Marriott says you really can have it all when it comes to a hotel company — both scale and quality. But can you really do that without sacrificing one for the other? Guess we'll find out over the next three years.
Marriott International is already considered, by and large, to be the world’s largest hotel company, with more than 6,900 hotels worldwide spread out over 30 brands, but the 90-year old company isn’t done growing.
At an investor day on Monday, the company highlighted its aspirations, which includes adding 1,700 more hotels over the next three years, and returning some $9.5 billion to $11.5 billion to shareholders.
Buying Starwood Hotels & Resorts in 2016 for $13.3 billion transformed Marriott into the world’s largest hotel company, but now that the integration with Starwood is officially completed, how will the company continue to grow and, as Marriott CEO Arne Sorenson put it, “not stand still?”
The strategy, Sorenson more or less explained, is to continue following the strategy the company has held since 2015.
“We’re about to test the theory we’ve pursued from the get-go,” Sorenson said to an audience of more than a hundred investors gathered at the New York Marriott Marquis in New York City.
That theory, as Sorenson has explained previously, is to be the world’s favorite travel company, and to deliver both top line and bottom line synergies through loyalty, salesforce, reservations systems and scale.
And even with the many challenges associated with integrating Starwood, from the merging of loyalty programs to the massive data breach that was announced last fall, Sorenson said that Marriott sees “the simplicity” of its original growth model from 2015 “returning.”
“[The year] 2018 showed us some of the bumps we could hit,” Sorenson said, “but the bumps were part of the hard work of M&A [mergers and acquisitions],” and, he added, Starwood remains a “spectacular opportunity for Marriott.”
Not only that, but the company believes, “unequivocally,” that its bet on Starwood, on loyalty, and on offering the scale and breadth of brands and hotels that it now has, will equate to incredible growth over the next three years and well into the next 90 years of the company’s future.
How Marriott Plans to Grow
Marriott already possesses the benefits of tremendous scale, but its primary approach to growing and adding those 1,700 hotels over the next three years involves a combination of not only pursuing scale, but also quality, as well as emphasizing the importance of loyalty and of customer experience. Marriott did not reveal under which brands those new hotels will be added.
In terms of growth, executives said, it’s not about pursuing every deal or hotel development possible. It’s about going after the ones that matter most, that bring the most value to Marriott’s shareholders and to its hotel owners.
“I started today’s conversation describing a race for global growth as a war being fought on two fronts — scale and quality,” said Marriott Global Chief Development Officer Tony Capuano. “We’ve chosen to compete on both because of the myriad advantages that scale brings, and the compelling financial benefits related to quality.”
It’s About Quality
As reflected by Marriott’s current hotel portfolio, it’s clear that Marriott’s portfolio skews more toward the high end of the accommodation space at a time when more upscale and upper midscale lodgings have taken more market share and are, as Sorenson noted, “growing faster than other segments” and are “moving into urban markets.”
Although Marriott missed its goal of adding 285,000 to 300,000 gross rooms from 2017 to 2019 — it only added 245,000 gross rooms — Sorenson, as well as Capuano, attributed that miss to the fact that today’s development time simply “takes longer.”
It takes longer, they said, to build new hotels in more urban markets, and to be building hotels under brands that are more lifestyle- and design-focused than in previous years.
“It’s taking a little longer to open than anticipated,” Sorenson said, adding that the company is adding “more urban and more valuable rooms than the company did in a [more] suburban model in the past.”
In short, Marriott isn’t just adding more hotels to add more hotels, although the company did have a record-breaking year in terms of its hotel development pipeline last year. It’s making sure it adds more quality hotels and brands, as well as ensuring it removes those properties that aren’t meeting the company’s brand or quality standards.
An ongoing example of this, noted Marriott Global Brand Officer and Luxury Portfolio Leader Tina Edmundson, is Marriott’s current work to transform the struggling Sheraton brand.
In 2017 and 2018, Marriott exited 26 Sheraton properties that didn’t meet its new standards, and the company continues to focus on “transforming” the Sheraton brand, which represents Marriott’s third largest brand by total number of properties and amount of fee income generated. So far, the company said, the strategy seems to be working: the brand saw a 150 basis points improvement over 2017 in consumer intent to recommend the brand.
Another interesting metric touted by Marriott Global Chief Commercial Officer Stephanie Linnartz was that while, in the U.S., Marriott occupies approximately 15 percent of the total lodging share, customer data from credit card company Visa suggests that Marriott accounts for 25 percent of consumer spend on hotels and homesharing.
When asked about those statistics, Sorenson said, “We are skewed toward the higher end.” You would expect we have more dollars coming through. Our portfolio runs a higher occupancy than the industry as whole and that’s because of the loyalty program and other things. Travelers who are on the road the most are giving us a higher share of wallet.”
It’s About Loyalty
Over the next three years, Marriott is just as focused on making sure it has the loyal guests to fill those additional rooms and hotels that it is adding.
As Skift has reported previously, and Marriott executives reiterated at the investor day, Marriott is investing very heavily into its new loyalty program, Bonvoy, which combines three different programs — Starwood Preferred Guest, Marriott Rewards, and Ritz-Carlton Rewards — and encompasses 125 million members worldwide.
The company launched the new program during the Academy Awards in February with a splashy new campaign, “Rewards Reimagined,” but consumer reaction to the new program has been mixed.
Marriott said that in 2019 alone, it has $5.5 billion in total sales and marketing funds from its owners and partners, to put toward marketing its loyalty program to consumers, and making sure that Bonvoy truly does become “a new language of travel” is a paramount objective.
Sorenson told Skift that Marriott is spending “tens of millions of dollars” on marketing Bonvoy.
And regardless of what critics of Bonvoy might say, Marriott is seeing “higher occupancy” and an uptick in “leisure bookings at peak times,” Linnartz noted. “We’re adding 1.5 million members each month,” she added, and “loyalty redemptions grew 8 percent in 2018.”
One region, in particular, where Marriott is seeing tremendous growth in loyalty is in Asia Pacific where a third of 125 million Bonvoy members lives, with 24 million in China alone.
Beyond having the most number of hotel loyalty program members, however, Linnartz said that Bonvoy represents more than just being a loyalty program.
“Bonvoy marks a significant moment in our company,” she said, noting that it represents a “shift from a loyalty to a travel program.” In short, Linnartz said, “We want to be the world’s favorite travel company.”
It’s About Customer Experience
And being the world’s favorite travel company means offering more than just a place to stay to consumers.
That’s why Marriott has invested recently in experimenting with homesharing, and is looking to invest more heavily in both on- and off-property experiences, as well as car rentals.
With regard to Marriott’s homesharing pilot with Hostmaker, Sorenson said, “Stay tuned. You will see how we pursue this business in the near term and longer term.”
Marriott Chief Global Officer of Global Operations and Managed by Marriott Select Brands, Raymond Bennett, also said that the new Marriott Bonvoy app is adding new features that will appeal to both loyalty members and non-members alike.
Those new features include mobile dining functionality, which will be rolled out at more than 200 hotels in North America this year, seamless Wi-Fi connectivity, and the ability to track airport shuttles. Relatedly, non-Marriott Bonvoy members can soon use the Bonvoy app to check into a hotel as well with a mobile kiosk option.
Marriott also devoted a whole portion of its investor day presentation to highlighting the company’s investments in dining to develop concepts that appeal not only to guests but to locals, too.
“F&B [food and beverage] is big business at Marriott,” said Dave Grissen, Marriott Group President. Marriott, Grissen said, isn’t just the world’s largest hotel company but also one of the world’s largest restaurant companies, and that business is “inseparable from the company’s DNA.”
It’s About Appealing to Owners
Underlying all of these combined strategies, of course, is Marriott’s overtures to hotel owners, without whom the company would not be able to grow and to develop all of those new hotels under its asset-light, fee-driven business model.
Just as Marriott is stressing the “quality of its brands and product” to investors and to consumers, it is doing that with its owners, too. The company said that 70 percent of its portfolio of both open and signed pipeline hotel projects is held by owners with multiple Marriott-branded hotels; roughly one third of those projects is being helmed by an existing Marriott hotel owner with 10 or more Marriott hotels.
A big part of the appeal of working with a hotel company like Marriott, the company noted, was the fact that it strives to deliver the “highest value customers at the lowest possible price” for its hotel owners, as noted by Marriott Global Officer of Digital, Distribution, Revenue Management and Global Sales Brian King.
No Marriott executives commented on the company’s ongoing contract negotiations with online travel agency Expedia, but King and other Marriott executives noted that the company’s online travel dependency for bookings remains flat — and driving more direct bookings for hotel owners remains a primary focus for the company because those customers are more valuable and more profitable for Marriott’s hotel owners.
“Customers who book on direct digital channels are 6 to 9 percent more profitable than an OTA direct booking,” King explained, describing Marriott’s “net revenue approach.” He said that direct bookings save an owner anywhere from $18 to $26 per booking.
As Skift has reported previously, Marriott is also in the process of rolling out a new reservations system across all of its more than 6,900 hotels that promises to help hotels maximize their revenues and better package and sell their room inventory by allowing consumers to pick and choose the stay or experience attributes that matter most to them.
Profitability Above All Else
While the hotel industry has traditionally fixated on metrics such as net unit growth (the total number of hotel rooms being added or subtracted to a hotel company’s portfolio) and on revenue per available room (RevPAR), the presentations Marriott executives gave during the company’s investor day seemed to suggest that those aren’t the only metrics that matter most in the hotel business today.
Instead, it’s really about profitability in the end.
“For better or worse, we compete in an industry where RevPAR for existing hotels is the most available measure. RevPAR is not net profitability, it’s gross revenue. And where net unit growth, without any insight into value, is the measure which is easiest to get a hold of. Both are pretty insufficient because If you are driving your top-line by driving RevPAR with two expensive rooms in terms of cost, you may actually be harming the profitability of the hotel.”
He added that Marriott’s hotel owners care most “about the profitability growth of their hotels” and “We think we’re much better off saying how much does this business cost us? Let’s yield away from the most expensive channels when we don’t need that business. Let’s maximize profitability.”
And the same principle applies to how Marriott approaches growth, and eventually a becoming a hotel company with more than 8,600 hotels by 2021.
“It’s the same with net unit growth,” Sorenson said. “Let’s not add rooms if they don’t add value to us.” He noted that Capuano’s development team’s “compensation is driven not just by rooms growth but by net present value associated with those rooms.”
So, yes, it’s about making those numbers, but about making sure those numbers count the most and bring the most value.
Sorenson concluded the investor day presentation by saying, “We think the business model is powerful, and the breadth of brands we’ve got is powerful. The loyalty program, Bonvoy, is the kind of synthesizing brand to allow us to go to market in the way that our customers understand.”
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Photo credit: Marriott CEO Arne Sorenson and other Marriott executives presented the company's three-year growth plan in New York City on Monday. Marriott