Marriott-Starwood Merger Redefines the Hotel Industry Industry insiders cautiously embrace a journey into the unknown
In September, Marriott International officially became the world’s largest hotel chain. How? Simple, they acquired one of their biggest competitors – Starwood Hotels and Resorts Worldwide, Inc. for some $13 billion. Starwood is best known as the parent company of a variety of hotel brands around the world, including big name luxury destinations like Westin and Sheraton. The acquisition of the brand was long in the works, yet the merger came as a sudden surprise to customers, many of whom were loyal to either brand. With some 30 additional brands falling under the Marriott umbrella, there is a world of change to be had for both consumers, industry competitors and the market as a whole.
Ultimately this acquisition has created a micro-monopoly on luxury hotel brands and is having a significant impact on the way other brands are able to compete for market share. With smaller rivals, seemingly unable to compete with the dual strength of the new pair, there is plenty of room to assume that opponents may follow suit, creating additional mergers in a last-ditch effort to maintain relevancy.
Before Marriott’s acquisition, rival brand Hyatt Hotel Corp. was a forerunner in negotiations to close a merger deal. After a nearly three-week bidding war, Marriott came out on top. With this acquisition, Marriott is poised to control nearly 15 percent of all lodging rooms available in the U.S. While 15 percent may not sound like much, it’s a huge personate of the brands’ value when considering that most Marriott locations are four to five star rated establishments, thus proving that they have the largest profit share moving forward. According to hotel database STR, Marriott nearly doubles the Hilton Worldwide’s 773,000 rooms and the 766,000 that are part of the Intercontinental Hotels Group (Holiday Inn, Crowne Plaza).
With the drastic increase in rooms available, some may wonder if this will impact price points for the brand. It’s common for many to assume that this increase in availability may reflect lower prices on accommodations across the brand. However, as Patrick Baum, general manager of Residence Inn by Marriott of Holland explained, this may not be the case.
“Maybe [price points will change] at a Marriott-owned property, but, as a whole, we can’t look at the entire company and say the price will change everywhere,” said Baum. “Here in Holland, the price point is going to depend on the market and how many hotels are coming or going here. It is very much at a local level. Even down to the individual property, every hotel needs to get their fair share and that will mean changing strategy in order to do so.”
As the merger comes to light, CEO of Marriott International Arne Sorenson is proactively addressing concerns of the loyal customers of each brand, claiming that they need not worry. Initially, the merger struck fear into the hearts of longtime loyalty members whom were concerned that their investment in the respective programs would disappear. This sentiment rang especially true for Starwood loyalists who assumed all would be lost. However, no major changes have gone into effect, as the brand is looking to utilize the best components of each program to create a mega rewards system in the future.
“[Marriott] has many possibilities ahead of us because Marriott and Starwood both have great loyalty programs,” stated Sorenson in an open letter. “We intend to draw upon the very best of both Marriott Rewards and Starwood Preferred Guest® to provide even more value to our members … In the meantime, we’re actively exploring ways to build bridges between the two programs to further enhance your experience.”
While posts from guests on the hotel’s social media feeds suggested panic, Amy Peck, Michigan State University (MSU) account manager for Anthony Travel, claimed she hadn’t heard concern from her clients. Peck handles bookings and accommodation arrangements for the MSU athletic department and often works with Marriott.
“I honestly haven’t had anyone ask about the merger just yet. I’m sure most have been notified via their Marriott rewards account and our coaches are pretty travel savvy,” said Peck. “We book Marriott almost daily and haven’t noticed any issues. Starwood properties are not something we book much of at this time.”
However, others within the industry are approaching the merger with apprehension. Craig Corey, owner of Craig Corey Vacations, a Lansing-based travel agency that specializes in luxury accommodations, doesn’t know if Marriott can handle the acquisition.
“[The merger] won’t affect how we do business, but will largely effect the quality of product and services we are able to provide,” said Corey. “Starwood is better known for its upscale brands, and it’s worrisome to think that Marriott may not be able to properly manage them properly.”
Corey explained that his hesitance comes in retrospect of past mergers that have progressed “miserably.” One such acquisition was that of Macy’s, who acquired high-end retailers through its purchase of May Department Stores Company for $11 billion in 2005.
“Look what’s happened – Many of [May Department Stores] brands were shut down, or lost quality. Macy’s marginalized these stores,” explained Corey. “What worries me is that Marriott will turn some of these unique brands into cookie cutter experiences like their own.”
While Corey believes that only time will tell, he remains optimistic that Marriott might take this as an opportunity to fine tune its own locations into premium destinations like those within Starwood, instead of restricting them to fit the Marriott facade.
For a luxury based booking agency like Craig Corey’s, the uniqueness and character of the brands are important for his clients looking to get away and indulge in a refreshing experience. On the other hand, Marriott’s dedication to absolute consistency is a feature others look for.
“Our staff here at MSU are very loyal to Marriott and may try a Starwood property if a Marriott property is not available,” said Peck. “Marriott brands are consistent across the board and that’s why our coaches like them almost exclusively. Perhaps they will try Starwood now.”
Patrick Baum, a longtime employee of Marriott, agrees that consistency is an essential component of the brand and is what keeps his guests with busy schedules satisfied.
“Marriott customers are very loyal. Many of our customers are traveling for business and like to keep a routine,” said Baum. “They are staying in the same hotels on a weekly basis and collecting the points while trying to keep some sort of consistency. We want our rewards members to return because they know what to expect and we are able to deliver at every property.”
While Marriott officials were quick to address customers’ concerns regarding loyalty systems, quality retention and more – this change hasn’t been sitting well with everyone, because as it appears to be beneficial for some brand loyalists to Marriott, there may be broader implications.
“Customers don’t realize it yet, but the change will become more evident, slowly but surely,” said Corey. “Customers are going to be clouded by Marriott’s messaging, when they begin to offer former Starwood customers additional points or added benefits for being a member. It’s going to be up to travel experts to really look at those things and be more responsible when looking at their true value.”
Only time can tell how this will alter the industry. The majority of the changes are yet to be seen, but it may very well hold the most change for the way that subsidiary businesses within the industry conduct business in the years to come. A mix of optimism, hesitation and the great unknown loom around the merger.
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