Marriott International, Inc

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Marriott International, Inc.

One Marriott Drive
Washington, D.C. 20058-0003
U.S.A.
Telephone: (301) 380-3000
Fax: (301) 380-3969
Web site: http://www.marriott.com

Public Company
Founded: 1927
Incorporated: 1993
Employees: 143,000
Sales: $11.55 billion (2005)
Stock Exchanges: New York Chicago
Ticker Symbol: MAR
NAIC: 721110 Hotels (Except Casino Hotels) and Motels

Marriott International, Inc., is one of the world's leading lodging companies. It operates or franchises nearly 2,800 properties encompassing more than 500,000 rooms and 11,000 timeshare villas in 68 countries and territories worldwide; approximately 2,350 of the properties and 400,000 of the rooms are located in the United States, the origination point for 90 percent of the company's revenues. A little more than half of the rooms are located at the more than 1,000 properties that Marriott International operates itself. The more than 1,700 franchised properties encompass the remaining 230,000 rooms. The company controls no fewer than 13 separate lodging brands. Marriott's six full-service brands—Marriott Hotels & Resorts, Marriott Conference Centers, JW Marriott Hotels & Resorts, the Ritz-Carlton luxury chain, Bulgari Hotels & Resorts, and Renaissance Hotels & Resorts—generate about 65 percent of the company's total revenues. Responsible for 11 percent of revenues are the firm's three select-service lodging chains: Courtyard by Marriott, Fairfield Inn by Marriott, and SpringHill Suites by Marriott. Four extended-stay brands—Residence Inn by Marriott, TownePlace Suites by Marriott, Marriott ExecuStay, and Marriott Executive Apartments—contribute 5 percent of revenues. The firm's timeshare properties, which operate mainly under the Marriott Vacation Club International name, generate approximately 15 percent of revenues.

While Marriott traces its ultimate origins back to 1927, the latest incarnation of the company was formed in 1993 when Marriott Corporation split into two separate companies, one of which, Marriott International, was involved in both lodging and contract management services. In 1998 this company underwent its own division, with a new Marriott International emerging focused principally on lodging. The company's expansion moves include the acquisition of a 49 percent interest in Ritz-Carlton in 1995 and the remainder in 1998; the purchases of Renaissance in 1997 and ExecuStay in 1999; and the launchings of Marriott Executive Residences in 1997, SpringHill Suites in 1998, and Bulgari Hotels in 2004. Members of the founding Marriott family continue to control about 20 percent of the company's stock.

ROOTS IN RESTAURANT
BUSINESS

J. Willard (Bill) and Alice S. Marriott were newlyweds, transplanted from Utah, when they opened an A & W root beer stand in Washington, D.C., in May 1927. The Marriotts quickly noticed that soft drinks sold well during Washington's long, hot summer, but that business needed a boost during the cooler months. Tacos and tamales, the first Mexican food in the area, were added to their winter menu. The Marriotts called their restaurant The Hot Shoppe, and offered medium-priced food in a family environment. In 1928 the Marriotts opened their third restaurant, which offered curbside service. Business was strong and in 1929 the restaurant was incorporated as Hot Shoppes, Inc.

As Hot Shoppes evolved into a chain of restaurants, the Marriotts maintained close family supervision of all facets of the business; for many years Alice served as company bookkeeper while Bill ran the business with "benevolent and paternalistic labor relations and a flair for promotion," as Forbes reported in 1971.

Hot Shoppes remained popular in the Washington area through the Great Depression. In 1937 Marriott branched out from the restaurant business for the first time, pioneering in-flight catering with boxed lunches for Eastern, American, and Capital Airlines flights from Washington's old Hoover Airport.

ENTERING LODGING

In 1939 Marriott's foodservice management business won an account at the U.S. Treasury building. In 1940 Marriott opened five new restaurants. The company made its first offering of public stock in 1953. Two years later Marriott entered the hospital foodservice market at the Children's Hospital in Washington, and in 1957, another business segment made its debut when Marriott's first hotel, the Twin Bridges Marriott Motor Hotel, opened in Arlington, Virginia. Over the next few years, the company continued to open hotels as well as Hot Shoppes restaurants.

In 1964 Marriott handed the presidency to his son, Bill Marriott, Jr. At the time, the company owned 45 Hot Shoppes and four hotels, as well as its other businesses, and that year the company's name was changed to Marriott-Hot Shoppes, Inc. Bill Marriott, Jr., wanted to accelerate the pace of growth. The new president first concentrated on the lodging segment of the business. Over the next six years, Marriott almost quadrupled in size, surpassing Howard Johnson and Hilton Hotels in both revenues and profits. The company grew both by acquisition and by starting up new businesses. Marriott became international when it acquired an airline catering kitchen in Caracas, Venezuela, in 1966. In 1967 the 22-unit Big Boy restaurant chain was acquired, and in 1968 the company started a fast-food chain, Roy Rogers. Also in 1967, shareholders approved a corporate name change to Marriott Corporation; and in 1968 the company's stock was first listed on the New York Stock Exchange.

By 1971 Marriott was "the most highly diversified company in the away-from-home market," Bill Marriott, Jr., told Forbes. Marriott brought in new management techniques to help the company grow in an organized and controlled manner. He divided the company into three basic groups: food operations, in-flight services to airlines, and hotels and specialty restaurants. Each group was headed by a president who reported directly to Marriott. With the three groups further divided into 16 divisions, the company was never dependent on one segment for profits. Another management change came in the planning-and-research area, which became the most intense one in the industry.

Along with tight family control and cost control, Bill Marriott, Jr., who succeeded his father as CEO in 1972, also agreed with his father that labor unions helped neither the worker nor the company. Marriott worked hard to keep unions out of all phases of the corporation because its executives believed that the company was much more flexible without union rules and that they could offer better benefits to their employees. Backing this belief was a generous profit-sharing plan and a system of incentive bonuses.

COMPANY PERSPECTIVES

Marriott is ready to deliver what our customers want, when they want it, the way they want it. Our superb brands, products and services are reaching a new audience and dramatically changing the perception of travel. We are building for tomorrow's success, always looking for ways to innovate and enhance our business. And we are doing it with a style all our own.

During the 1970s, casinos became a popular investment in the leisure market, but Marriott avoided that segment of the business and concentrated on hotels. Marriott's hotels generally catered to upscale travelers and concentrated on businesspeople willing to pay extra for quality. Marriott hotels continued to rise in both cities and suburbs. Because of their business orientation, most facilities had meeting rooms and banquet facilities. Convention hotels were built in growing convention cities such as Boston, New York, and Anaheim, California. As airline travel grew, Marriott also began to locate new hotels near airports. Over the decade, Marriott spent more than $3 billion on hotels, increasing its hotel rooms by an average of 17 percent a year.

Marriott planned carefully and came out ahead in the shaky economic atmosphere of the late 1970s and early 1980s. The company bought back a third of its stock, and in 1982 purchased the Gino's restaurant chain as well as Host International, an airport-terminal food, beverage, and merchandising company, making Marriott the largest operator in that business. During this time Marriott also kept building hotels, even as others pulled back.

LAUNCHING NEW LODGING BRANDS

By the early 1980s, Bill Marriott realized that the hotel division would not be able to maintain its growth rate by operating only in the upscale market. Finding that customers were least satisfied with middle-priced hotels, Marriott sent researchers out to discover exactly what customers were willing to give up in exchange for less expensive rates.

KEY DATES

1927:: J. Willard and Alice S. Marriott open an A & W root beer stand in Washington, D.C., and soon expand their menu for a restaurant called The Hot Shoppe.
1929:: Business is incorporated as Hot Shoppes, Inc.
1953:: Company goes public.
1957:: Company opens its first hotel, the Twin Bridges Marriott Motor Hotel, in Arlington, Virginia.
1964:: Company is renamed Marriott-Hot Shoppes, Inc.
1967:: Shareholders approve a corporate name change to Marriott Corporation.
1983:: First Courtyard by Marriott opens near Atlanta, Georgia.
1984:: Marriott enters the timeshare market.
1987:: Company acquires Residence Inn Company, an all-suites hotel chain catering to extended-stay travelers; first Fairfield Inn lodges open.
1989:: Marriott divests its airline catering division.
1990:: Company's restaurants are sold to Hardee's Food System.
1993:: Marriott Corporation splits into Marriott International, Inc. (focusing on hotel management, senior living communities, and food and services management) and Host Marriott Corporation (mainly an owner of lodging properties).
1995:: Marriott International acquires a 49 percent stake in The Ritz-Carlton Hotel Company, L.L.C.
1996:: Fairfield Suites by Marriott is launched.
1997:: First TownePlace Suites by Marriott opens in Newport News, Virginia; Marriott acquires Renaissance Hotel Group N.V., gaining the Renaissance and Ramada lodging brands.
1998:: The lodging operations are spun off into a new company that retains the Marriott International, Inc. name; the old Marriott, consisting of food and services management operations, is merged with the U.S. operations of Sodexho Alliance SA to form Sodexho Marriott Services; the new Marriott International acquires the remainder of Ritz-Carlton; company begins to convert Fairfield Suites into SpringHill Suites by Marriott.
1999:: ExecuStay Corporation is acquired; its properties are later rebranded ExecuStay by Marriott.
2004:: Ramada is sold to Cendant Corporation; first Bulgari Hotel & Resort opens in Milan, Italy.

In 1983, after three years of research and planning, Courtyard by Marriott emerged. The first opened that year near Atlanta, Georgia. The 150-room, two-story Courtyards did not offer bellmen, room service, or large meeting and banquet facilities, but did offer the high-quality rooms the chain was known for. Costs were also kept down by building the hotels in groups of ten to 12 and hiring one management team for each cluster.

Marriott's research team also indicated that several other segments of the residence market could be popular. One of these was timesharing, which Marriott decided to enter by placing timesharing units near its resorts. The venture began with the purchase of American Resorts Group in 1984. By 1989 the company owned four timesharing resorts in Hilton Head, South Carolina, and Orlando, Florida, and was in the process of developing several more.

Bill Marriott also realized that the company could grow faster if Marriott did not own most of its hotels. The company then tended to build hotels for later sale, but retained control through management contracts. Marriott believed that this system provided more rapid profit growth and limited risk while allowing more uniform service than franchising.

During the mid-1980s Marriott made several changes. In November 1985 the corporation bought the Howard Johnson Company. At the time of the purchase, it sold the Howard Johnson hotels to Prime Motor Inns but kept 350 restaurants and 68 turnpike units. Marriott's services group grew in 1985 with the purchase of Gladieux Corporation, and then Service Systems. The 1986 acquisition of Saga Corporation, a diversified foodservice management company, made Marriott the largest foodservice management company in the country.

A major disappointment in the restaurant segment occurred in 1987, when the company made an unsuccessful bid for Denny's, a chain of 1,200 restaurants. Had the bid succeeded, it would have made Marriott the largest operator of family restaurants in the country. Later that year Marriott sold franchise rights for the Big Boy system to Elias Brothers Restaurants.

To complement the Courtyards, Marriott decided to enter the luxury all-suite market, targeting extended-stay travelers. The new units, called Marriott Suites, were planned for suburbs and medium-sized cities. The first one opened in Atlanta, Georgia, in March 1987. Later in the year the company purchased the Residence Inn Company, an all-suites hotel chain that catered to extended-stay travelers. At the other end of the spectrum, the first Fairfield Inn economy lodges were tested in the same year after three years of development.

In 1988 the company began to test market a new restaurant, called Allie's after Alice Marriott. First, 13 former Big Boys were converted to Allie's. After a successful test in San Diego, California, the company planned to roll out the restaurant nationwide by opening more than 600 units, both new and converted, by 1993. These family-style restaurants concentrated on all-you-can-eat food bars with such items as Mexican food and barbecue.

Also in 1988, the 100th Courtyard opened, in Chicago; 12 Fairfield Inns were in operation and 24 more Marriott Suites were added, for a total of 130. With Marriott Hotels and Resorts, Courtyard by Marriott, Fairfield Inn, and Residence Inns by Marriott, the company's business included more than 470 hotels by the end of 1988. In the crowded, competitive lodging market, Marriott's occupancy rates were about 12 percent over the industry average.

Marriott Senior Living Services was formed in the late 1980s, adding to Marriott's operations "lifecare community" residences, which incorporated retirement living with long-term nursing care when needed. After almost six years of research, Marriott felt ready to enter this market, long dominated by nonprofit organizations, in 1988. By the end of 1988 Marriott operated nine facilities—eight under contracts gained in the acquisition of Indianapolis-based Basic American Retirement Communities. During 1989, the company announced plans to build 150 "senior living communities" by the mid-1990s.

In late 1989 Marriott announced a major restructuring, which included the sale of the company's airline catering division to Caterair International for $570 million and plans to sell its restaurant business and to buy back ten million shares of stock. The company subsequently sold its restaurants in April 1990 to Hardee's Food System for $365 million. After the restructuring, Marriott's three core businesses became lodging; food and services management; and food, beverage, and merchandise operations at airports and on turnpikes.

FORMATION OF MARRIOTT
INTERNATIONAL, INC. AND
FURTHER EXPANSIONS

Marriott was forced to make a much more drastic, and dramatic move, in the early 1990s. Bill Marriott's method of building a hotel, then selling it but still managing it had worked for years. However, a 1986 change in the tax law sharply reduced real estate tax shelters and came in the midst of a company building boom. Unable to sell as many of these properties as it wished, the company was left saddled with a large debt load of $3.4 billion, built up to finance all the building. By the early 1990s, the debt burden left Marriott unable to expand.

In 1992 Bill Marriott and his CFO, Stephen Bollenbach, conceived of a plan, announced in October of that year, to divide Marriott Corporation into two separate publicly traded companies, one that would own hotel properties and another that would manage them. The following October, Marriott completed the division of its operations, with Host Marriott Corporation formed to own lodging properties, as well as handle Marriott's airport and turnpike concessions; and Marriott International, Inc., created to manage the Marriott family of hotel brands and the senior living communities, along with Marriott's food and services management business.

The division was initially controversial, mainly because about two-thirds of Marriott Corporation's $2.9 billion of debt was assigned to Host Marriott. Nonetheless, Host Marriott and Marriott International went on to post strong earnings well into the 1990s. (Host Marriott subsequently underwent a further split in 1996, when Host Marriott Services Corporation, another separate publicly traded company, was formed to operate the airport and turnpike concessions, with Host Marriott left to concentrate only on owning hotels and real estate.)

Marriott International managed about 760 hotels and other lodging properties at the time it was formed. By early 1997, the company had added more than 600 properties to its management portfolio, approaching the 1,400 hotel mark. Relieved of a heavy debt burden, Marriott International was free to aggressively pursue acquisitions and launch new hotel brands.

In April 1995 the company spent $200 million to acquire 49 percent of The Ritz-Carlton Hotel Company, L.L.C., and planned to acquire the remaining 51 percent over the next several years. The deal brought Marriott International a leading brand in the luxury hotel segment, and by 1996 there were 33 Ritz-Carltons in 15 states and seven countries. In March 1996 Fairfield Suites by Marriott was launched as an all-suite economy hotel. In June of that same year, Marriott Senior Living Services was bolstered with the $303 million acquisition of Forum Group, Inc., a leading operator of senior housing in the quality sector. The following March, Marriott International sold 29 of the 42 Forum retirement centers to Host Marriott for $225 million in cash and $315 million in notes and assumed debt, but the company would continue to manage them. By 1996, Marriott International's revenues had surpassed $10 billion, increasing 14 percent over the preceding year, while net income was also on the rise, growing from $490 million in 1995 to $629 million in 1996, a jump of 24 percent.

Following the February 1997 naming of William J. Shaw as president and chief operating officer of the company (Bill Marriott remaining chairman and CEO), Marriott International continued to launch new brands and make major acquisitions. In February 1997, the company introduced Marriott Executive Residences, which were designed for the international traveler on an extended assignment and which were initially targeted for Europe (the first to open in Budapest, Hungary) and the Middle East (Jeddah, Saudi Arabia). The following month saw the opening in Newport News, Virginia, of the first TownePlace Suites by Marriott, which provided moderately priced lodging for the extended-stay traveler.

Later in March 1997, Marriott International acquired Renaissance Hotel Group N.V. for $916 million in cash and the assumption of $54 million in debt, the largest acquisition in Marriott history. The addition of Renaissance doubled Marriott International's overseas operations, bringing with it the Renaissance brand of full-service, luxury hotels located throughout the world; high-quality, full-service New World hotels located in the Asia-Pacific region; and Ramada International mid-priced hotels located outside the United States and Canada. At the time of the purchase, Renaissance operated or franchised 150 hotels in 38 countries. Later in 1997, Marriott launched Marriott Rewards, a multi-brand frequent guest program.

FOCUSING EXCLUSIVELY ON
LODGING

In early 1998 Marriott was the loser in an intense bidding war with Bass PLC over the Inter-Continental Hotels and Resorts chain. In March of that year, Marriott International spun off its lodging operations into a new company that retained the Marriott International, Inc. name. The old Marriott, consisting of the firm's food, maintenance, and janitorial service operations, was merged with the U.S. operations of Sodexho Alliance SA to form Sodexho Marriott Services.

Through this complicated transaction, the new Marriott not only gained a narrower focus, principally on lodging, but also lightened its debt load by $1.45 billion, or about 75 percent. A new growth push was thus enabled. In April 1998 the remaining 51 percent of Ritz-Carlton was acquired. Later that year the company began to convert the Fairfield Suites chain to SpringHill Suites by Marriott. SpringHill was positioned in the upper-moderate price range of the all-suites segment of the lodging industry and was aimed at middle-class families and business travelers wanting more space than the typical hotel room. In March 1999 Marriott added yet another brand to its growing portfolio, acquiring ExecuStay Corporation for approximately $115 million in cash and stock and the assumption of $13.5 million in debt. ExecuStay was a provider of corporate apartments for executives needing temporary housing for 30 days or more. The company managed more than 6,000 units in 44 states and the District of Columbia. The acquired properties were soon rebranded as ExecuStay by Marriott. By the end of 1999 Marriott International was operating more than 1,800 hotels worldwide comprising approximately 350,000 rooms. One historic chapter of the Marriott story ended in 1999 as the company closed the last remaining Hot Shoppe outlet.

Booming demand for hotel rooms sent profits soaring 20 percent in 2000, while revenues surged from $8.74 billion to $10.08 billion. In the spring of 2001, however, businesses began tightening their belts, cutting business travel and sending the lodging industry into a downward spiral that accelerated in the aftermath of the September 11, 2001 terrorist attacks on the United States. In the fourth quarter of 2001, Marriott suffered its worst quarterly performance ever, a net loss of $116 million. Net income for the year totaled just $236 million as the company took $271 million in charges to write down the value of certain assets and investments and to restructure its operations.

While contending with the industry-wide slowdown, Marriott simultaneously narrowed its focus by divesting its distribution services business in 2002 and its senior living management business the following year, leaving the firm nearly fully devoted to hotels and timeshares. During this period the company was also rolling out high-speed Internet access at various of its properties, and in 2002 Marriott launched a plan to begin installing wireless Internet access at its hotels. In 2003 a $1 billion remodeling program was launched that entailed upgrading all the beds in the Marriott system as well as making other enhancements to the rooms, such as installing flat-screen, high-definition television sets.

After nosediving to $8.44 billion in 2002, revenues climbed steadily over the succeeding years, reaching $10.1 billion by 2004. Marriott expanded smartly during this period, not by acquiring or launching new brands but by building new hotels and securing the conversion of competing brands to those within the Marriott family. In 2002 the firm's 2,500th hotel opened, while its 500,000th room was added to the system in 2004. The room count, however, fell below 500,000 later in 2004 when Marriott sold its international branding rights to the Ramada chain to Cendant Corporation's hospitality group (which was spun off in 2006 as Wyndham Worldwide Corporation). Also in 2004, the first Bulgari Hotel & Resort opened its doors in Milan, Italy. This new property was the first outcome of a 50-50 joint venture formed in early 2001 between Ritz-Carlton and the Italian luxury-goods maker Bulgari S.p.A. Whereas the Ritz chain mainly catered to business executives, Bulgari hotels were envisioned more for entertainment celebrities and fashion types. The partners eventually planned to open up to a dozen Bulgari hotels around the world.

By 2005 the lodging industry seemed to have fully recovered from the downturn, and Marriott enjoyed a 14 percent jump in revenue, to $11.55 billion, and a 12 percent increase in net income, to $669 million. At year end, the Marriott hotel total neared 2,700 while the room count approached 500,000 once again. Going forward, the company set its sights on international markets for growth. Between 1990 and 2005, Marriott had succeeded in doubling its market share in the United States to about 8.5 percent, but it controlled less than 1 percent of the market outside the United States. Malaysia, India, and China were three of the company's growth markets. Marriott was operating 32 hotels in China by the end of 2005 and had well over a dozen more under construction or in the development pipeline. Overall, Marriott was aiming to add approximately 25,000 rooms to its system each year. As of mid-2006, the lodging giant's list of hotels under construction, awaiting conversion, or approved for development encompassed some 80,000 rooms. Continuing to seek ways to distinguish itself from the competition, Marriott in September 2006 launched a plan to ban smoking from its more than 2,300 lodging properties in the United States and Canada.

Vera A. Emmons

Updated, David E. Salamie

PRINCIPAL SUBSIDIARIES

Courtyard Management Corporation; ExecuStay Corporation; Fairfield FMC Corporation; Marriott Rewards, Inc.; Marriott Worldwide Reservation Services, LLC; Renaissance Hotel Holdings, Inc.; Residence Inn by Marriott, Inc.; The Ritz-Carlton Hotel Company, L.L.C.; SpringHill SMC Corporation; TownePlace Management Corporation; Marriott Argentina S.A.; Marriott Australian Group Company Pty Ltd.; Marriott Hotel-Betriebsgesellschaft, mbH (Austria); Marriott do Brasil Hotelaria Ltda. (Brazil); Marriott Hotels of Canada Ltd.; Marriott Chile S.A.; Marriott Hotels Denmark A/S; Marriott France Group Companies SAS; Marriott Hotel Holding GmbH; Marriott Hotels Hellas, S.A.; Marriott Asia Pacific Management Limited (Hong Kong); Marriott Hong Kong Limited; Marriott Hotels India Private Limited; P.T. Marriott International Indonesia; Marriott Hotels, S.A. de C.V. (Mexico); Marriott Hotels International B.V. (Netherlands); Marriott International Management Company B.V. (Netherlands); Renaissance Hotels International B.V. (Netherlands); Marriott Hotels Singapore Pte Ltd.; Marriott Hotels, S.L. (Spain); Marriott (Schweitz) GmbH (Switzerland); Marriott Hotels (Thailand) Limited; Marriott Hotels International Limited (U.K.); Marriott Hotels Limited (U.K.); Marriott UK Group Company Limited.

PRINCIPAL OPERATING UNITS

Marriott Hotels & Resorts; The Ritz-Carlton Hotels; Bulgari; Renaissance Hotels & Resorts; Courtyard; Residence Inn; Fairfield Inn; SpringHill Suites; Towne-Place Suites; Marriott Vacation Club International; Horizons by Marriott Vacation Club; The Ritz-Carlton Club; Grand Residences by Marriott; International Serviced Apartments; ExecuStay by Marriott; Marriott Golf.

PRINCIPAL COMPETITORS

Hilton Hotels Corporation; Accor; InterContinental Hotels Group PLC; Wyndham Worldwide Corporation; Global Hyatt Corporation; Starwood Hotels & Resorts Worldwide, Inc.