On Monday, Global Business Travel Association executive director
and COO Mike McCormick said at the start of his mainstage sit down with
Marriott International president and CEO Arne Sorenson that of the thousands
attending the 2018 convention, about 1,000 were probably from Marriott.
McCormick may have been joking, but there's something to the sentiment.
Post its Starwood Hotels & Resorts acquisition, Marriott
International is the largest hotel company in the world. It opens a new room almost
every thirteen hours around the world, according to Sorenson, and Marriott's portfolio
comprises about 15 percent of the U.S. hotel market. Fifteen percent is not 100
percent, and the hotel industry is a fragmented one. Yet, it's safe to say that
where Marriott moves, other hotel companies may follow. Here are three main
topics Sorenson and McCormick got into during their discussion.
On Marriott's Pricing
Power
Even with Marriott's size, Sorenson said the company isn't able
to realize much power when it comes to moving rate. Why? Half the rooms in
Marriott's U.S. portfolio are priced by franchisees instead of by Marriott
corporate, he said, and price transparency has made it more difficult than ever
to move rates higher.
"There is total transparency every single day in pricing,
and what we see is enormous competition around rate particularly,"
Sorenson said. "We actually think we win by driving occupancy, which we do
by driving service, by having a stronger loyalty program, those sorts of
things. And the premium performance we get is by distributing higher occupancy."
As far as where the hotel cycle—and the balance of power between
buyer and seller—will move in the future, Sorenson said there's a fair amount
of uncertainty. "We're in a complicated world today, both in the U.S. and abroad.
Those complexities make it difficult to predict what will happen six months or
12 months from now."
On Cutting Meetings
Commissions
At the end of January, Marriott
announced it would cut the
commissions it pays to groups and meetings intermediaries from 10 percent to 7
percent beginning March 31 in the U.S. and Canada. Shortly after, other hotel
companies followed suit, including Hilton and InterContinental
Hotels Group.
"We talked about it a long time, and what we had seen
beforehand was: The intermediation of group business had gone from 10 percent
of group business to 50 percent of group business in the last decade or
so," Sorenson said. "We could look at group intermediaries and see
dramatically different kinds of platforms. Some were delivering amazing value
to their customers, and some weren't delivering much value at all, and they
were all trying to deliver the same thing for 10 percent; 10 percent in the
context of a full-service hotel in many of our big cities across the United States
is a very healthy percentage of the total profitability of that hotel. It's a
very expensive business."
He said the industry needs to get away from the notion that
everyone should get 10 percent, whether they deliver value or not. McCormick
alluded to Marriott's exemption of certain large intermediaries from its
cuts. Sorenson said those exemptions were "very temporary" and driven
by contracts that were already in place at the time. "Within a certain
number of months, it's going to apply to everybody," he said.
As for what other moves Marriott may make in the future,
Sorenson said, "We don't have a secret drawer of next steps that we're
going to take over the course of the next number of years; this is a place
where we've got to have a dialogue with our great partners and make sure we
work through it together in a way that the economics are fair and that we are
as aligned as we can be. We'll never be perfectly aligned, but we should be
totally transparent with each other."
On Home Rentals
Marriott in
April began a 200-unit pilot
of home rentals in London under the Tribute brand, which it inherited from
Starwood. A little more than a few months in, Sorenson said it's going well. "We've
got to make sure we compete in product and value and service," he said. "This
is what prompted the London pilot: There is one place where we don't have a
great response to [new home rental providers], and that is the whole-home,
aspirational thing, the manor house, the whole house where a family of four can
stay together.
"We thought in London, let's do a whole-home platform. … Let's
connect it to the loyalty program. Let's see what our customers tell us about
it," Sorenson added.
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Marriott is partnering with a property
management firm called Hostmaker to provide services, such as key delivery and
house cleaning and design services. "It will be interesting to see where
we go next steps on this," Sorenson said. "But if we can find the
right code to deliver a larger unit, which looks very different than a hotel
room, a whole-home product, I think it will be an interesting place to be."