Interview: Marriott CEO Says He’s Banking on Economies of Scale

Marriott International announced it scooped up Starwood Hotels yesterday in a $12.2 billion deal to create a monster hotel group with 30 individual brands covering the entire corporate hotel spectrum.

The end result will be 1.1 million hotel rooms spread around the world in 5,500 properties.

Marriott CEO Arne Sorenson has his hands full. The merger is expected to close mid-2016 but there’s a ton of work to do to position each brand in its own unique space without having too much overlap.

There are also two loyalty programs to marry together, which may or may not retain their individual identities, and two corporate cultures to integrate that previously existed in stark contrast to one another.

That said, Marriott and Starwood complete each other. Marriott’s comprehensive U.S. domestic portfolio and broad select-service inventory fit nicely with Starwood’s more globally oriented product and established lifestyle brands.

Sorenson spoke to Skift yesterday, a few hours after the acquisition announcement, detailing some of the strategy behind the hotel merger.

Skift: What’s the value of the Marriott-Starwood merger for hotel owners?

Arne Sorenson: The combination of the two companies will bring us that much more power and economies of scale for the owners of our hotels, who will have a cheaper per reservation cost. Think about cheaper revenue management, think about more powerful procurement. All of those things should drive better results for our owners, and by driving better performance for our owners, it makes it that much more compelling for our owners to choose these brands as opposed to other brands.

The second piece is obviously Starwood has not grown their brands as quickly as we’ve grown ours. I think that’s based of our approach and our team, but I think by taking the best of theirs and the best of ours, we should be able to accelerate both of the brands.

Skift: How does the merger help fill gaps in each hotel group’s portfolio?

Sorenson: I wouldn’t say they’re holes, so much, in our lineup. This is about building on strengths. So we’ve obviously been much stronger in the select service and extended stay spaces, if you look at the size of Courtyard, Springhill Suites, Residence Inn, Fairfield Inn, TownPlace Suites. These brands number in the hundreds if not thousands of hotels.

Whereas Starwood has Aloft, which is 100 or so hotels total. And Element is 18 or 20 or something. So we think we can do a lot with their hotels in that space, and we’ll bring our strength in that segment to their brands. In a similar vein, we have a lot of strength in distribution in the big group space with convention center hotels. That’s sales force driven and service driven, and I think that our experience there will also be helpful.

Starwood’s strengths, the two easy ones to see, include the lifestyle space. W obviously is the most prominent of those, but Aloft is a lifestyle select-service brand. We’ve thought about what they’ve done there, and when we bring our efforts into that space, I think we can come up with a lifestyle platform that is clearly second to none.

And then the other thing we talk about is globalization, if you will. Starwood is more global than we are. They are in more countries than we are. They have more hotels outside the U.S. than we do. We think there is tremendous value in being a global player, and this will accelerate that for us.

Skift: There’s been considerable talk on social media since the merger announcement that Marriott might divest one or more of the Starwood brands. In the analyst call you said that’s not in the long term plans. But at the same time, that’s not something that Marriott could announce publicly anyway because the hotel owners just learned of the merger with everyone else. Is that a correct assumption?

Sorenson: Well, I suppose, although we don’t have any intention of disposing any of the Starwood brands. So it’s not simply that we haven’t talked to the owners, because we don’t anticipate it, and we wouldn’t recommend it.

Skift: Is the goal to eventually dissolve the Starwood name?

Sorenson: You know, I don’t know about that. Starwood is used in Starwood Preferred Guest [program], probably the one place it shows up in a customer-facing way. We’ll need to assess the value associated with the use of that word, and we might well need it in some way.

Skift: What is the value of the merger for loyalty members associated with both hotel groups?

Sorenson: I think there are many. Obviously, it’s going to take a while to sort out how we pull these programs together, but hopefully one day, our customers will have that many more places to earn and redeem points with the combined platform. Choice is always an advantage with programs like this. The bigger it is the better, but I think we don’t just want to make the programs bigger, we want to make them stronger as well.

Skift: You said on the analyst call that you want to invest more heavily in technology. Can you expand on that?

Sorenson: We’d like to have the resources to invest much more in consumer-facing technology created specifically around the loyalty programs.

Skift: Can you provide any details about what that might look like?

Sorenson: Not really anything specific at this time.

Skift: You also suggested culling out poor performing Sheraton assets. Why did you single out Sheraton?

Sorenson: This is all very preliminary, but from the work that Starwood has done, it looks like there are some assets in the Sheraton brand, particularly in the United States, which are clearly not on brand standard, and they’re pulling down their brand. For those hotels, and we certainly have a long term focus with them, they’re going to need to be renovated with significant capital. If that doesn’t make sense, then they will probably have to leave the Sheraton brand. Whether we have another place for them to land or not, I don’t know yet. This is the kind of work that has to be done on a hotel by hotel basis.

Skift: How do you plan to communicate the evolution of the brands to guests, and do you have a rough timeline in mind?

Sorenson: We’ve communicated some preliminary things about the merger already, starting with Starwood and their Starwood Preferred Guest program, and we and our Marriott Rewards program. How we continue to communicate, we’ll have to see as the next few months evolve. We’re not closing until mid ’16 so we won’t be implementing a lot of changes until we’re in a position to be running as one company.

Skift: Where this gets really exciting is the group market. For meeting planners organizing citywide conventions, they’ll be able to contract much larger room blocks on one master account now, right?

Sorenson: Absolutely. I think in the group space, we can offer many more options to group folks, whether it’s a citywide or someone saying they’re looking for a convention hotel in, say, one of three cities of a certain size. I think we’ll be able to offer a much better list of options now.

Skift: What keeps you up at night about this deal?

Sorenson: Well, obviously, mergers are tough. Getting the integration right is tough. It takes a lot of work, and it requires a lot of collaboration between the acquired company and the acquiring company. We want to make sure we get the talent decisions right, and we keep the best talent from both companies, but we also need to move with speed. We’ll have a lot of focus in the next few months on getting those integration plans ready, so they can be implemented as quickly as possible after we close.