As the hotel sector continues to recover from the pandemic amid evolving consumer demands, how do hotel companies plan to adapt? For Marriott, it seems the focus is on luxury, technology and ESG.
Luxury and the potential of mid-scale
The luxury segment has led the post-Covid recovery as global wealth continues to grow and travellers in the segment remain largely untouched by cost-of-living crises. The segment has been a cornerstone of Marriott's success, with only about 10 per cent of the company’s million and a half rooms globally sitting in the luxury tier but with the segment representing between 20 to 25 per cent of Marriott’s global fees. And it seems Marriott CEO Anthony Capuano plans to build on that.
Speaking at the Alvarez & Marsal European Hospitality Investment Conference 2023, he stated: “The strength we continue to see in pricing the luxury tier is really encouraging. The wealthy around the world have a ravenous appetite for traveling, and we see that in the performance of our luxury portfolio.
We have more than 500 hotels open and operating in the luxury tier today and we have nearly 300 luxury hotels in the pipeline. We will continue to do everything in our power to grow that luxury portfolio and extend our lead in luxury.”
However, he notes that Marriott will also pay attention to the midscale segment, adding resources to accelerate its growth in the mid-scale tier, noting, “I think that that midscale customer potentially is a future luxury customer”, and highlighting the potential of the mid-scale tier to cultivate future luxury customers.
In September, Marriott launched Four Points Express by Sheraton, a new midscale brand for the EMEA market, following the company’s recent move into the affordable midscale space with City Express by Marriott in the Caribbean and Latin America and the announcement of its plans for StudioRes in the U.S. and Canada.
According to research by CBRE, although demand for mid-scale hotels, in general, slowed through the first half of this year, falling 5.4 percent year-over-year in June, ADRs remained elevated, climbing 1.8 percent over the same period. The mid-scale segment, though, experienced consistent year-over-year drops in RevPAR growth from June through August.
Capuano also emphasised Marriott’s continued commitment to an asset-light approach in an environment where new developments have largely ground to a halt.
“We have historically always used the balance sheet in a thoughtful and disciplined way to accelerate growth, but I don't think you'll see a material deviation from our asset light strategy.”
He added: “We will continue to be thoughtful about the deals where we deploy capital. We may dust off some tools in the toolbox such as credit enhancements to help some of our partners to the extent they can identify debt albeit at meaningfully lower leverage than they're accustomed to or top it off to a level where they might think about putting shovels in the ground but I don't envision us investing significantly more in real estate than we have most recently.”
Technology and artifical intelligence
Technology and artificial intelligence (AI) are also at the forefront of Marriott’s strategy, with the company embracing technological advancements, not as a replacement for human staff, Capuano stresses, but as a tool to enhance guest experiences and operational efficiency as the industry continues to face challenges around labour.
“When I think about the opportunities that AI represents, I think about what it can do in terms of its ability to create capacity for our associates. If AI accelerates some transaction at the desk so that one of our front desk associates or one of our concierge members has an extra minute or two to look into the eyes of a guest, get to know them and get to better understand the purpose of their visit, that's a huge win for us.
Above the property level, for example in call centres, there are inquiries can be answered in an instant through the power that AI unlocks. It allows our agents to be instantly responsive to what the guest is looking for, and again creates capacity for that agent to better engage with the guest.”
Adam Glickman, VP/brand strategy at Actabl agrees, adding that in the wake of the coronavirus pandemic, following the departure of a number of veteran employees, AI has the ability to help fill the gap in operations knowledge that new-to-hospitality associates/managers may have.
“Many teams members now aren’t those that have been in our industry for five, 10, 15 years. So, they don't have that inherent knowledge of what to do and when to do it. I think AI fills a role there, where it is taking insight of what actions to take and then handing it over to junior AGM/director-level team members in hotels, giving them advice on what to do and when to do it. We see that [as] a major step change in hotel operations that lines up with this idea of both getting more done with less and helping educate newer managers so that they can grow in their careers,” he said.
With these benefits in mind, Marriott’s focus on technology is understandable.
“Moving forward, in the next three to five years, I think technology will continue to take a more and more prominent role. We are going through a massive re-platforming of our major technology systems. I think that the capabilities that those technologies will unlock will have a meaningful impact on our business. I think they will make the travel experience much more frictionless for our guests, improve margins for our owners and franchisees, and all of that thrown in a blender will make the financial performance of the company more compelling,” Capuano said.
Adoption of the company’s Marriott Bonvoy mobile app continued to grow with third quarter app downloads, increasing 19 percent versus the same quarter last year.
“In the midst of pandemic, we launched a very successful partnership between Bonvoy and Uber, we launched a new travel insurance platform through Bonvoy with Allianz. And so I think you should reasonably expect that we'll continue to look for partnerships that are mutually beneficial with prospective partners. Today, I think most of our members would characterize their relationship with Bonvoy as predominantly transactional but we have an aspiration aspiration - for that relationship to evolve into a more personal and a more emotional relationship,” Capuano said.
The MGM Collection with Marriott Bonvoy is now expected to launch in early 2024. The Marriott and MGM partnership was scheduled to roll out in October but was delayed due to MGM's data breach in September. Once implemented, the new partnership will bring 17 MGM resorts into the Marriott fold and will also include a handful of MGM gambling properties in other US cities.
Environmental, social, and governance considerations
A focus on ESG also forms part of Marriott’s strategy, as the company explores improvement in areas such as carbon footprint and food waste.
Capuano said: “We think about ESG from a carbon footprint perspective, water consumption, from a food waste perspective and these are some of the areas where we have a meaningful opportunity to influence as does the entirety of the industry. But the good news when I think about the constituents that we interact and serve - our guests, our owner community, our associates and our investors - each of those groups cares at least as much about issues of ESG as Marriott does. They may apply a different lens and they may have a different strategy to attack elements of the ESG agenda but they are all keenly focused.
And so we have the advantage of being a partner with them as we think about the elements of our ESG strategy. What gets measured gets accomplished and so we are really being quite deliberate and quite rigorous about measuring our progress.”
Corporate and business
Separately, Marriott also expressed confidence in the future of the corporate business travel and group segment.
“The group segment has been maybe the most pleasant surprise story in recovery. 2024 forward bookings are 14% ahead, so the group segment does not seem to be slowing down at all. I think all of us are consistently reminded that the power of in person interaction is irreplaceable,” Capuano said.
This is in line with the expectation that business travel will gain even more steam going forward, with Hospitality Investor’s Investor Council expressing a buoyant outlook on the corporate segment in the Investor Sentiment Index Q4 2023.
According to Accor’s “Meetings & Events Industry Forecast” survey data, continued growth is forecast across all meeting and event sizes in 2024. Three-quarters (78 percent) of those surveyed expect the number of small and medium-sized meetings (under 100 delegates) to increase next year, and the same number said they expect the number of meetings of over 100 delegates to increase. More than half (57 percent) predict a rise in large meetings (over 300 delegates) to increase and three-fourths (78 percent) said it would be “very important” for their industry to attend exhibitions, conferences and trade shows in 2024.
And it seems Marriott is not the only one paying attention, as Hilton CEO Chris Nassetta also sees growth from groups.
“On the group side, we continue to see very positive trends. [Businesses are] feeling quite good, particularly the small and medium-sized businesses. They're travelling more and feeling reasonably good about soft landing. [There continues to be] pent-up group demand. We expect continued strength driven by recovery in international markets, business transient and group demand," Nassetta said.
Looking ahead Gonzalo Ocejo, vice president, development at Preferred Travel Group said “Those hotels that remain steady with corporate and group segments will be looking at a better landscape in one or two years from now. We’ve come from a couple of years where leisure has been the main focus, but groups are coming back very strongly.”