Making Room to Grow

December 1 1995 by Lorri Grube


The revolving door slides silently, disgorging a slightly built man who leisurely surveys the lobby of the Marriott Financial Center Hotel in downtown Manhattan. Spines straighten and smiles widen as Bill Marriott advances with a warm handshake and by-name greeting for his employees. That affability freezes into self-conscious dismay when he discovers he has to pose for a photo, but he quickly recovers to joke with the elevator attendant and entourage that accompanies him to the presidential suite.

Once inside, though, he is all business, smoothly transitioning from folksy politician to the shrewdly laconic CEO who has guided $8.4 billion Marriott International to the top of the roughly $40 billion U.S. hotel industry. He’s endured some ups and downs during his 23 years at the helm. Soon after being named Chief Executive of the Year in 1988, Marriott saw the bottom drop out of the hotel real-estate market, Congress pull the plug on property tax shelters, and his company become mired in debt in the middle of a building frenzy. In response, he took a bold gamble in 1993, splitting Marriott Corp. into two separate entities, one real estate (Host Marriott) and the other hotel management (Marriott International). Next, he sold off the airline catering business. Recently, he bought a 49 percent stake in luxury hotel chain Ritz-Carlton, thus qualifying Marriott as a genuine mega-hotel chain. And now?

“We have to focus on growing,” the CEO of Marriott International answers simply, “and on strengthening and maintaining our brand as we grow.”

Such growth will be possible because Host Marriott-which only buys and sells real estate-took over about two-thirds of the chain’s $2.9 billion in debt, leaving its sister operating company with a lighter balance sheet, strong earnings, and the ability to move forward in the global arena. Though angry bondholders sued the company and top executives, alleging securities fraud, Marriott has since proven the wisdom of the plan he hatched with then-CFO Stephen Bollenbach. Since the split in October 1993, shareholder value for the two companies combined has increased from $16 a share to more than $50. Marriott International’s net income in the third quarter ended September 8, 1995 jumped 24 percent, to $46 million. For the year to date, net income is up 24 percent, to $157 million. And Host Marriott is not quite the crippled company investors had envisioned: With operations or properties in 38 states and six countries, $1.4 billion Host Marriott’s earnings before interest, taxes, depreciation, and amortization rose 9 percent last year, to $376 million, and operating cash flow now covers debt service almost twofold.

“Interestingly, splitting up companies as we did seems to be the rage now,” Marriott muses. “Today, companies such as ITT, AT&T, and General Motors are trying to focus on a specific industry business as opposed to the ’70s and ’80s, when everybody was asking me, ‘What are you going to buy this week? You have to have 15 or 20 different businesses under one roof or you can’t be successful.’ That’s just not so. We sold our airline catering business because we knew we had peaked in growth. We had an airline catering kitchen at almost every airport in the U.S., so we couldn’t grow by adding units.”

Bill Marriott, 63, did his own growing up in the hotel industry. His father, J. Willard Marriott Sr., started his global hospitality company in 1927 with a nine-seat root beer stand called the Hot Shoppe. After working in the Hot Shoppe throughout high school and college, J. Willard Marriott Jr. joined the company full-time in 1956. A year later, Marriott opened its first hotel: the 370-room Twin Bridges Marriott Motor Hotel in Arlington, VA. By the time Bill Marriott succeeded his father as president and chief executive in November 1972, the company owned dozens of Hot Shoppes, four hotels, and an airline catering business.

Today, Washington, DC-based Marriott International has 170,000 employees and manages 1,000 hotels, the most recent opening in Kauai, HI, in October. Marriott, who also took over the chairman position after his father died in 1985, hopes to reach the 2,000 hotel milestone before the year 2000. During the past 12 months, the company has added 95 properties totaling about 12,600 rooms.

There are 3.2 million hotel rooms in the U.S., of which Marriott claims roughly 200,000. The company appears to be well-positioned to take advantage of the latest hotel trend-”mega-chains”-according to Business Travel News’ Annual Hotel Chain Report published in September. It has the No. 1 or No. 2 brand in each of the five markets it serves (Ritz-Carlton, luxury; Marriott Hotels, Resorts & Suites, flagship; Courtyard, mid-priced; Fairfield, economy; Residence Inn, extended stay), not to mention its vacation resorts.

Each line has its own competitors: Fairfield competes with Hampton; Courtyard with Holiday Inn; Ritz-Carlton with the Four Seasons. Unlike the two major family-owned hotel companies in the U.S.-Hilton and Carlson-Marriott does not have other business interests. Hilton turned to casinos, while Carlson’s stake in its Wagonlit Travel Services and TGI Fridays restaurant chain have overshadowed hotel growth. Overall, Marriott’s 1995 occupancy will be 80 percent for the four brands (excluding Ritz-Carlton), which translates into roughly 35 million guests. Industry occupancy will be between 66 percent and 67 percent.

Business travel accounts for 75 percent of Marriott’s business, though pleasure travel comes into play on the weekends. International tourism arrivals are up somewhat, particularly in New York, Chicago, Boston, Washington, Orlando, and San Francisco.

What about Marriott’s focus outside North America? “It’s been poor,” Marriott admits. “However, we expect a lot of growth outside the U.S., particularly in Latin America, Europe, and the Middle East, and possibly China. We are in 27 countries right now; by 2000 we plan to be in about 50.”

Surprisingly, Marriott does not have a hotel in Italy and has no plans to build one at the moment. Marriott says that’s because of restrictive labor laws, traditionally low occupancies, a seasonal tourist season, and an unstable government. The company does have hotels in Budapest and Warsaw and is building in Prague and Bucharest. China is still an uncertain prospect, mainly because debt financing isn’t available, and room rates are very low. Nevertheless, Marriott thinks that country will be a great market down the road.

Domestically, the hotel industry has ground to something of a halt, with few new units being built. That means demand for hotel rooms finally has caught up with and exceeded supply, allowing hotels to increase their rates somewhat. However, the hotel business is highly cyclical, and the economy probably will start to move through a down cycle between now and 1998, according to Michael J. Schroeder, chief investment officer at Naples, FL-based First International Asset Management, a fixed-income money-management firm. However, even though Marriott International carries a fair amount of debt, Schroeder says, it should be able to ride out the downshift, particularly with its varied product lines.

Despite brand erosion in many industries, such as food, apparel, and office supplies, Marriott claims travelers stick to names they know when it comes to bedding down. “People look for the consistency a brand name provides,” he says. “That’s why 70 percent of the hotels in the U.S. are branded.” Ritz-Carlton will retain its own brand name, but Marriott will provide “back-of-the-house” efficiencies such as reservation and procurement systems. All lodging is under one management system, allowing for easier cross-selling and referrals.

During the next six months, Marriott will install a new front-office system for all its full-service hotels. This will allow faster check-in, simpler group bookings, and more detailed guest histories. “Right now, we’re in the process of trying to decide what information we need to have on our customers,” explains Marriott, whose sons, John and Steve, are Marriott managers. “Certainly, we want to know if a customer prefers a non-smoking room, king-sized bed, room with a view; and if he or she is a frequent traveler, credit-card user, etc.” In terms of guests’ personal preferences, the company isn’t quite willing to go the route of Britain‘s Forte plc., which has guests’ favorite snacks or chocolates waiting for them when they arrive. In fact, Marriott recently reduced the bathroom amenities to the core necessities and prefers to focus on the basics, such as making up rooms based on a 60-step process and brewing 12,000 pounds of coffee each day.

The approach seems to be working, according to the company’s recent customer surveys. A firm believer in customer feedback, Marriott visits roughly 150 of his hotels each year, talking informally to customers as they enter the dining room or lounge in the lobby. And he visits with employees in the kitchen, laundry room, hallways, loading dock, anywhere and everywhere. “The problem is that as the organization grows, it becomes harder and harder to talk to guests personally every day,” laments Marriott, an active member of The Church of Jesus Christ of Latter-day Saints, who brings a single-minded, Mormon work ethic to his business. “You can’t do it all yourself. You have to rely on your organization.”

“Bill Marriott has done an excellent job of managing such a large company,” says Joseph J. Doyle, managing director at New York‘s Smith Barney. “He’s hands-on, down-to-earth, and tough to work for  but fair. And most important, he’s been able to get good people at the operating level.”

Concurs First International’s Schroeder, “Bill Marriott is an effective leader with the ability to motivate his people, and he has a good handle on his business.”

Marriott’s latest venture has been providing outsourced services in areas such as food-service management to hospitals and schools. However, the CEO claims he has no plans to enter any other new businesses. “We have enough to do,” Marriott says with conviction. “Our cup runneth over.”

J. WILLARD MARRIOTT JR.

Chairman and Chief Executive

MARRIOTT INTERNATIONAL

Born: Washington, DC; March 25, 1932.

Education: BS, University of Utah.

Family: Wife, Donna; four children and 11 grandchildren.

Boards: GM, Outboard Marine, the Mayo Foundation, the National Geographic Society, Georgetown University, Host Marriott.

First job: Working in the kitchen in the Hot Shoppe restaurant in Washington.

Outside interests: Family and church.

Best decision: Marrying his wife.

Biggest mistake: “I’ve made so many it would take all day to answer.”

Mentors: Father, mother, wife.

Favorite hotel: Marriott’s Camel-back Inn Resort, Scottsdale, AZ.

Car: 1995 Buick station wagon.

Latest book read: “Monty” by Alistair Horne.

Motto: “Success is never final”