Marriott International Inc.

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Marriott International Inc.

founded: 1967

Contact Information:

headquarters: 10400 fernwood rd.
bethesda, md 20817 phone: (301)380-3000 fax: (301)380-5067 url: http://www.marriott.com

OVERVIEW

Marriott International is a leader and strong competitor in a variety of industries, including hotels and motels, food service, facilities management, retirement communities, and vacation interval ownership or time-shares. The Marriott family, the company's founders, owned a 21-percent interest in the company in the mid-1990s.

Marriott's primary enterprise is its hotels and lodgings. It owns about 1,500 properties (more than 205,000 rooms) in the United States and overseas. Revenue generated from room rentals and the sale of food and beverages at these hotels generated approximately 64 percent of the company's total revenue in 1997, with the remaining 36 percent coming from its contract management services. Hotel divisions range from Marriott Hotels & Resorts in the luxury segment (as well as Ritz-Carlton, partially owned by Marriott), to the moderately priced Courtyard, and the economy Fairfield Inn. Residence Inns and Marriott Executive Residences (introduced in 1997) were designed to accommodate longer stays than the traditional motel.

Marriott International is also the leading North American provider of institutional food services. The company markets food service and related facilities management specialties (housekeeping, laundry operation, etc.) to companies, schools, and hospitals. It is also a leader in the growing field of assisted living centers and health care for the elderly, thanks in part to its $605-million purchase of the Forum Group in early 1996.

Another significant division of Marriott is Marriott Vacation Club International, which sells partial ownership in resort condominiums. Its subsidiary, Marriott Golf, manages golf facilities. Marriott also operates 30 conference centers for universities and corporations throughout the United States.

COMPANY FINANCES

Marriott International reported net earnings of $324 million on revenue of $12 billion in 1997, compared with net income of $306 million on revenue of $10.1 billion in 1996. In 1995 the company posted earnings of $247 million on revenue of $8.9 billion, against a net of $200 million on revenue of $8.4 billion in 1994. In 1997, room rentals accounted for 47 percent of total revenue, followed by contract services, which generated 23 percent of revenue. Contract services include Marriott Distribution Services, which is involved in the distribution of food and related supplies, and Marriott Senior Living Services, which includes retirement communities offering independent living, assisted living, and licensed nursing homes. Sales of food and beverages generated 17 percent of Marriott's 1997 revenue with the remaining 13 percent accounted for by miscellaneous other business.

ANALYSTS' OPINIONS

Analysts were skeptical when the Marriott Corporation split into two companies in 1993, causing a nightmare for bond investors fearful that the company could not handle its debt. But as subsequent success vindicated Marriott leadership, opinion-makers in the financial world returned to what had most often been the prevailing view of the company—that it was an extremely sound investment. For instance, Alex Brown in Barron's called Marriott stock a "strong buy," and Business Week quoted analyst Steve Timbers as giving Marriott an extremely favorable rating. Based on the Marriott reputation for sound financial management, one trade magazine predicted that the new partial owners of Ritz-Carlton would be able to control costs for that financially troubled chain.

HISTORY

Marriott International began in 1927 as a nine-seat root beer stand in Washington, D.C. Soon after, proprietors John Willard (J.W.) and Alice Marriott added hot food to their menu and named their mom-and-pop enterprise the Hot Shoppe. In 1929 they incorporated it as Hot Shoppes, which soon became a regional chain. By 1937 they diversified into what was then a cutting-edge market—providing meals for airline passengers. After taking Hot Shoppes public in 1953, the Marriotts opened the first of the hotels for which their company would become famous—a "motor hotel" in the Washington suburb of Arlington in 1957. In 1964 their son Bill became president, and in 1967 Hot Shoppes became the Marriott Corporation.

Bill Marriott, named CEO in 1972, focused on building the hotel chain. Pursuing a strategy of catering to business travelers, the company introduced Courtyard hotels in 1983. These hotels were more moderately priced than those of the parent company. It added an extended-stay lodging line called Residence Inn in 1987, and in the same year established the Fairfield Inn economy hotels.

Marriott continued to develop as a food-service provider with the founding of Roy Rogers restaurants in 1968. In a move away from consumer-oriented food operations, the company purchased the food service contractor Saga in 1986. In 1989 Marriott sold off the airline catering business and in 1990 it sold Roy Rogers. The company began to spread into management services for retirement communities, time-share resorts, and even gourmet coffee services. But the mainstay remained the hotel business. In 1993 Marriott Corporation split into Host Marriott, which owned the hotel property, and its subsidiary Marriott International, which managed the hotels. This change brought on a brief convulsive period for the company, but within a few years Marriott International resumed its growth at a more aggressive pace than ever. Marriott purchased a 49-percent share in the Ritz-Carlton Hotel Company in 1995, and acquired Renaissance Hotel Group N.V., a premier operator and franchiser of 150 hotels in 38 countries, in March 1997.

In April 1998 Marriott announced that it had converted San Francisco's Parc 55 Hotel into a Renaissance hotel and designated it as Marriott's fifteen-hundredth hotel worldwide. Renaissance Parc 55 represents a major milestone on Marriott's way to its goal of 2,000 hotels by the year 2000.

STRATEGY

Elements of Marriott International's success formula can be traced back to Marriott Corporation founder J.W. Marriott. A Mormon, Marriott upheld a strict work ethic and a commitment to high standards. Years after his death in 1985, his hotels continue to be known for the quality of their accommodations. However, the perception was that Marriott facilities—even the luxury accommodations under the Marriott brand—were geared toward customers who came for business and not for pleasure. Although the 1984 founding of Vacation Club International and the 1995 purchase of Ritz-Carlton were departures from this strategy, most Marriott subsidiaries are oriented toward a business clientele.

J.W. Marriott also pursued a strategy of diversification, expanding his restaurant line in the 1930s to include airline food service and, in the 1950s, motels. During his period of leadership the company also owned two vacation cruise lines. Some enterprises, the cruise lines included, did not prove profitable for Marriott, but many other divisions into which the company expanded did. Clearly Marriott leaders perceived themselves not merely as lodging providers, but as service providers.

Marriott International operates with a view toward the long term, most often building its business on strong financial ground. Thus, in the mid-1990s it began to increasingly focus its attention on the burgeoning market among the elderly and developed its retirement-care facilities accordingly. The strategy of controlled growth was evidenced by the fact that in 1977—20 years after the founding of the Marriott hotel chain—the corporation had only 34 full-service hotels. In spite of some negatives associated with an aggressive growth strategy in the 1980s, Marriott generally has been perceived as solid, conservative, and low-risk.

INFLUENCES

Marriott placed itself in a strong position in the 1980s by stepping away from the traditional hotel/motel customers (vacationers) and catering instead to a business and extended-stay clientele. In a decade known for its fast business activity, Marriott was the first lodging provider to recognize that an executive away from home would be more concerned with the availability of a fax machine than in-room cable TV. Hence the establishment of Courtyard was a coup, as was the purchase of Residence Inns—a lodging enterprise built on the concept of extended stays. Once again, a motel became something other than a place for families on vacation. In this case, its customer would more likely be a family building a house or an executive who had to spend several months at a branch office working on a particular deal.

FAST FACTS: About Marriott International Inc.

Ownership: Marriott International is a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: MAR

Officers: J.W. "Bill" Marriott Jr., Chmn. & CEO, 65, $1,600,000; William J. Shaw, Pres. & COO, 52, $970,000; Michael A. Stein, Exec. VP & CFO, 48, $595,000

Employees: 117,000

Principal Subsidiary Companies: Marriott International's hotel subsidiaries include Courtyard, Fairfield Inn, Residence Inn, and Renaissance Hotels.

Chief Competitors: In both its lodging and contract services operations, Marriott International faces a wide array of competition. Some of the company's principal competitors include: Accor; American Retirement; Club Med; Del Webb; Extendicare; Harrah's Entertainment; Hilton; Hyatt; Loews; Paragon Health Network; Promus Hotel; Retirement Care Associates; and U.S. Home.

During the 1980s Marriott also developed a lucrative business with a "build-sell-manage" strategy. The company would build hotels, sell them to investors, and then take on the hotel management contracts. Investors were happy because the Marriott name had strong appeal, and the corporation was happy because of its diminished financial risk. Between 1980 and 1989 the number of Marriott hotels and motels expanded from 75 to 539.

When Japanese investors backed out of an agreement to buy $700 million worth of hotels in 1990, Marriott found itself deeply in debt for the hotels it had built and could not sell. The debt seemed to preclude growth, and growth was essential to the hotel enterprise. By the end of 1991 stocks had fallen from their 1989 price of $40.50 to $16.50.

In October 1992 Bill Marriott and then-CFO Stephen Bollenbach, who had worked with real-estate developer Donald Trump, announced the solution to the debt problem. The Marriott Corporation would cease to exist; its place to be taken by the parent Host Marriott (with Bollenbach as president and CEO) and the subsidiary Marriott International. Host Marriott would own most of the real estate, and thus the debt ($2.9 billion) leaving Marriott International, which managed the hotels, free from the encumbrances that would prevent its continued growth.

The move was risky, because many analysts naturally feared that Host Marriott would not be able to carry its heavy burden of debt. While normally a sound investment, the value of Marriott bonds plummeted when Merrill Lynch resigned as financial advisor. For the next year Marriott stocks more or less steadily declined, falling to less than $23 late in 1993. Since that year, however, the two companies enjoyed a steady increase in their fortunes, with the value of combined shares jumping from $2.0 to $5.6 billion in the two years following the split. Investors once again saw Marriott as a good risk, particularly in February 1997, when the company announced that net income had increased 24 percent over the preceding year's figures.

The 1993 split had numerous advantages, one of which allowed the two companies to pursue what might seem like contradictory approaches to the same market forces. In the mid-1990s the hotel industry favored limited-service brands of hotels—those that did not typically offer such in-house amenities as a restaurant. Thus Marriott International was able to aggressively market its limited-service Fairfield Inns, which Bill Marriott called "as fail-proof as any franchise program can be." Under this arrangement, as Forbes pointed out, franchisees took the financial risk while Marriott had only to collect a royalty. But while Marriott International took advantage of the short-term gains, Host Marriott pursued long-term interests in its acquisition of full-service hotels, whose profitability relative to limited-service brands was expected to increase dramatically in coming years.

CURRENT TRENDS

Historically, Marriott has managed to be trend-conscious without being trendy. With the aging of the Baby Boom generation, growth in the over-65 population group was expected to increase by more than 20 percent between 1996 and 2011, as opposed to 9 percent for the overall population. In view of this trend, Marriott International has been increasing its involvement in senior-living services. Already a player in this emerging sector, Marriott upped its stakes with the February 1996 purchase of the Forum Group, which operated 42 living facilities for seniors.

Gourmet coffee, while not as large or as long-term a trend as assisted living centers, also emerged in the mid-1990s as a favorable investment with the 1994 opening of a chain of coffee bars called Gourmet Bean.

CHRONOLOGY: Key Dates for Marriott International Inc.

1929:: The Marriotts incorporate Hot Shoppes
1937:: Begins providing meals for airlines
1939:: Begins food service management business with account at the U.S. treasury building
1953:: Hot Shoppes goes public
1957:: Marriott opens its first motor hotel
1967:: The Marriott Corporation is formed from Hot Shoppes
1968:: Marriott start Roy Rogers restaurants
1972:: Bill Marriott is named CEO
1983:: Introduces Courtyard hotels
1984:: Founding of Vacation Club International
1986:: Purchases Saga
1987:: Introduces Residence Inn and Fairfield Inn
1990:: Sells Roy Rogers restaurants
1993:: Marriott Corp. splits into Host Marriott and Marriott International
1995:: Purchases 49 percent of Ritz-Carlton
1996:: Purchases the Forum Group
1997:: Marriott Executive Residences are introduced; Acquires Renaissance Hotel Group
1998:: San Francisco's Parc 55 Hotel becomes Marriott's 1500th hotel worldwide.

The company continued its fidelity to its primary business as a lodging provider, and to its primary focus, business travelers. But after concentrating on limited-service hotels in the belt-tightening days of the early 1990s, management saw a trend toward "customer delight" and away from austerity, signaling the return of the full-service hotel. In 1994 Marriott purchased seven full-service hotels from Equitable Life Assurance—the same company to which it had sold eight hotels in 1978.

In the mid-1990s the next emerging trend in hotels appeared to be "mega-chains." As with other businesses, the lodging industry saw an increasing trend toward mergers, one of the most significant being Marriott's purchase of the highly visible Ritz-Carlton. These mergers were seen as a way of overcoming the risks in undertaking new construction. Rather than build a new property with all the attendant financial risks, a hotel chain simply bought one. In 1995 a lodging industry trade publication reported that Marriott had a goal of doubling its then-current number of facilities to 1,800 by the year 2000 (a target since increased to 2,000 facilities).

PRODUCTS

Marriott's services are threefold. It is known primarily for its lodgings, which it provides through a wide variety of hotels, motels, and resort properties. Marriott and newly acquired Ritz-Carlton appeal to an upscale market, whereas Courtyard is geared to business travelers, Fairfield Inns to economy patrons, and Residence Inns to guests on extended stays. In addition to its hotels and motels, through Vacation Club International Marriott operates resorts in which clients can purchase partial ownership.

Food service and facilities management, though a less-known facet of Marriott's product line, is almost as large and lucrative an area as lodgings. The company provides food service management to large institutions such as schools and hospitals and acts as a grocery wholesaler both for Marriott operations and for outside accounts. In addition, it operates facilities management such as housekeeping, plant operation and maintenance, and laundry for a variety of clients.

A newer area of Marriott's business is in senior-living services. The company operates more than 60 full-service retirement communities, which provide living areas, food service, entertainment, and health care. These facilities are operated under a number of brand names including Brighton Gardens and, as a result of the Forum Group acquisition in 1996, Hearthside and National Guest Homes.

CORPORATE CITIZENSHIP

In keeping with its conservative image, Marriott International has not been flamboyant in its corporate citizenship efforts. It does, however, contribute significantly in the areas of shelter, food, and work for the underprivileged. In August 1996 Fairfield Inns announced a plan to contribute construction materials to Habitat for Humanity, which is a partnership to develop low-income housing for families in need. Also in 1996 the company donated 606,900 pounds of food to Second Harvest, a network of relief agencies, and a Marriott employee won a humanitarian award for her efforts on behalf of hunger relief.

In its internal operations Marriott International has shown remarkable sensitivity to the needs of the under-privileged. In the mid-1990s the company helped 600 welfare recipients become productive wage-earners. Although the program proved difficult to implement, it was praised by The Wall Street Journal as a model for corporate America. The company also made efforts to recruit and train more uneducated workers. They also taught employees how to create a positive environment for disabled co-workers.

GLOBAL PRESENCE

Despite the name Marriott International, of the approximately 1,000 hotels owned by Marriott in early 1997 only about 50 were outside the United States. However, with plans to add 120,000 rooms in the period leading up to the turn of the century, the company made clear its desire to expand in overseas markets. Marriott Executive Residences, established in February 1997, specifically cater to international business travelers. The majority of Marriott overseas properties are in Latin America and the Caribbean, Europe (mostly western, though increasingly eastern as well), and east Asia.

Although Marriott is far from the largest overseas hotel chain, the Marriott name clearly has an impressive degree of cachet overseas. This is best evidenced by the fact that when members of the enormously prestigious International Olympic Committee took up temporary residence in Atlanta during the 1996 Olympics, they stayed not at the competing Westin Peachtree Plaza (a more prominent hotel locally) but at the downtown Marriott.

In the late 1990s the company was expanding most aggressively into three overseas markets: eastern Europe, Latin America and the Caribbean, and east Asia. In eastern Europe—a major area for growth following the fall of communism in the late 1980s and early 1990s—Marriott purchased Hungary's Duna Intercontinental in 1992, and planned more expansion in that region. Latin America and the Caribbean, where 14 of Marriott's 50 overseas properties are located, became a site of enormous growth for the company from 1995 on. The company also expanded into Asia, primarily in Hong Kong. The elderly-care Forum Group and the Renaissance hotel chain, both acquired by Marriott in the mid- to late 1990s, were originally Hong Kong companies.

Bill Marriott expressed a cautious attitude about expansion, telling Financial World in June 1996 that he intended to focus on consolidating his company's gains in the United States. Apropos of the purchase of Renaissance, he said, "A lot of people said why didn't you build in Hong Kong 20 years ago, and I said it's because we're not in San Francisco yet." Executive vice president William Tiefel, however, announced in April 1996 that the company planned to invest as much as $2 billion in overseas expansion, particularly in Europe, over the coming years.

EMPLOYMENT

Marriott has always had a large number of job openings—as many as 1,000 across the country in a single day—but many of those have tended to be unskilled positions such as housekeepers. Despite the competitive labor market of the mid-1990s, the company has maintained a relatively conservative attitude toward raising workers' wages. Instead of offering higher pay and promotions, however, the company has offered workers opportunities for career development and education and has supplemented employees' pay with incentives such as stock options.

In another move to maintain an edge in the competitive labor market, Marriott enhanced the child-care portion of its benefits package. This helped to make it a particularly attractive working environment for women. In 1996 Working Mothers magazine named Marriott one of the 100 best companies for working mothers. They also rated its health-care benefits package for women as one of the top 10 in the country.

Marriott has been at the forefront in implementing new electronic methods for advertising jobs and taking applications. Through use of computers and phones, a potential applicant can contact the company, find out about available positions that meet their skill and experience levels, and apply electronically. Thus, applicants are prescreened before coming in for an interview.

SOURCES OF INFORMATION

Bibliography

koselka, rita. "marriott, meet marriott." forbes, 13 march 1995.

lamonica, paul r. "old gold: why marriott is catering to the geriatric set." financial world, 17 june 1996.

"marriott at a glance." marriott home page, 7 march 1997. available at http://www.marriott.com/corporateinfo/glance.html.

"marriott international announces its 1500th hotel." marriott international inc. news release, 30 april 1998. available at http://www.marriott.com/news/1500.asp.

"marriott international completes acquisition of renaissance hotel group." marriott international inc. news release, 31 march 1997. available at http://www.marriott.com/news/renaissance.asp.

"marriott international inc." hoover's online, 10 may 1998. available at http://www.hoovers.com.

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