Brand Explosion

Marriott International extends its far-reaching global presence

August, 2001

If the world were a game of Monopoly, Marriott International Inc. would be rolling in fat wads of pink, blue and yellow money. Its dozen brands, totaling more than 401,500 hotel rooms in 59 countries, is the equivalent of having hotels on nearly every piece of property on a Monopoly board, including the coveted dark blue squares: Boardwalk and Park Place. In reality, Marriott (NYSE:MAR) is one of several major hotel chains trying to boost brand awareness by increasing its distribution points around the world. Over the past few years, Marriott has turned a keen eye to Hawaii and has been scooping up prime properties and locations across the state.

On Oahu, the Maryland-based mega-chain last year acquired the Waikiki Beach Marriott (formerly known as Hawaiian Regent) and the Renaissance Ilikai hotels in Waikiki, as well as the Ihilani in Ko Olina in November 1999. It also announced plans to complete two new timeshare properties – Waiohai Beach Club on Kauai and Ko Olina Beach Club on Oahu – under its Marriott Vacation Club International (MVCI) division. Stan Brown, vice president for Marriott International’s Pacific Islands Area, says the company is still picking up momentum on its push for expansion.

What started off as a nine-seat root beer stand in Maryland in 1927, Marriott is now a leading worldwide hospitality company with system-wide sales last year totaling $19.8 billion. Marriott landed in the No. 186 spot on Fortune magazine’s Fortune 500 list. Its operations include three major lines of business: Marriott Lodging, Marriott Senior Living Services, and Marriott Distribution Services.“It’s an exciting time in the Pacific Islands for us because we’ve had this dynamic growth and we do believe in the long-term success in the islands itself. That’s why we’re continuing to grow,” Brown says.

However, it is the company’s lodging division – with its global marketing reach and 15 million-member Marriott Rewards Program – that feeds its bottom line.

For the first quarter of 2001, Marriott’s lodging sector reported operating profits of $223 million, up 10 percent from $203 million the same period last year. Sales growth rose to $361 million during the first quarter, a 12 percent increase from last year’s $307 million during the same period. The results reflected the additions of 64 hotels and resorts to the company’s worldwide portfolio during the first quarter, strong performance at the company’s international properties, and higher profits in the vacation-ownership business.

“Our plan to continue adding hotel rooms puts us well ahead of our competition, which has scaled back their room growth. With an improving industry room supply picture and an economic rebound, we have the opportunity for 2002 and 2003 to be exceptional years,” he added, at a recent shareholders meeting.With 2,163 hotels in 59 countries (as of June 2001), Marriott’s broad portfolio of brands holds a 7.5 percent market share of hotel rooms in the U.S., and slightly more than 3 percent of the $300 billion worldwide market. J.W. Marriott Jr., chairman and chief executive officer of Marriott International, and son of its founder, says Marriott hopes to increase its portfolio to 2,600 hotels and nearly 500,000 rooms by 2003. Marriott also expects to manage or franchise a hotel in every gateway city in the world encompassing 70 countries – in the next four years.

The company’s aggressive expansion is partially attributed to dramatic growth in the Asia, Pacific and Australia region. Marriott began operations in the region in 1989 with the opening of the JW Marriott Hotel Hong Kong, and by the end of 2002, Marriott’s international portfolio in the region is expected to grow to 89 hotels, offering six brands in 13 countries. The recent rapid expansion represents a 10 percent increase in rooms and a 15 percent growth in hotels over the next two years, despite recent economic woes overseas. “We believe that there are great opportunities in Asia, and while not all economies are strong, they are cyclical and will recover,” says Geoff Garside, senior vice president of the Asia, Pacific & Australia region for Marriott International Operations.

“In weaker economic times we have many inquiries from independents who are looking for experienced managers, such as Marriott, as we bring to them the reservations and marketing strength.”

Brown says Marriott’s growth in the region is a “hub-and-spoke-type process,” in which the company will grow in the urban areas and then develop into the resort areas once distribution and brand awareness increases. He says the company’s growth strategies lie in resort destinations and large source markets. According to Brown, Marriott’s international growth is almost evenly split at roughly 25 percent each, among four different regions: Asia Pacific, Latin America, Central Europe and the Middle East. “What that helps do is insulate us from economic downswings. So where we have our hotels it’s always nice to have a multiple of markets because if one goes south you can reallocate your marketing dollars and resources and focus on another market,” Brown says.

This is little demonstrated at the Guam Marriott Resort (formerly the Pacific Star Hotel, previously owned by the Republic of Nauru) on Tumon Bay, which is sensitive to one major market: Japan. Brown says the property remains a worthwhile investment because outbound travelers from Japan continue to be a strong market for Guam, as is Hawaii. Likewise, further growth in the area will be opportunistic, he says.

Hawaii, on the other hand, is a market ripe for the picking, and that is made clear in the $1 billion that Marriott’s investing to develop and market Hawaii projects. Marriott got off to a slow start in the Islands, with the Maui Marriott being its only management operation for nearly two decades, but now its properties on Kauai, Maui and Oahu span three of its brands – Marriott Hotels, Resorts and Suites; Ritz-Carlton; and Renaissance Hotels, Resorts and Suites – as well as its vacation club. Next year Marriott will also see the first entry of one of its moderate-tier lines, Courtyard, into the local market. Marriott has signed on to manage Alexander & Baldwin Inc.’s business-oriented hotel in Kahului, Maui, which is scheduled to begin development in mid-2002.

Millions of dollars have also been spent on renovations and upgrades to several of the company’s local properties. The Kauai Marriott Resort & Beach Club has invested $5.8 million in room refurbishments, and the Waikiki Beach Marriott Resort is currently undergoing an extensive $60 million modernization project. The Renaissance Ilikai Waikiki is also undergoing a $25 million restoration project, which includes upgrades to guest rooms, meeting spaces, and food and beverage outlets.

It is Marriott Vacation Club International’s Ko Olina Beach Club, however, that is making headlines as the subsidiary’s most ambitious project to date – not just in the Islands, but worldwide. Riding on the tails of Kauai Marriott Resort & Beach Club’s success, which sold out its 232 units five years ahead of schedule, Ko Olina’s Beach Club’s development team is confident that the property will fare just as well, if not better. “Unlike any place else in Hawaii, we can use Honolulu and Waikiki as an amenity to this resort and that’s how we’re going to market it … as an island within an island,” Kosmin says.

Sales of the villas will begin in October, and the first phase of the $300 million project will be occupied starting in early 2003. When completed, the complex will have 750 units with weekly rates of between $25,000 and $49,000. “This is a huge economic impact on the locals,” says Michael Kosmin, project director for MVCI’s Ko Olina Beach Club. “The timeshare owner spends about 50 percent more in the local economy than the hotel guests, and if you’ll look, the occupancy is 10 (to) 20 percent higher than the hotels.”

MVCI will open a series of adjunct preview galleries, out of which all four of its local timeshare properties will be sold. The first gallery opened in May at the Waikiki Shopping Center, but may be converted to an eastbound visitors’ gallery when the second gallery comes on line at the Waikiki Beach Marriott early next year. The third gallery will be at the Ko Olina Beach Club and is scheduled to open in October 2001.

Marriott is one of several giants extending its far-reaching marketing arms around the globe to strengthen brand awareness and increase profit margins. “It’s profitable and it locks in your brand loyalty,” Kosmin says of the big-name brand explosion in Hawaii.

While some fear that the blanketing of local hotels by large chains will eventually eat away at the lesser-known independent chains, Brown says it’s rather a result of the smaller brands not being able to survive in this competitive market. “The reason you see a lot of hotels change and go to major brands is because they bring globalization into play and they can pull from a multitude of markets,” he says. “Unless you have a really clear niche, like the Halekulani, for example, it is very difficult to survive in this business world today, because you don’t have the broad scope, the marketing, the distribution, the leveraging that you need to operate from a profitable standpoint.”

And as Hawaii struggles to reinvigorate declining tourist numbers, it only makes sense for hotel owners to seek out world-renowned management companies with the deep pockets to provide extensive makeovers and loyal guests to fill rooms. What it means for Marriott is more opportunities for branding. What it means for Hawaii is a great marketing tool. Unlike Monopoly, in this game, everyone’s a winner.


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