a failure by an incumbent supplier. The supplier losing market share usually fails to meet the Reliability expectations of some of its customers, creating Negative Volatility. This Negative Volatility opens the opportunity for another supplier to enter into or expand in the customer relationship with a Weak Win. The key in this market is to avoid Reliability failures.
5. Scale and technology give a leader pricing power and a credible price-war threat. Real-time pricing adjusts daily prices to expected demand, so the leaders can selectively raise prices despite modest growth. Direct booking incentives cut the cost of middleman distributors. High returns let the largest competitors keep investing in scale, which implies a threat of a punishing price war against anyone who would discount against them. In the long term, the best opportunities for a low-cost position result from Economies of Scale and ownership of the customer relationship.

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