Marriott International Bolstering European Presence

Marriott International Bolstering European Presence

By Bruce Serlen

In a briefing late last month in London, J.W. Marriott Jr., chairman and CEO of Marriott International, assessed the present strength of the European hotel market and updated his company's approach to market penetration.

For travel managers responsible for international hotel programs, Marriott's strategy is a lesson in how large multi-brand companies increase their distribution in key gateway cities and then extend their presence into secondary and tertiary markets, allowing buyers more of a one-stop shop.

Marriott said the slowdown in occupancy rates and room revenues that have roiled the top U.S. markets since February has negatively affected international markets that see a high percentage of inbound U.S. business travel. "There's been a significant drop-off in business travel in the first four months of the year, less so in leisure travel," he said.

In April, Marriott's revenue per available room was down 2 percent to 3 percent over the prior year. "The softening in markets like London followed the United States by a few months in a kind of ripple effect, because U.S.-based companies bring so much business here," Marriott said.

In London and other markets, trading down also has been a factor. Travel buyers, under pressure to save money, are directing travelers to limited service, rather than full service, properties. Thus, "A broad portfolio of brands provides an added layer of protection from economic volatility," Marriott said. "When travel buyers are watching costs, they want to be able to choose from a variety of brands. Our objective is to meet every traveler's needs, no matter what the travel budget."

Speaking at his company's new Renaissance Chancery Court Hotel, Marriott said he didn't expect to see a rebound in either the domestic or international markets before year-end. Yet, he didn't step back from the aggressive international expansion plans his company announced before the present downturn. To the contrary, he said current market conditions helped Marriott to attract potential owners and franchisees, who are more likely to seek out brands with an established track record.

Marriott expects to open an additional 35,000 guest rooms worldwide by year-end and another 35,000 in 2002. While its market share is 7.5 percent in North America, its share is less than 1 percent elsewhere. In the United Kingdom, for example, the company's portfolio will jump from 60 hotels to 65 by year-end because of a relationship with a single owner, the Whitbread Hotel Co. "We've rebranded 18 former Swallow Hotels to the Marriott and Courtyard brands since acquiring Swallow last year," said Alan Parker, Whitbread managing director. Five more hotels will convert to the Marriott brand this year and in 2002, while two will become Renaissances. As a result of the Whitbread relationship, Marriott's U.K. penetration now extends from such secondary destinations as Liverpool and Leicester to such tertiary markets as Bournemouth and York.

"Marriott continues to account for a disproportionate share of the hotel development pipeline, relative to existing market share," said Michael Rietbrock, managing director of Salomon Smith Barney, who similarly cited Hilton Hotels Corp. "Secondary brands likely will continue to lose development momentum, particularly in today's environment of limited access to development capital."

This is consistent with the company's long-held strategy. "Historically, Marriott has used a portion of its capital to build new hotels," said Jason Ader, senior managing director at Bear Stearns. "Typically, it owns these hotels for a short period and then sells them, retaining a long-term management contract.