Despite the challenges facing the industry, Sorenson remains optimistic and determined to make sure Marriott's $13.3 billion bet on loyalty pays off.
Arne Sorenson is not the kind of hotel CEO who likes to stay quiet about the most pressing issues impacting not only the hotel business, but travel overall.
Most recently, the Marriott International CEO penned a piece urging governments to implement smarter ways to deal with safety and security in travel. And before that, he also wrote an open letter to then President-Elect Trump.
Skift spoke to Sorenson while he attended the New York University Hospitality Industry Investment conference in New York on June 5 to ask him for his thoughts on the industry. What follows also includes excerpts from his conversation on stage with ABC News correspondent Rebecca Jarvis at the same conference.
Skift Editor’s Note: Sorenson’s quotes have been edited for clarity and length.
The Current Climate
“I think one of the challenges we’ve got today is when we look at the events in London or we look at the travel ban tweets this morning, or we look at some attributes of the world we live in, it could feel a little negative,” Sorenson said. “I actually think we’ve got to be careful about that because we’ve got significantly growing global travel. We’ve got [this], both in domestic travel in the United States and maybe in the markets surrounding it, and because of this move toward wanting experiences — including travel — because of this move of a growing mobile middle class, there is a lot about the future which is really positive.”
“The best thing we can do for laptops is if, in the entire world, we’ve got TSA-like security where people are looking at your bags, or going through every item, and it can be a burden in some airports and some countries, but it’s a burden that applies to everyone, and by and large it means that we’ve all as travelers learned to just put up with it,” he noted. “I think, similarly, in the laptop space, or other spaces around technology, the more these can be decisions that are made with other countries involved, I think the less unique impact it would have on the United States. So, if there was a laptop ban for inbound U.S. business only, it would simply be yet another reason why somebody might not continue to come to the United States. And that’s where it starts to have the possibility of hurting us.”
Investing in Experiences
Earlier this year, Marriott announced its investment in PlacePass, a tours-and-activities metasearch platform, and it’s clear that Marriott, like its peers, is seeing the increasing importance of playing a bigger role in the entire, end-to-end travel journey for customers.
“I think we [as a society] are broadly much more interested in collecting experiences than material things,” Sorenson said. “And that maybe could be said uniquely about Millennials but I truly think it could be said about people like me too, and it’s how do we how do we take a trip or how do we have a meal which is really memorable, and then we could share it.”
“Our entire business is experiences,” he added. “We’re in a really good place to be because all around the world we see people say ‘I want to go see Paris and New York or you know, the parks, or whatever, fill in the blank. And I want to do those things as a higher priority than 10 or 20 years ago.’ Now, in the PlacePass context, that is a little bit more finally focused, which is how do you make it easy for folks, given what broader experience of travel there is to find these unique activities that they can engage in when they’re traveling. PlacePass is a way of doing that with hundreds of thousands of options already.”
Shifts in Hotel Design
Sorenson said that although Marriott currently has 30 brands in its portfolio, each with very different styles and designs, he’s seen a few universal trends among each — and again, none of them is going away anytime soon.
“Some trends are really basic and obvious: big TVs. I toured a number of hotels last week, and every one of them they had 55-inch TVs. And if you were back just a few years ago, you know, you felt great if you got a 42-inch TV, because often you might get a 32- or a 37-inch and so you see that now … and with it you see the technology evolving. So, on that big TV we can watch through our own Netflix account or we can cast it on from our devices that we are carrying with us. And so that technology, particularly around entertainment, is pretty powerful for the guest experience and the way we’re designing hotels.”
“I think secondly, the hard-surface floor in the guest room is getting to be more and more standard,” Sorenson added. “I think that it will not be the case in every brand because that fact is it is getting more expensive on the front end.”
“The third thing I talk about is food and beverage,” Sorenson said. “I want to localize food/beverage experience. That might be a concept that we own and operate ourselves, it might be, let’s say a license that we have with a third party, or it might be an outsourced arrangement, but how do we get in the position where we’re bringing life back into the food and beverage offering, particularly at lunch and dinner? With breakfast, obviously, you’ve got a captive audience that you could sell breakfast to but pulling people in at dinner is what really demonstrates the power of the restaurant.
The Front Desk Will Be a Thing of the Past
While speaking on stage, Sorenson predicted the hotel front desk may soon be a thing of the past, thanks to the growth of services that can be facilitated via mobile devices. While keyless entry has seen wider adoption in recent years thanks first to Starwood, then to Marriott’s adoption of the technology, it has yet to go wide with consumers.
“Think about opening your guestroom door with your phone and not having to stop at the front desk,” he explained. “Think about that as having room service waiting in your room when you arrive. Think about that as being at the beach in front of the hotel and wanting lunch and being able to get on the app and have the lunch brought as opposed to waiting for the waiter who’s trudging through the sand to try and take orders as well as deliver orders. This collection of mobile services is available now but the penetration is growing dramatically. I would think within a very few number of years, overwhelmingly, when we’re on business travel, we’re going to have the ability and probable likelihood of bypassing the front desk.”
Merging Starwood and Marriott Through Technology
In May, discussing Marriott’s first quarter earnings, Sorenson said the biggest risk involved in the integration between Marriott and Starwood involved technology and at the NYU conference, he elaborated further.
“So far, all things evolving the integration are going great. We feel it’s going as well as we could’ve anticipated actually and even better. Technology is the thing that seems to take time, which is what I mentioned in the earliest call. Think about the property management system. There are a number of variants revolving to the next generation before we combine Starwood, so how do you get to the right number of property management systems to make sure they’re compatible? How do you make sure you have a functionality you need to have which is dealing with multiple currencies and cost effectiveness because you could have a super high-end luxury hotel that’s big or you could have a relatively small boutique hotel that really needs the efficiencies. So, we’ve gone through those depths. And similarly, as we’re looking at the property management systems, how do you take the two that were there which are both about technology and about people. Where are they located? How are they interacting with the customers? How are they interacting with the online booking?”
“And of course, then you’ve got the stuff that is yet to come around: automation and artificial intelligence,” he said. “A lot of that is going to be about getting to know our customers better and how do we without going too far we make sure that we’re using the information.”
A Loyalty Update
“I think the loyalty programs are enormously powerful and have been for many years the most powerful platform for us to have relationships with our customers. And I think, if anything, they’re getting more powerful not just for us but for everyone,” Sorenson said.
Sorenson also said one thing that surprised him was how passionate Starwood Preferred Guest (SPG) members were about their program. “I think early on, the thing we maybe didn’t appreciate quite as much as we should have was how rabid the SPG elite’s needs were about their program. Maybe that shouldn’t have been that surprising, but they were. They said, ‘Oh my God, what’s going to happen to our program? What are you going to do with my points?’ So we’ve engaged and entered into that conversation with them.”
He added, “[For the] legacy [Marriott] brand it’s worth well over 50 percent to 60 percent of our business which is rewards related. Starwood was a bit lower than that, but a piece of that was that the distribution was smaller, and another piece of that is also that the distributions can be a little bit more in non-business markets where your percentages are always going to be a little bit higher.”
“But you know I think so far so good. I think the connection of the two platforms from the beginning [with account linking], which we’ve talked about before, was absolutely huge and I think we still get great compliments from our customers who say I love the fact that I got the benefits of both programs from the beginning. Maybe it was not as simple as I’d like it to be in some point in time, but we’ll be moving now with a goal of fully integrating all three programs by the second half of 2018.”
He also noted, “I think a number of us in the industry are seeing that our loyalty penetration is nearing 60 percent today of all business, so it gives you a sense of how powerful these loyalty platforms are.”
Will There Be More Mergers and Acquisitions?
Having participated in what is arguably the largest acquisition in the hospitality industry in recent years with the tumultuous $13.3-billion purchase of Starwood Hotels & Resorts, Sorenson said he thinks another transaction of that magnitude may not be as likely going forward.
“The challenge on the M&A [mergers and acquisitions] side, in predicting it, is companies are not always for sale and the big advantage we have is that Starwood was first and so we could step in, which we did at the last minute, and be successful in buying the company,” he said. “But if Starwood hadn’t been for sale and we went and knocked on their door in Stamford, my guess is they would’ve said, or maybe not even answered the door, but they may have said, ‘We’re not interested in this.'”
“I do think, in the fullness of time, people understand that there are advantages around size and they’re about loyalty programs, they’re about investing in technology, they’re about distribution: who are you selling, how do you sell to them, and so I think we’ll see that [consolidation] continuing.”
On Direct Booking
The other big story dominating many conversations within the hospitality industry last year involved direct bookings, or the proliferation of member rates for customers who book direct with the hotel brands instead of booking through third parties like online travel agencies (OTAs) like Priceline and Expedia.
Sorenson said he expects a focus on direct bookings will continue this year.
“I think the direct booking thing will also continue to be a priority for the industry because the more we can have our business encapsulated within our loyalty program, there are customers coming to us directly therefore there’s less frictional cost associated, there’s real cost associated with it, we can know our customers better, provide better service — that’s a much better place for us to be,” he said.
When asked about a recent CBRE report that noted that the amount of commissions paid to third parties rose last year, Sorenson said, “Yes, that’s industry wide, and I think the OTAs are continuing to grow well. Obviously, their contribution is much higher with independents because they don’t have loyalty programming in their platforms. And those companies continue to do well, and by the way, even if we got to an ideal world, it doesn’t mean that there are no reservations coming to us from some of these other platforms, because they serve a customer that doesn’t travel that frequently. And we are not likely to know that customer, and but that’s okay, and they might continue to grow. But I think we will continue to see our loyalty penetration grow as well and that’s a long-term goal.”
On stage, following a luncheon where he sat at the same table as Expedia CEO Dara Khosrowshahi, Sorenson joked, “Well, there’s Dara sitting right there and we didn’t negotiate once during lunch. Neither of us [Marriott and Starwood] have experienced negotiations [with the OTAs] since we closed the deal … I think, if I remember right and I think, whether it’s with Expedia or with other online travel agents, we have each got areas where we want to grow our businesses and maybe a little bit to the exclusion of the other, and we each have areas where there’s work we can do together.”
He added, “Where the OTAs are most additive to us is with the occasional leisure traveler who’s not a member of our loyalty program, who may not know that much about hotel brands, who’s going to look not just for the kind of choice that we’ve got in our system but for even broader choice, someplace else. If we can sell rooms to those folks and obviously then try to press upon them through service and product, that they should be customers of ours, that’s a good thing for us.”
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Photo credit: Marriott CEO Arne Sorenson (right) was interviewed on stage by ABC News correspondent Rebecca Jarvis at the NYU Hospitality Industry Investment Conference on June 5. Mark McQueen / NYUSPS