Marriott International’s Noah Silverman and Eric Jacobs provide insights into development of full-service and lifestyle brands in North America.
LOS ANGELES—Marriott International experienced record growth in 2017, and pipeline numbers show the company will have another strong development year in 2018.
According to numbers from Marriott, by the end of 2017, the company had a record 460,000 rooms in its global pipeline, almost half of which are located in North America. Hotel News Now sat down with Marriott’s Noah Silverman, chief development officer, North America, full-service hotels; and Eric Jacobs, chief development officer, North America, select-service and extended stay, to talk about the company’s development goals for the continent.
Fitting brand to markets
Brand development is a market-by-market process to determine what fits best where, Silverman said.
“(Marriott looks for) what we perceive as gaps in our distribution and where certain brands among our portfolio (are) going to fit better is based on a market-driven dynamic,” he said.
There are markets where Marriott targets specific brand representation because it doesn’t exist today, Silverman said. Some brands have a broader applicability, such as the Autograph Collection, Tribute Portfolio and Delta Hotels. In his full-service world, Silverman said, the soft brands and Delta have been a focus in a variety of markets across the country.
Marriott works with its third-party owners and franchisees when they’re deciding which brand they want to develop, Silverman said. The decision about the branding of a particular hotel is driven by discussions with the owners and franchisees, he said. The dialogue starts with what they want to do and what brands they believe would work best in their market.
In some cases, it can be a question of availability in a market for a particular brand and what is in that market already, he said.
“For us to conclude that a luxury brand works in a particular market, such as a JW Marriott in Boston and the Ritz-Carlton in Beverly Hills, which also has long been a target of the company, we’re focused on ensuring the market can sustain the rates that make a luxury hotel work given the development cost of luxury hotels,” he said.
Branding decisions can also come down not just to the market but the specific location itself, Silverman said. If there isn’t a luxury property in the market, Marriott will take luxury brands out of consideration. Similarly, the company would want the developer to build the hotel with sufficient room sizes and meeting spaces appropriate for a luxury brand versus a full-service brand or a select-service brand, he said.
“Those are all factors going into how we narrow down the appropriate candidates for branding of the hotel,” Silverman said.
Integrating new brands
Jacobs said his focus has been integrating Starwood Hotels & Resorts Worldwide’s Aloft Hotels, Element and Four Points by Sheraton brands as well as AC Hotels into the Marriott growth strategy.
“We believe there was a lot of opportunity left on the table by Starwood around these brands in terms of growth,” he said. “If you look at our history about how to create a strategy to get to 1,000 Courtyards or strategy to get to 1,500 Fairfields, we’re unleashing the same kind of strategy around how we grow our newer brands.”
Consumers have shown their love for Element, Jacobs said, and they want more. Investors have said they’re interested, but they want the costs to come down. While the actual metrics on the top line for the brand are strong, its challenges are construction costs and the overall operating costs are high, he said, so the investment community is not as engaged with that brand.
Marriott has spent the last year and will continue to work on harmonizing those above-property costs that Starwood had, Jacobs said. The scale created by the acquisition will help drive down reservation and rewards costs while adding construction buying power and procurement benefits, he said.
“All of those things make that a better investment,” he said.
Four Points has been a bit of a challenge, Jacobs said, and it will take more work to solidify its final positioning. But Marriott still had relatively good growth and interest around the brand last year, he said.
The AC Hotels brand also has received a great deal of interest from the investment community, Jacobs said. The brand is targeting metro urban markets and high-rated suburban opportunities. Marriott opened about 25 last year, he said, and in 2018 will open a similar number of properties. It’s a relatively new brand, he said, and having more than 100 in the pipeline is exciting.
Like any consumer brand, retail establishment or restaurant, it’s all about studying the consumer, Jacobs said. People are sharing more information more freely, providing insights into where they shop and what brands they like.
Marriott is working with a third-party company that specializes in predictive modeling, he said, and it’s taking advantage of its data from rewards program partnerships with credit card companies to learn more about its guests’ demographic and psychographic makeup to better determine where to place its brands. Marriott is looking at what its guests like to do and where they like to shop and eat to determine patterns, he added.
“Our target customer for Element likes this, travels here and these are the things they like to do, and is that in the area?” Jacobs said, as an example.
Investors want to know how much of an opportunity there is in developing hotels in certain areas, he said. The predictive analysis shows unmet demand for a brand based on customers who stay in that brand. It’s a roadmap for determining not only which market, but which specific location in a market compares to others.
“This location, based on its surroundings, with restaurants, shopping and proximity to core businesses that might be in the area, these types of consumers like this brand,” Jacobs said. “There’s still an art to the deal. This is more of a science, and then you layer in the art.”
Marriott closed on its acquisition of Delta Hotels in April 2015 when the brand had 38 properties open, all in Canada, Silverman said.
“The acquisition was done specifically with the intention to grow it globally,” he said. “So while the brand enjoyed good reputation and was well-known in Canada, I’ve sort of joked that outside of Canada, if you asked about Delta, they would answer ‘airline’ and ‘faucet’ long before they would get to hotel.”
The goal is to make Delta a global platform in the entry-level, full-service space, Silverman said. Spreading Delta’s footprint has mostly been a conversion process, and Marriott is looking at specific hotels that could be rebranded, he said. If the investment decision supports a lower renovation cost, he said, it might drive an owner to the Delta brand.
Since purchasing the brand, Marriott has doubled Delta’s presence in terms of open hotels and signed pipelines deals, Silverman said.
“It has been a meaningful contributor to signings growth in North America among our full-service hotels,” he said. “It probably represents about a quarter of our signings in North America among full-service brands in the last couple of years.”
The reason for the brand’s success is it is a flexible full-service brand, Silverman said, which opens up a number of opportunities in a variety of markets.
“It’s a newer brand, one that’s quickly gaining presence and momentum from a growth perspective,” he said. “We fully expect it to continue over the next several years.”
Conversion versus new build
The decision to build a new hotel or convert an existing building depends on the brand, Silverman said, and roughly a third of the full-service signings have been conversions. While soft-branded hotels are conversion-friendly, he said, recent projects have shown new builds and adaptive-reuse projects can be successful in the soft-brand world as well. Silverman cited the success of the newly built Envoy Hotel in Boston as well as the Press Hotel in Portland, Maine—which is an adaptive reuse of a former newspaper building—both of which are members of the Autograph Collection.
“When we launched Autograph Collection in 2010, I don’t think anyone predicted there would be new builds or adaptive reuse,” he said. “The vision had always been to take well-known, iconic independent hotels in their markets to plug into the platform that Marriott offered to help drive revenue and help drive cost synergies. While we’ve had success with that model converting great hotels, we’ve also had success with new builds and adaptive reuse.”
Across the other brands, there’s a heavier focus on new build, Silverman said.
Ninety-five percent of development of the 10 brands he oversees will be new construction, Jacobs said, while Four Points by Sheraton is about 50%. The other brands in select service are so purpose-built, it’s difficult to do conversions.
“We’ve seen conversions in the segment sometimes not do as well because people see that was another brand,” Jacobs said. “Some of it’s physical, some of it is appearance, and you get challenged by how does it become something else.”
Even if it requires waiting a year or two to build a new hotel, he said, that’s preferable to taking a 30-year-old wood-frame building and trying to transform it.
Prior to the acquisition of Starwood Hotels & Resorts Worldwide, Marriott had gotten a lot of traction with the Autograph Collection, Silverman said. The interest in soft brands with a large distribution system has grown among developers, he said, as they like being part of a large distribution system while preserving the independent spirit in the hotel.
Following the acquisition and the addition of Starwood’s Luxury Collection and Tribute Portfolio soft brands, Marriott has been able to position them in relation to each other that it believes gives the company the strongest portfolio of brands across the 27 hotel brands it has in the industry. As a subset, he said, it also has the strongest soft-brand portfolio as well.
“Each is positioned slightly different form each other in terms of quality tier,” Silverman said. “It gives us the opportunity to target a variety of hotels with a variety of different ownership groups to really maximize our growth through the soft brands, as well the opportunity for owners and franchisees across a variety of hotels that maybe we wouldn’t have been able to attract simply when we had Autograph Collection by itself.”
For a soft brand to be successful for guests, owners and the brand, it has to start with a powerful brand itself, and the underlying brand of the hotel means something and conveys a unique experience for the traveler, he said. The distribution the brand provides can help drive the economics to the owner, both in terms of top-line revenue and cost savings.