Marriott International’s pending acquisition of Starwood Hotels & Resorts Worldwide underscores the effects consolidation has on integration, scale, innovation and competition, according to speakers at the Hotel Data Conference.
NASHVILLE, Tennessee—Marriott International’s pending acquisition of Starwood Hotels & Resorts Worldwide is on everyone’s mind, and while the deal is yet to be completed, owners and operators have given a lot of thought to what it will mean for their companies and the industry at large.
In a Hotel Data Conference session titled “What consolidation means for your business,” speakers talked distribution, investment strategies, competition challenges and more surrounding this major deal, as well as other smaller mergers and acquisitions happening around the industry.
Competing on scale
Speakers agreed that the economies of scale that come with merging the two companies can’t be denied.
“Clearly a deal like this gives significant distribution volume on a global basis,” said Glenn Squires, CEO of Pacrim Hospitality Services. “This is going to create more consolidation at the top for major companies to be able to compete on scale.”
In addition to potentially being able to leverage favorable distribution negotiations with third parties, speakers said the other benefit of scale this deal will have will be on the loyalty-programs front.
While Marriott has not indicated what a combined rewards program will look like, the panelists agreed that having more options for redemption will be a positive.
“We stand to benefit as Marriott owners by adding Starwood’s loyalty program,” said Liz Perkins, SVP of corporate strategy and reporting for Apple Hospitality REIT, citing the benefits of adding more properties for points redemption.
Gerry Chase, president and COO of New Castle Hotels & Resorts, said it’s unknown right now whether a new Marriott will combine both rewards programs into one or keep them separate.
“We don’t know whether it’ll be one program modified with the best of both features or if they’ll keep them separate,” he said. “I will tell you this though—the customer will dictate what’s going to happen.”
Perkins said group business also stands to benefit from increased scale.
“There’s opportunity to service larger groups by having more exposure in markets,” she said, but acknowledged that “we’re a ways off from seeing how they’ll merge their sales departments and capitalize on rate negotiations.”
Chase said the downside might be that “groups may not have the same leverage in rates even though they’ll have more choices.”
Consolidating portfolios also means the potential for culling out or moving properties from brand to brand, along with giving smaller brands more of a spotlight.
“Some properties will have to be rationalized out,” Squires said. He believes Marriott will likely move some Sheraton and Four Points by Sheraton properties to the Delta brand.
Economic conditions also will play a role in the fate of the combined portfolio of brands.
“With all these brands, they have to grow, they have to increase their share price for the company,” Squires said. “How many will survive when we go into a downturn?”
Perkins agreed, reiterating that customers ultimately will decide what stays and what goes.
“Whether it’s 30 brands or 15, (the company) has to ensure the loyalty programs attract and grow their customer base. If they’re growing their distribution, they have to grow that customer base,” she said.
- From June’s meeting of the Lodging Industry Investment Council: "The scarier side of Marriott/Starwood."
Innovation, investment and integration
A question from the audience raised the issue of innovation, and whether this deal has created a pause in brand innovation from Marriott and Starwood.
“Yes, there’s innovation in product, but the biggest opportunities here with innovation are in how we interact with our customers, and that’s around PMS and reservations systems,” Squires said. “That’s an area of concern I have” with the acquisition.
Perkins said she doesn’t see a pause as cause for concern. Instead, in the long run, the combined company will benefit from “leveraging the innovation they were both working on independently. It might lead to quicker innovation as they merge platforms.”
That integration, though, isn’t without concern.
“What does that (back-end systems) integration look like, and who’s going to pay for it?” Chase asked. “We’ve already invested in the individual platforms. Will it be pleasant or palatable for us to double down on new investment?”
Finding success in uncertainty
All speakers said that despite the uncertainty surrounding this particular acquisition and its effects, the most successful owners and operators succeed when they focus in.
“There needs to be a purpose to M&A activity,” Perkins said. “If it’s a complementary company and strategy that aligns with what you do, or if it’s a process that takes the best from both companies, great. But if it’s between companies that do the same things well, it may not work. You always need to see the opportunities there.”
Chase and Squires agreed that companies that can focus on their particular market strengths will do well, despite uncertainties from acquisitions or the economy.
“Don’t look at difficult times as the end,” Chase advised. “There’s opportunity to create a lot of value for your organization then, and there’s going to be a need—perhaps a stronger need—during difficult times.”