The concept of independent hotels banding together for sales, marketing and distribution purposes is hardly new. The Leading Hotels of the World consortium was founded in 1928. Preferred Hotels & Resorts was established in 1968. And Small Luxury Hotels of the World came onto the scene in 1989. But about 15 years ago, the hotel industry’s biggest players began building their own collections, which were dubbed soft brands.
According to STR, “A soft brand is an affiliation between an independent hotel and a hotel chain which can provide hotel operators with lower costs and added flexibility when compared with standard franchise agreements.” The arrangement allows independent hotels to retain their identities while benefiting from a chain’s marketing and distribution resources, including access to global loyalty programs, volume discounts on procurement, better terms with OTAs, and other economies of scale. At the same time, though, soft-branded properties can avoid the dictated specifications on operations and design that hard brands have to abide by.
“These collections retain a specific property name, as well as a unique design and orientation toward their local community,” according to The Boutique Hotel Report 2024, a publication put out by The Highland Group. That report identified 601 hotels with 101,452 rooms in 14 soft brand collections in the United States as of the end of 2023. The upper-upscale segment had the largest number of soft-brand collection rooms at 63 percent. Luxury rooms made up eight percent of the total. The upper-midscale segment represented 18 percent of soft-brand rooms, while upscale represented 11 percent of soft-brand rooms.
Despite the fact that the bulk of soft brands these days live in the upper-upscale and luxury strata, the concept actually started with a company known for its economy and midscale brands. Choice Hotels International’s launch of the Ascend Hotel Collection in 2008 was the beginning of the race for soft brands. After Ascend, Marriott was the first to follow, introducing the Autograph Collection in 2010. Between 2014 and 2018, nearly every big hotel company got on board.
Soft Equals Scale
The soft brand benefits for independent properties are clear. But what’s in it for the parent companies? Aside from providing more choices for guests, industry consultants say that adding properties to their soft-brand collections is vital from a valuation perspective.
“The headline of all of this is net unit growth, a figure ... publicly traded hotel companies and Wall Street analysts use to justify valuation,” according to Jan Freitag, senior vice president of lodging insights for STR and national director, hospitality analytics for CoStar Group. “In this interest-rate environment, new construction is hard to come by. So if you want to grow, you have to try to convert existing independent properties, and soft brands are vehicles to do that.”
According to Zachariah Demuth, global head of hotels research for JLL, organic supply growth will be at an all-time low for the next two years “between rising construction costs, the challenges of getting financing and supply chain delays. Because development is so slow right now, there’s a growing appetite for the big brands to acquire hotels to support rapid room growth.”
What’s the Difference?
Hotel executives at Choice, Wyndham, Hilton and Hyatt have been finding ways to broaden options for current franchise owners to extend their geographic reach and to provide products in markets that were previously unserved or underserved by hard brands. Most of the executives agreed that soft brands were the fastest-growing parts of their portfolios. When it came to trying to distinguish one collection from the other, the executives emphasized the boutique and lifestyle nature of the properties that highlight local experiences.
Indy Adenaw, senior vice president and general manager, upscale, Choice Hotels, said the Ascend Collection paved the way for Choice to expand into the upscale category. “Since Ascend was the company’s first big step into upscale,” he said, "a lot of the growth and thinking in the Choice upscale strategy comes from the work we have done with Ascend.” Since Ascend was introduced, Choice has added seven other upscale brands. Most of these brands were part of the Radisson acquisition in 2022, but Cambria was home-grown. Adenaw added that Ascend is a major growth engine for Choice outside of the United States.
Hyatt’s soft brands are also providing growth opportunities overseas, according to Katie Johnson, vice president and global brand leader for Hyatt’s Independent Collection portfolio, which includes Unbound, Destination by Hyatt and JdV (formerly Joie de Vivre). Destination by Hyatt, made up of 17 upper-upscale and luxury resorts, has a few new properties coming online overseas. Half of the Unbound Collection’s properties are in Asia and Europe. And in Europe and beyond, JDV is teaming up with existing micro-chains to spread the brand.
Hilton currently has three soft brands in its portfolio. LXR sits at the luxury end of the spectrum, and the Curio and Tapestry Collections by Hilton are the company’s upper-upscale collections. According to Jenna Hackett, global head of the Curio and Tapestry Collections by Hilton, Tapestry in particular is growing in high-barrier-to-entry markets in Europe where small boutique properties are looking for an engine to help them grow. The brand is also showing strength in secondary and tertiary markets in North America.
On a parallel track, Hilton recently announced a new strategic partnership with Small Luxury Hotels of the World. Through the exclusive partnership, which will ramp up in the months ahead, Hilton customers—including Hilton Honors members—will be able to earn and redeem points for stays at participating SLH properties. According to Shaun Leleu, chairman of Small Luxury Hotels of the World, “Hilton customers gain access to our unrivaled collection of exceptional boutique hotels, while our properties enjoy amplified reach to a loyal and discerning audience. It's a game-changer for independently owned hotels on a global scale.”
Wyndham has two soft brands. The Registry Collection is in the luxury space and Trademark by Wyndham exists in an upper midscale/upscale space. While Registry’s more than 20 resorts (more than half of which are Grand Palladium properties) reside outside of the United States, Leo Danese, brand leader for Trademark and Registry, said Wyndham is looking to add domestic resorts into the portfolio as well. As for Trademark, “It’s a growth engine for Wyndham, to be honest. This past year, we opened about 25 Trademark properties in North America and 75 globally.”
As many of these executives indicate, the biggest growth potential for soft brands may fall outside of the United States. CoStar’s Freitag concurred. “In the United States, about two thirds of all hotels are affiliated with brands. But outside the U.S., the percentage drops to one third,” he noted. He sees some of the biggest opportunities in Germany, France, Spain and the United Kingdom, along with South Korea and major South America cities. “That’s why the growth potential for soft brands is particularly strong globally.”