Marriott International, Inc.

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Marriott International, Inc.

Marriott Drive
Washington, D.C. 20058
U.S.A.
(301) 380-3000
Fax: (301) 380-3969
Web site: http://www.marriott.com

Public Company
Incorporated: 1993
Employees: 192,000
Sales: $10.17 billion (1996)
Stock Exchanges: New York Midwest Pacific Philadelphia
SICs: 5812 Eating Places; 6513 Operators of Apartment Buildings; 6531 Real Estate Agents & Managers; 7011 Hotels & Motels

Marriott International, Inc.—formed in 1993 when Marriott Corporation split into two separate companies—is the world’s leading lodging and contract services company. Marriott International has two operating groups: Marriott Lodging, which generates about 60 percent of company revenue, and the Marriott Service Group, its contract services operation. Marriott Lodging manages or franchises more than 1,350 lodging properties under 10 hotel brands worldwide. It also operates more than 30 timeshare vacation properties through Marriott Vacation Club International, and 25 U.S. conference centers through Marriott Conference Centers. The Marriott Service Group includes Marriott Management Services, which provides food and facilities management for business, education, and health care clients; Marriott Senior Living Services, which manages 75 senior living communities; and Marriott Distribution Services, which operates 15 distribution centers nationwide that provide food and related products to internal Marriott and external clients.

Roots in Restaurant Business

J. Willard (Bill) and Alice S. Marriott were newlyweds, recently transplanted from Utah, when they opened an A & W root beer stand in Washington, D.C., in May 1927. The Marriotts quickly noticed that soft drinks sold well during Washington’s long, hot summer, but that business needed a boost during the cooler months. Tacos and tamales, the first Mexican food in the area, were added to their winter menu. The Marriotts called their restaurant The Hot Shoppe, and offered medium-priced food in a family environment. In 1928, the Marriotts opened their third restaurant, which offered curbside service. Business was strong and in 1929 the restaurant was incorporated as Hot Shoppes, Inc.

As Hot Shoppes evolved into a chain of restaurants, the Marriotts maintained close family supervision of all facets of the business; for many years Alice served as company bookkeeper while Bill ran the business with “benevolent and paternalistic labor relations and a flair for promotion,” as Forbes reported in 1971.

Hot Shoppes remained popular in the Washington area through the Great Depression. In 1937 Marriott branched out from the restaurant business for the first time, pioneering in-flight catering with boxed lunches for Eastern, American, and Capital Airlines flights from Washington’s old Hoover Airport.

Entered Lodging in the Late 1950s

In 1939 Marriott’s food service-management business won an account at the U.S. Treasury building. In 1940 Marriott opened five new restaurants. In 1955 Marriott entered the hospital food service market at the Children’s Hospital in Washington, and in 1957, another business segment made its debut when Marriott’s first hotel, the Twin Bridges Marriott Motor Hotel, opened in Arlington, Virginia. Over the next few years, the company continued to open hotels as well as Hot Shoppes restaurants.

In 1964 Marriott handed the presidency to his son, Bill Marriott, Jr. At the time, the company owned 45 Hot Shoppes and four hotels, as well as its other businesses, and that year the company’s name was changed to Marriott-Hot Shoppes, Inc. Bill Marriott Jr. wanted to accelerate the pace of growth. The new president first concentrated on the lodging segment of the business. Over the next six years, Marriott almost quadrupled in size, surpassing Howard Johnson and Hilton Hotels in both revenues and profits. The company grew both by acquisition and by starting up new businesses. Marriott became international when it acquired an airline catering kitchen in Caracas, Venezuela, in 1966. In 1967 the 22-unit Big Boy restaurant chain was acquired, and in 1968 the company started a fast-food chain, Roy Rogers. Also in 1967, shareholders approved a corporate name change to Marriott Corporation; and in 1968 the company’s stock was first listed on the New York Stock Exchange.

By 1971 Marriott was “the most highly diversified company in the away-from-home market,” Bill Marriott Jr. told Forbes. Marriott brought in new management techniques to help the company grow in an organized and controlled manner. He divided the company into three basic groups: food operations, in-flight services to airlines, and hotels and specialty restaurants. Each group was headed by a president who reported directly to Marriott. With the three groups further divided into 16 divisions, the company was never dependent on one segment for profits. Another management change came in the planning-and-research area, which became the most intense one in the industry.

Along with tight family control and cost control, Bill Marriott Jr., who succeeded his father as CEO in 1972, also agreed with his father that labor unions helped neither the worker nor the company. Marriott worked hard to keep unions out of all phases of the corporation because its executives believed that the company was much more flexible without union rules and that they could offer better benefits to their employees. Backing this belief was a generous profit-sharing plan and a system of incentive bonuses.

During the 1970s, casinos became a popular investment in the leisure market, but Marriott avoided that segment of the business and concentrated on hotels. Marriott’s hotels generally catered to upscale travelers and concentrated on businesspeople willing to pay extra for quality. Marriott hotels continued to rise in both cities and suburbs. Because of their business orientation, most facilities had meeting rooms and banquet facilities. Convention hotels were built in growing convention cities such as Boston, New York, and Anaheim, California. As airline travel grew, Marriott also began to locate new hotels near airports. Over the decade, Marriott spent more than $3 billion on hotels, increasing its hotel rooms by an average of 17 percent a year.

Marriott planned carefully and came out ahead in the shaky economic atmosphere of the late 1970s and early 1980s. The company bought back a third of its stock, and in 1982 purchased the Gino’s restaurant chain as well as Host International, an airport-terminal food, beverage, and merchandising company, making Marriott the largest operator in that business. During this time Marriott also kept building hotels, even as others pulled back.

Launched New Lodging Brands in the 1980s

By the early 1980s, Bill Marriott realized that the hotel division would not be able to maintain its growth rate by operating only in the upscale market. Finding that customers were least satisfied with middle-priced hotels, Marriott sent researchers out to discover exactly what customers were willing to give up in exchange for less expensive rates.

In 1983, after three years of research and planning, Courtyard by Marriott emerged. The first opened that year near Atlanta, Georgia. The 150-room, two-story Courtyards did not offer bellmen, room service, or large meeting and banquet facilities, but did offer the high-quality rooms the chain was known for. Costs were also kept down by building the hotels in groups of 10 to 12 and hiring one management team for each cluster.

Marriott’s research team also indicated that several other segments of the residence market could be popular. One of these was timesharing, which Marriott decided to enter by placing timesharing units near its resorts. The venture began with the purchase of American Resorts Group in 1984. By 1989 the company owned four timesharing resorts in Hilton Head, South Carolina, and Orlando, Florida, and was in the process of developing several more.

Bill Marriott also realized that the company could grow faster if Marriott did not own most of its hotels. The company then tended to build hotels for later sale, but retained control through management contracts. Marriott believed that this system provided more rapid profit growth and limited risk while allowing more uniform service than franchising.

During the mid-1980s Marriott made several changes. In November 1985 the corporation bought the Howard Johnson Company. At the time of the purchase, it sold the Howard Johnson hotels to Prime Motor Inns but kept 350 restaurants and 68 turnpike units. Marriott’s services group grew in 1985 with the purchase of Gladieux Corporation, and then Service Systems. The 1986 acquisition of Saga Corporation, a diversified food-service management company, made Marriott the largest food-service management company in the country.

A major disappointment in the restaurant segment occurred in 1987, when the company made an unsuccessful bid for Denny’s, a chain of 1,200 restaurants. Had the bid succeeded, it would have made Marriott the largest operator of family restaurants in the country. Later that year Marriott sold franchise rights for the Big Boy system to Elias Brothers Restaurants.

Company Perspectives:

Of the many distinguishing qualities that define Marriott International and contribute to its success, perhaps the most notable is the company’s spirit to serve, a core value shared by 192,000 Marriott associates worldwide.

To complement the Courtyards, Marriott decided to enter the luxury all-suite market, targeting extended-stay travelers. The new units, called Marriott Suites, were planned for suburbs and medium-sized cities. The first one opened in Atlanta, Georgia, in March 1987. Later in the year the company purchased the Residence Inn Company, an all-suites hotel chain that catered to extended stay travelers. At the other end of the spectrum, the first Fairfield Inn economy lodges were tested in the same year after three years of development.

In 1988 the company began to test market a new restaurant, called Allie’s after Alice Marriott. First, 13 former Big Boys were converted to Allie’s. After a successful test in San Diego, California, the company planned to roll out the restaurant nationwide by opening more than 600 units, both new and converted, by 1993. These family-style restaurants concentrated on all-you-can-eat food bars with such items as Mexican food and barbecue.

Also in 1988, the 100th Courtyard opened, in Chicago; 12 Fairfield Inns were in operation and 24 more Marriott Suites were added, for a total of 130. With Marriott Hotels and Resorts, Courtyard By Marriott, Fairfield Inn, and Residence Inns by Marriott, the company’s business included more than 470 hotels by the end of 1988. In the crowded, competitive lodging market, Marriott’s occupancy rates were about 12 percent over the industry average.

Marriott Senior Living Services was formed in the late 1980s, adding to Marriott’s operations “lifecare community” residences, which incorporated retirement living with long-term nursing care when needed. After almost six years of research, Marriott felt ready to enter this market, long dominated by nonprofit organizations, in 1988. By the end of 1988 Marriott operated nine facilities—eight under contracts gained in the acquisition of Basic American Retirement Communities. During 1989, the company announced plans to build 150 “senior living communities” by the mid-1990s.

In late 1989 Marriott announced a major restructuring, which included the sale of the company’s airline catering division to Caterair International for $570 million and plans to sell its restaurant business and to buy back 10 million shares of stock. The company subsequently sold its restaurants in April 1990 to Hardee’s Food System for $365 million. After the restructuring, Marriott’s three core businesses became lodging; food and services management; and food, beverage, and merchandise operations at airports and on turnpikes.

Marriott International, Inc. Formed in 1993

Marriott was forced to make a much more drastic—and dramatic move—in the early 1990s. Bill Marriott’s method of building a hotel, then selling it but still managing it had worked for years. But a 1986 change in the tax law sharply reduced real estate tax shelters and came in the midst of a company building boom. Unable to sell as many of these properties as it wished, the company was left saddled with a large debt load of $3.4 billion, built up to finance all the building. By the early 1990s, the debt burden left Marriott unable to expand.

In 1992 Bill Marriott and his CFO, Stephen Bollenbach, conceived of a plan—announced in October of that year—to divide Marriott Corporation into two separate publicly traded companies, one that would own hotel properties and another that would manage them. The following October, Marriott completed the division of its operations, with Host Marriott Corporation formed to own lodging properties, as well as handling Marriott’s airport and turnpike concessions; and Marriott International, Inc. created to manage the Marriott family of hotel brands and the senior living communities, along with Marriott’s food and services management business.

The division was initially controversial, mainly because about two-thirds of Marriott Corporation’s $2.9 billion of debt was assigned to Host Marriott. But Host Marriott and Marriott International went on to post strong earnings well into the 1990s. (Host Marriott subsequently underwent a further split in 1996, when Host Marriott Services Corporation, another separate publicly traded company, was formed to operate the airport and turnpike concessions, with Host Marriott left to concentrate only on owning hotels and real estate.)

Marriott International managed about 760 hotels and other lodging properties at the time it was formed. By early 1997, the company had added more than 600 properties to its management portfolio, approaching the 1,400 hotel mark. Relieved of a heavy debt burden, Marriott International was free to aggressively pursue acquisitions and launch new hotel brands.

In April 1995 the company spent $200 million to acquire 49 percent of The Ritz-Carlton Hotel Company LLC and planned to acquire the remaining 51 percent over the next several years. The deal brought Marriott International a leading brand in the luxury hotel segment, and by 1996 there were 33 Ritz-Carltons in 15 states and seven countries. In March 1996 Fairfield Suites by Marriott was launched as an all-suite economy hotel. In June of that same year, Marriott Senior Living Services was bolstered with the $303 million acquisition of Forum Group, Inc., a leading operator of senior housing in the quality sector. The following March, Marriott International sold 29 of the 42 Forum retirement centers to Host Marriott for $225 million in cash and $315 million in notes and assumed debt, but the company would continue to manage them. By 1996, Marriott International’s revenues had surpassed $10 billion, increasing 14 percent over the preceding year, while net income was also on the rise, growing from $490 million in 1995 to $629 million in 1996, a jump of 24 percent.

Following the February 1997 naming of William J. Shaw as president and chief operating officer of the company (Bill Marriott remaining chairman and CEO), Marriott International continued to launch new brands and make major acquisitions. In February 1997, the company introduced Marriott Executive Residences, which are designed for the international traveler on an extended assignment and which were initially targeted for Europe (the first to open in Budapest, Hungary) and the Middle East (Jeddah, Saudi Arabia). The following month saw the opening in Newport News, Virginia, of the first TownePlace Suites by Marriott, which provided moderately priced lodging for the extended stay traveler.

Later in March 1997, Marriott International acquired Renaissance Hotel Group N.V. for $916 million in cash and the assumption of $54 million in debt, the largest acquisition in Marriott history. The addition of Renaissance doubled Marriott International’s overseas operations, bringing with it the Renaissance brand of full-service, luxury hotels located throughout the world; high-quality, full-service New World hotels located in the Asia-Pacific region; and Ramada International mid-priced hotels located outside the United States and Canada. At the time of the purchase, Renaissance operated or franchised 150 hotels in 38 countries.

Marriott International neared the turn of the century with an impressive, and growing, array of hotel brands ranging from economy Fairfield Inns and Suites to the upscale Marriott, Ritz-Carlton, Renaissance, and New World brands. The company’s continuing focus on managing rather than owning lodging properties was clearly paying dividends. With the hospitality industry predicted to grow healthily well into the 21st century, Marriott International was poised for further growth.

Principal Divisions

Marriott Service Group consists of three divisions: Marriott Management Services; Marriott Senior Living Services; and Marriott Senior Living Services.