BIG - is it always Beautiful?

Some thoughts about the Marriott / Starwood merger by Howard Field

• Wow! There are now more than 30 brands under one ownership.  So pretty well wherever you stay in a worldwide chain hotel, if it’s not Hilton, IHG or Accor, no need to worry which loyalty card to use, it must be Marriott.

• For the operating company, where is the focus to be? What happened to the maxim of ‘sticking to the knitting’ (focusing on one’s own business)? 

• They say there are in total 75 million loyalty programme members, 51 million of whom were Marriott.  Wonder how many of these carried both cards??  And which card gave the best benefits?

• Both groups have minimal ownership of hotel properties.  They sell franchises and management contracts, requiring little capital and making great returns.  So who gains most from the merger?

• Healthy competition between two established global operators meant there were creative distinguishing features.  What happens when this competitive element is removed?

• Owners were enticed or advised to choose their particular operator and/or brand.  What happens now, especially if the preferred option was for Starwood against Marriott?

• The brand portfolio includes a mix of long established names, and others acquired or more recently developed.  Mergers usually mean consolidation.  There will be winners and losers. Already one quote from Marriott about Sheraton was that ‘some of the older Sheratons may be culled’.

• Marriott is one of the very few brands that still involve the founding family - and it was one of the first to separate the operations (Marriott Hotels and Resorts) from the property ownership (now HMSHost).  Starwood Capital acquired its core brands (Sheraton, Westin) and created Starwood Hotels and Resorts as part of a mixed portfolio of investments.  It was never just a hospitality business.  Both owning entitles now own other hotel brands.

• A merger such as this means consolidation of the brands will follow.  Already one quote from Marriott talking about Sheraton was that ‘some of the older Sheratons may be culled’. 

• Combining corporate and regional management teams is obviously going to save significant overhead costs - and many experienced and talented executives will be losing their positions.

• Think about those who chose to work for their preferred group that no longer exists independently.  And those who left Marriott to go to Starwood.

• A huge range of suppliers and advisors of all types will be at risk as efficiencies are established.  Inevitably for some there will be a windfall, for others maybe a disaster.

• Employees who were loyal to their brands and hotels may now have to be familiarised with new cultures and management styles and possibly training and benefit programmes.

All in all, perhaps a great opportunity for the Marriott shareholders, but for all of the Starwood Hotels and Resorts parties affected, it will be a while before the impact of the deal on their various interests can be measured.

What such a deal does underline is the changing nature of the hotel industry and its ownership structures.  It is when such a transition takes place that it poses questions about what is a hotel company.  And whether the shares of companies like these should in future be listed under Commodities.

  • I think that this gives the independents an even greater edge in terms of relevance and opportunity. They are already well ahead in the boutique sector, certainly in London the Millenials and digital natives prefer and these mega mergers can only slow down their adaption and nimbleness whilst the get a grand dose of corporate indigestion.

  • Far from being a Commodity, the whole point is to build scale to compete with the likes of Priceline in the OTA market. Even Marriott and Starwood have been unable to keep up with the marketing spend and the quality of content that the big OTAs have been able to assemble. To the benefit of the guest.

    There is little doubt in my mind that there is a lot of duplication in the hotel industry and M&A can and should weed out inefficiencies and duplications, whether customer facing (too many brands etc) or back office.

    Starwood has drifted for a while now and the strong culture that Sternlicht created has not lasted; whereas, as Howard says, Marriott is nothing if not a company high on values and principles (from the Mormon roots of the founding family). 

    The interesting thing is that this in NOT a deal involving one of the major Chinese hotel groups - when will we see a Chinese or Indian brand acquiring a global brand? Soon I would expect!