BETHESDA, MD—Is Marriott right that size and quality make a difference? That’s the difficult question Arne Sorenson, president and CEO of Marriott International Inc., says the industry will be asking of itself in the wake of the closing of the company’s acquisition of Starwood Hotels & Resorts Worldwide Inc., a deal nearly a year in the making.
Certainly, it seems like the industry agrees, as this transaction is one of a bevy of M&A deals announced in recent months, though Marriott’s acquisition is the largest, with the company now operating or franchising more than 5,700 properties and 1.1 million rooms across 30 brands in over 110 countries. And, Sorenson told Hotel Business, the more people believe in the theory of size and quality, “the more you’ll see other efforts to consolidate the industry and grow, although I’d caution that reaching that conclusion in the abstract is very different from actually closing a deal—companies are not always available for sale.”
The CEO added that how the industry reacts will also depend on the report card Marriott gets back about the success of the deal—but early results are positive. “We’re just starting to deliver against it, and we’re really excited by the first 72-hour reaction of the loyalty program,” he said. “We did much more than our guests expected at closing with the ability to link accounts, match elite status and redeem across the portfolio. The first returns are very positive, but this is a big deal and it will take some time to really prove it out.”
The company is focused on three groups—associates, guests and owners—and the initial focus on loyalty (Marriott Rewards, which includes The Ritz-Carlton Rewards, and Starwood Preferred Guest (SPG) accounts, can now be linked and points can be transferred for redemption) was to reassure and energize guests about the acquisition. “The guests are pleased with the first step on the loyalty programs,” said Sorenson, but “all three communities are going to look for early wins.
“With respect to our associates, we’ve got a lot of good things underway. Partly, it’s increased opportunities because of the increased size of the company and the growth of the company, which gives more mobility to associates. It also gives them that many more places where they can stay with associate rates,” he said. “And, I think they’re proud of being part of a big company.”
Anthony Capuano, Marriott International’s EVP and global chief development officer, added, “In terms of opportunities, especially for the Starwood associates, to go from a company with 1,200 hotels to almost 5,800 hotels, the career opportunities that emerge from this merger are extraordinary… Fifty percent of our GMs worldwide started in hourly positions. Now you’ve got tens of thousands of new associates who can become part of that culture of opportunity.”
While not much will change when it comes to associates at the property level, there will be some changes above. Sorenson said making those decisions quickly is important. “We want to make sure we make the people decisions as quickly as we can so we can stand up as an organization that is forward looking in its entirety and not really thinking about what happened in the past,” he said.
As for owners, Sorenson said that it’s crucial to deliver early wins. “In some respects, delivering margin improvement might be a bit easier than delivering immediate top-line improvement, even though we’ll do that longer term,” he said. “To the extent we can use our scale to deliver goods and services to the hotels at lower costs, that will be something we want to do quickly.”
“What we’re most excited about, when you look at the broad macro benefits we anticipate from this merger, is the ability to drive significant revenue upside as a result of the strength of the combined revenue engines and loyalty program, coupled with what we expect will be some really exciting margin enhancements that will come from the economies of scale of the combination of the two companies,” said Capuano, adding that it’s driving “extraordinary developer interest in every corner of the world.”
Still, he echoed Sorenson’s focus on owners, telling Hotel Business that the general consensus from the owner community has been “exceedingly positive for the reasons I just described. Intuitively, they understand the revenue potential of combining these two powerhouses and they understand when it comes to credit-card commissions, OTA commissions, purchasing, all of the benefits you get from this sort of scale, they’re quite enthused.” Capuano noted that—as happens anytime a company acquires new brands—there will be instances where an individual owner might be concerned about an increased concentration in the footprint in a given market. “That’s where the strength of our culture and relationship with our owners will be most helpful,” he said. “We will certainly engage and work through those individual circumstances as we’ve done for years.”
Since Marriott and Starwood first announced the deal last year, there’s been speculation regarding whether brands that compete in the same space will be culled. Marriott has maintained a commitment to all 30 brands, though some may undergo refinement and tweaks to better drive distinctions. Acknowledging that 30 brands is a lot, Sorenson noted that this shouldn’t be too difficult—after all, these brands already exist and compete against each other in the marketplace, so they’ve been driving distinctions all along. For offerings that are closer together, Marriott will work with the brands, owners and guests to answer these questions: Where do we want to take these brands? What do we want the brand standards to be? What do we want the service cues to be? “We’ll lay that out as quickly as we can,” said Sorenson, adding, “That’s likely to be a few years of real dialogue with our communities and then in terms of implementation.”
For his part, Capuano said that 30 brands won’t change the company’s philosophical approach to development. “I think it gives us a lot of additional opportunity. When we look across the Starwood portfolio of brands, it gets my developers around the world quite excited,” he said. “When you look at brands like Aloft and Element, they are really intriguing in terms of the lifestyle sensibility they bring to select-service and they are relatively modestly distributed brands. We see lots of runway in front of us in terms of our ability to accelerate the growth of those brands.
“At the other end of the spectrum, you look at St. Regis, which is obviously a storied brand, but one that maybe has not had the same momentum of growth particularly in international markets. We think there’s a tremendous opportunity to accelerate the growth of that sort of platform,” Capuano continued. “Lastly, developers are champing at the bit to go out to our development partners and help them understand this vertical stack of soft brand options we have: Luxury Collection, Autograph and Tribute.”
Both Sorenson and Capuano acknowledged there is still a lot of work to be done. “In a merger of this size and complexity, there are a whole host of parallel streams of activity,” said Capuano, ticking off some of the major points: loyalty, information systems integration, further definition of brand architecture and culture integration.
But they’re both enthusiastic about the future. “What we hear back from folks, including our community of owners, is very supportive. They understand the theory of the deal, why it should work, but they’re going to hold us accountable,” said Sorenson. “They’re going to [want proof]it’s working, and that’s about top-line and bottom-line growth. That’s what we’ve got to deliver. That’s where our focus will be.” HB