Marriott

Individual Strategic Analysis

Ty Oden

Strategic Management, Fall 2014

Dr. Joseph Kavanaugh
December 2, 2014
Marriott ii
Marriott iii
 Table of Contents
Executive Summary.............................................................................................................................................. 1
Mission and Vision Statements ........................................................................................................................ 2
Mission Statement............................................................................................................................................ 2
Vision Statement............................................................................................................................................... 2
Commitment Statements ................................................................................................................................... 3
Competitor Profile Matrix .................................................................................................................................. 5
Competitor Profile Matrix: Defined ........................................................................................................... 6
Competitor Analysis ............................................................................................................................................. 8
Marriott ................................................................................................................................................................ 8
Hilton.................................................................................................................................................................. 12
Starwood........................................................................................................................................................... 16
Wyndham ......................................................................................................................................................... 20
Porter’s Five Forces Analysis ........................................................................................................................ 23
Porter’s Five Forces Analysis: Detailed ................................................................................................ 24
Industry Analysis ............................................................................................................................................... 26
Overview ........................................................................................................................................................... 26
Economic Forecast ........................................................................................................................................ 29
Finances ............................................................................................................................................................ 31
Technology....................................................................................................................................................... 35
Driving Forces ................................................................................................................................................ 36
Going Forward ................................................................................................................................................ 36
Value Chain Analysis ......................................................................................................................................... 38
Value Chain Analysis: Detailed ................................................................................................................. 39
Statement of Financial Condition................................................................................................................. 41
Statement of Financial Condition: Detailed ........................................................................................ 42
SWOT/TOWS Matrix ......................................................................................................................................... 45
SWOT/TOWS Matrix: Detailed ................................................................................................................. 46

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Strategies, Recommendations, and Implementation Plan ................................................................. 49
Partnership with Huazhu ........................................................................................................................... 49
Brazilian “Spirit of La Selva” Resort ....................................................................................................... 51
Canadian “Aurora” Boutique Hotels....................................................................................................... 53
References ............................................................................................................................................................ 56

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 Executive Summary
Marriott International, Inc. is a globally operating hospitality company that manages hotels
and lodging facilities in the Americas, Europe, Africa, and Asia Pacific. They are the second
largest hospitality company and on track to be the largest within 4 years. Marriott caters to
a highly diverse consumer crowd and has a wide range of hotel brands to suite various
consumer preferences.

During the financial year ended December 2013, Marriott recorded revenues of $12,784
million with an operating profit of $988 million. After experiencing a decrease in revenues
by approximately 14% in the 2009 recession, Marriott has made a steady recovery,
increasing revenues every year since then (2010: 10.8%; 2011: 8.0%; 2012: 9.1%; 2013:
6.5%; 2014: 6.7%). Holistically, the hotel and lodging industry predicts a continued
increase in revenues over the next five years.

This report will analyze the industry as a whole as well as compare the key leaders in the
hospitality industry through strategic management analyses:

 Competitor Profile Matrix

 Competitor & Industry Analyses
 Porter’s Five Forces Analysis
 Value Chain Analysis
 Statement of Financial Condition
 SWOT/TOWS Matrix

Alongside this analysis, we provide 3 strategies to increase profitability and geographic

diversity for Marriott.

1. Develop a new Asian line of properties by partnering with Huazhu.

a. This plan will add 120 new hotels in China, with an option to continue the
development outside of china for additional Asian market coverage.
b. Costs will be $715 million during the 5 year development cycle, and will
bring in $537 million net profit per year beginning in year 6.
2. Open a new Eco-resort in Brazil employing natural features to drive sales.
a. This plan adds $100 million net profit after a 5 year, $990 million
development cycle.
3. Expand Canadian operations with a new line of boutique hotels.
a. Expected profits from this plan are $200 million per year after a 4 year, $750
million development cycle.

Marriott 1
 Mission and Vision Statements

Mission Statement

To provide an exceptional lodging experience by demonstrating superior hospitality for

our guests by putting people first, pursuing excellence, embracing change, acting with
integrity, and serving our world.

Vision Statement

We seek to be the world’s leading provider of hospitality services by treating employees in

ways that create extraordinary customer service and shareholder value.

Marriott 2
 Commitment Statements
Services

Marriott is committed to providing world-class customer service in order to satisfy every

guest, every time. Our guests should expect high-end service in which all their needs are
met, from excellent room quality to industry-leading amenities on site at every one of our
locations.

Customers

Marriott is committed to embracing and understanding the different cultures of our

domestic and international guests and catering to them by offering a variety of services to
accommodate their unique needs. Our dedication to the customer shows in everything we
do.

Markets

Marriott is committed to expanding our brands throughout the world, excelling in domestic
markets and developing strong brand recognition in foreign markets. We are committed to
maintaining our global position in the market place as the flagship premium brand.

Stakeholders

Marriott is committed to our stakeholders, investing their capital as carefully as we invest

our own and voting in a way that is intended to maximize the value of their investments.
Our relationships with our stakeholders reflect Marriott’s values and principles of
responsible business principles.

Employees

Marriott is committed to providing an environment where our associates have the

opportunity to achieve their potential, are highly engaged, and are empowered to deliver
exceptional guest service. We believe in putting people first and giving our associates
opportunities to grow and succeed through benefit packages, competitive compensation, and
career advancement.

Marriott 3
Technology

Marriott is committed to keeping technology a vital element of our business strategy by

providing cutting edge services to our guests, from electronic check-in and billing services,
to high quality electronics available on site.

Financial Responsibility

Marriott is committed to the responsible management of our finances, honestly and

accurately communicating financial information, safeguarding our assets, and ensuring the
reliability of our accounting records.

Marriott 4
 Marriott Hilton Starwood Wyndham

5
Industry
CPM Weights Rating Score Rating Score Rating Score Rating Score
Brand Portfolio 20% 3 0.60 4 0.80 3 0.60 4 0.80
Brand 20% 4 0.80 3 0.60 1 0.20 4 0.80
Recognition
Competitor Profile Matrix

Human Capital 10% 3 0.30 3 0.30 2 0.20 3 0.30

Technology 10% 4 0.40 4 0.40 2 0.20 2 0.20
Adaptability
Reputation 20% 4 0.80 3 0.60 1 0.20 2 0.40
Distribution 15% 4 0.60 3 0.45 3 0.45 4 0.60
Rewards Program 5% 3 0.15 4 0.20 3 0.15 2 0.10
Totals: 100% 3.65 3.35 2.00 3.20

Marriott
Rating Legend
1. Major Weakness 2. Minor Weakness 3. Minor Strength 4. Minor Strength
 Competitor Profile Matrix: Defined

Brand Portfolio
Within the lodging industry there are several sections and sub-sections in which companies
operate. The primary markets are vacations, timeshares, hotels, and motels, with each
having various sections based on price and luxury. It is important for a lodging company to
have brands that meet the needs of multiple sections in the industry if they ever want to
grow larger than a small chain. The brand portfolio measure indicates how well covered
the industry is by a company.

Brand Recognition
In the lodging industry there are a million ways a guest could be taken advantage of, and
customers know that. Few people are comfortable handing their personal information,
credit cards, driver’s license, and phone number over to a business they have never heard
of and know little about other than that a room will most likely be provided for. That is why
brand recognition is pivotal in the industry. With a name people know comes trust and
reliability.

Reputation
Equally as important as recognition is reputation. If people know your company name but
associate it with a low quality of service or poor room quality it can be as bad as, or worse
than, being completely unheard of. For this measure we used a sample of average hotel
chain ratings and a measure of recent publicity, positive and negative.

Distribution
Distribution measures not only geographic spread but the intelligence of the hotel location.
4 of the same chain all located right next to each other, even if it is in a foreign country, may
not be as strong an indicator of distribution as 2 well placed domestic properties. We look
at aggregate distribution across population centers in various high-traffic countries to get
our distribution measures.

Human Capital
It is important for hotels to have well trained staff who can make decisions on the spot in a
variety of unusual situations that can be difficult to train for. Well trained, well-educated
employees who can think within company guidelines are a must in this industry, more than
employees who can read and follow a manual accurately. Human capital is a measurement
of the investment companies make in the training of employees to dynamically handle
various situations that can arise during the course of their work day.

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Technology Adaptability
Luxury hotels and resorts are in a constant battle to seem new and fresh, and keeping on
the cutting edge of technology is a key factor in seeming relevant and interesting. With new
software coming out yearly to allow for online booking, better web design, and a number of
appliances which need to be updated every 2-4 years in the room it is vital for hotels to be
able to develop and procure new technologies efficiently.

Rewards Program
A strong rewards program can be the difference between a one-time customer and a life-
long guest. Some companies leverage their rewards to extend lines of credit to guests,
encourage repeat business, and discourage switching to competing companies. To measure
a company’s rewards program we looked at the enrollment figures,

Marriott 7
 Competitor Analysis

Marriott

Market Performance
Marriott holds the second most market share in the hotel industry, calculated to be 13.7%
by IBISWORLD. This translates into a massive empire, which spans six continents and has
over 3,500 affiliated hotels, motels, and resorts. This network is expected to increase in size
over the next five years due to an initiative which started in 2010 to broaden Marriott’s
hold over foreign markets by opening 600 new locations by 2015. This move, spearheaded
by the Moxy brand, also seeks to create and claim a new market share for boutique hotels,
which offer local entertainment such as restaurants, nightclubs, and concert venues
included in the hotel itself.

Marriott’s primary method for competing across the market is to differentiate the service it
offers by providing five-star, upper class principles in the design and management of all its
properties, no matter what market segment it occupies. In this way, Marriott has been able
to make its name synonymous with high quality hotels even at average price points.

Marriott manages its major industry factors, Reinvestment, Brand Portfolio/Reputation,

Investments in Human Capital, and Geographical distribution, by keeping its high-quality
service standard at the forefront of its mind. It invests in modern, sleek new lines even
during financial straits, like their Moxy investments during the recent depression.
Regardless of price point, consumers hold Marriott’s brand portfolio in high regard.
Nineteen main brands cover the market from middle-class and up. Marriott’s employees
are well trained and well compensated, with many of its staff making well over the industry
average. Marriott’s recent “The Envelope Please” campaign allows guests to leave a tip for
the housekeeping staff at the end of a guest’s stay. This new tipping initiative rewards its
housekeeping staff with additional income and greater job satisfaction because they feel
more appreciated by guests. Geographically, Marriott is expanding into foreign markets to
protect itself against possible fluctuations in the highly saturated American hotel market.

Marriott 8
Financial Performance

Marriott 2009 2010 2011 2012 2013

Current Ratio 1.25 1.35 0.52 0.53 0.71
Debt to Equity 2.10 1.78 Equity<0 Equity<0 Equity<0
Fixed Assets to Equity 4.45 3.53 Equity<0 Equity<0 Equity<0
EBITDA Margin 1.00% 7.40% 5.20% 9.10% 8.70%
Negative
Sales/Net Working Capital 6.34 6.76 30.72 25.19
NWC

Marriott is a company strongly supported by more than 57 subsidiaries. Each subsidiary is

developed and tailored within the Marriott brand before it branches off into its own
strategic business unit (SBU). This business model gives Marriott a unique set of ratios
compared to their competitors while still allowing it to remain profitable.

The most notable change in Marriott’s five-year history is the movement of its timeshares
from the Marriott International brand to its own SBU. This transition caused Shareholder
equity, the amount of total financing in secure shares as opposed to more risky liabilities, to
plummet when a large portion of its shareholder contributions moved from Marriott’s
company balance sheet to separate, subsidiary balance sheets. This negative equity causes
a breakdown of the Debt-to-Equity and Fixed-Assets to Equity, but the ‘09 and ’10 heights
of these ratios is indicative of fund gathering for Marriott’s international expansions, a
promise of 600 new properties overseas by 2015. Equity climbs steadily each year as
Marriott continues to launch and develop new, overseas properties, such as “Moxy.”

The Current Ratio for Marriott, an indication of current assets over liabilities, has also
fallen due to the loss of assets during the timeshare separation. This ratio has been steadily
increasing since the separation, indicating a company that is strongly rebuilding assets
each year. Between standard, domestic growth and Marriott’s commitment to foreign
growth that is already largely funded, Marriott can expect its current ratio to return
comfortably to >1 within five years.

EBITDA Margin, a percentage that indicates core profitability without the confounding
factors of depreciation and amortization, remains positive for Marriott even during its

Marriott 9
period of growth, which is unmatched by any other hotel chain undergoing similar
circumstances. Marriott’s Sales/Net Working Capital remains excellent, showing that
currently held properties are still highly profitable for Marriott, although the sudden loss of
inventory following the split is causing the ratio to appear inflated presently. This ratio will
fall during its normalization after the timeshare split, but should still settle in a comfortably
positive area.

Marriott’s stock price is growing rapidly on the wave of strong financial signals given by
the growing lodging market and their overseas expansions. It reached a record high of
$79.20 with a cap of 21.95B. This puts them second by market cap, following Hilton.
Marriott’s stock has increased constantly (with slight seasonal variation) since 2006. Even
the recession did little to slow the steady stock growth of Marriott.

Competitive Advantage
Marriott competes using a broad differentiation strategy. Operating in most segments of
the accommodation market, including luxury, full-service, and limited service, Marriott is
able to suit a variety of travelers and budgets.

Marriott excels by offering a wide variety of hotels to accommodate highly diverse

travelers. Whether the guest is looking for a luxurious getaway or is simply making an
overnight stop in route to their destination, Marriott offers many unique hotel brands for
them to choose from.

LUXURY LIFESTYLES/ SIGNATURE MODERN EXTENDED DESTINATION

COLLECTIONS ESSENTIALS STAY ENTERTAINMENT

THE RITZ- MARRIOTT

EDITION COURTYARD RESIDENCE INN GAYLORD HOTELS
CARLTON HOTELS
AUTOGRAPH
SPRINGHILL TOWNEPLACE MARRIOTT
BVLGARI COLLECTION
SUITES SUITES VACATION CLUB
HOTELS
MARRIOTT
JW RENAISSANCE FAIRFIELD INN
EXECUTIVE
MARRIOTT HOTELS & SUITES
APARTMENTS
AC HOTELS BY PROTEA
MARRIOTT HOTELS
MOXY HOTELS

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Its competitiveness is rooted in its mission to become the flagship premium hotel brand for
guests by providing exceptional service and catering to a variety of customer needs.
Furthermore, their competitive drive can be accounted for in their recent addition of their
2014 line of Moxy Hotels.

Marriott’s primary resources when developing and managing hotels is their pedigree and
experience in the upper class/luxury market. They leverage the resources developed while
managing high end hotels across all their properties to offer a high quality exerpeince for
guests at any price point.

Competitive Position
Marriott is at the top of the charts for the hospitality industry. According to Hoovers, they
have placed 219 in the fortune 500 as of June 2014. Marriott has approximately 3,500
hotels scattered throughout 70 countries.

Marriott dominates the luxury segment with elegant brands that appeal to foreign and
domestic customers who desire superior amenities. Controlling this segment is vital when
looking into future growth within the industry. Marriott also operates in the upscale
market; it is one of the most highly recognized names in the industry. Marriott is very well
known across the world, but it is underperforming in its middle-class operations. Its
Modern Essentials line leaves something to be desired, and is generally overlooked when
its portfolio is considered.

Marriott operates 42% of its hotel rooms under management agreements, 55% under
franchise agreements, and 2% are owned or leased internally. Marriott follows the core
strategy of differentiation, offering a high-class experience at any price point at which it
operates.

Marriott 11
Hilton

Market Performance
With a market share of 13.9%, Hilton is the leading company in the hotel industry. This
share is expected to increase over the next five years, but not as quickly as its’ chief
competitor, Marriott, due to their late arrival into foreign expansion. Currently, 77.5% of
Hilton properties are domestic, making them extremely susceptible to harmful trends in
the American economy.

Hilton’s primary strategy for competition is by reducing the industry-wide low cost of
switching for customers. They offer the largest and most well used loyalty program, with
more than 44 million members and over 50% of all reservations being made by Hilton
Honors rewards members. This allows it to secure customer loyalty, even if it is not the
price leader in a segment or region.

Hilton manages its major industry factors, Reinvestment, Brand Portfolio/Reputation,

Investments in Human Capital, and Geographical distribution, by maintaining an excellent
reputation and staying immediately recognizable to many customers across all segments of
the hotel market. Hilton is using reinvestments to develop new lines of hotels that will be
largely located in foreign markets. Its portfolio of brands is instantly recognizable across
the industry, with each baring the name “Hilton” in its name in one form or another.
Because Hilton focuses on ensuring return customers through its honors program,
customer service is paramount to ensuring guests have a good experience. This puts
pressure on individual hotels to ensure all staff are properly managed and trained.
Currently Hilton is hindered by being too concentrated in the U.S. It is taking steps to
correct this by foreign expansion, but only time will tell if they manage to de-centralize
their profit centers before America undergoes another time of economic difficulties.

Marriott 12
Financial Performance

Hilton is a company that entered the market with the largest industry IPO in history in
December of 2013. The initial numbers are already impressive for Hilton, with their market
share currently sitting at the highest among any competitor.

Hilton’s ratios are indicative of an extremely healthy company; because of Hilton’s good
financial standing, it should invest in international expansion. Its current ratio indicates it
is financially stable and has the ability to easily pay off any current liabilities. Due to the
property-heavy nature of the hotel industry, this ratio is rarely above 1.5, but any number
over one is a sign of a strong company. The steady decrease in the ratio is likely due to
Hilton’s relatively new entry into both the public and the international markets.

The Debt to Equity ratio is Hilton’s weakest ratio, but its rapidly declining numbers is

Hilton 2009 2010 2011 2012 2013

Current Ratio 1.37 1.20 1.11
Debt to Equity 8.99 6.95 2.93
Fixed Assets to Equity 13.00 10.00 5.54
EBITDA Margin 14.80% 15.40% 16.60%
Sales/Net Working Capital 6.28 7.45 7.57
concerning from an investment standpoint. This decrease in equity is, in the hotel industry,
generally indicative of an expansion or growth focus. The Fixed Assets to Equity ratio is
also falling rapidly, but this is simply a settling following their $2.35 billion IPO. Hilton is
currently investing internationally to reduce its dependency on U.S. economic performance.
This will likely mean a temporary decrease in their Debt to Equity ratio, and a more
reasonable, but healthy, Fixed Assets to Equity ratio.

Hilton’s profitability ratios, EBITDA Margin and Sales/Net Working Capital, indicate that
the company is profitable, but only average amongst its closest competitors. Due to
relatively late entry into foreign investments, profitability ratios are expected to slowly
increase over the next five years.

Hilton, having only gone public this year, has very little stock history to report. They have
experienced a small amount of growth since their IPO on December 13, 2013 at $22.10. The
current stock price as of November 28, 2014 in $26.22, this growth most likely due to

Marriott 13
regular seasonal variations in lodging industry stock. Despite their new entrance into the
public market, they still command an impressive 25.62B market cap.

Competitive Advantage
Hilton competes using a broad differentiation strategy. Hilton has a strong portfolio,
composed of 12 well-known hotel brands, which are divided into five segments: luxury,
upper scale, upper middle scale, upscale, and timeshare.

Hilton excels by maintaining a strong portfolio. Hilton uses their portfolio to raise brand
awareness, attract new customers, and increase their customer base.

LUXURY LIFESTYLE FULL SERVICE FOCUSED VACATION

SERVICE OWNERSHIP

WALDORF
HILTON
ASTORIA CANOPY BY HILTON HOTELS & HILTON
GRAND
HOTELS & HILTON RESORTS GARDEN INN
VACATIONS
RESORTS
CONRAD CURIO A
HOTELS & COLLECTION BY HAMPTON
RESORTS HILTON
HOMEWOOD
DOUBLETREE BY
SUITES BY
HILTON
HILTON
EMBASSY SUITES HOME2 SUITES
HOTELS BY HILTON

Currently, Hilton has a market share of 13.9%, the most in the industry. Their easily
recognizable and robust portfolio accounts for their competitiveness.

Hilton trades on brand recognition, an important factor in the lodging industry. They
ensure that the Hilton name is present at every property that they manage, and use the
success of their company as a whole to improve the image of each and every property.

Marriott 14
Competitive Position
Hilton is the leading hospitality company in the world, operating hotels, resorts, and
timeshare properties worldwide. According to Hoovers, Hilton has placed 289 in the
fortune 500 as of June 2014.

Hilton operates in the Luxury and Upscale markets, with its name associated with
excellence and quality. It holds a strong position in these segments, but ignores possible
earnings in the middle-class and economy segments.

Hilton works under a differentiation strategy, separating itself from other four and five-star
establishments by using its name as part of the brand. The Hilton name is recognized
worldwide, and in a service industry of this type, a company’s reputation is primarily
responsible for bringing in new customers. Hilton ensures it will continue to be profitable
so long as it keeps its brand name focused on excellence.

Marriott 15
Starwood

Market Performance
Starwood has a market share of 4.9%, which is currently the fourth largest market share in
the industry. This rate is expected to remain consistent, regardless of ups or downs in the
market. This is because its business model was designed to focus on catering to the very
slim market group of high-income consumers.

Starwood only develops upscale and luxury hotels, so every Starwood visit is a five-star
accommodation. It is able to operate under this business model because it is heavily
dependent on high-income guests, whose spending habits are relatively unaffected by
economic conditions. During the 2008-2009 recession, Starwood actually experienced an
increase in revenues, closing down thousands of hotels across the domestic market.
Starwood’s reputation has fashioned a loyal customer base that is more concerned with
distinguishability and social status than price or room rate.

Starwood manages its major industry factors, Reinvestment, Brand Portfolio/Reputation,

Investments in Human Capital, and Geographical distribution, by offering one of the
absolute best quality services in the hotel industry. It is in no hurry to invest in new
properties; instead, Starwood chooses to reinvest in slow, methodical developments and
improvements on existing properties. Its brand portfolio consists of just nine brands, but
each is world-class. Starwood invests extensively in each employee, hiring only the best
managers and workers that the industry produces. It is distributed sparsely across more
than 100 countries, but this distribution has yet to impact its profitability and is not
predicted to hinder profits over the next five years.

Marriott 16
Financial Performance

Starwood 2009 2010 2011 2012 2013

Current Ratio 0.74 1.07 1.27 0.95 1.04
Debt to Equity 1.62 1.36 0.92 0.58 0.48
Fixed Assets to Equity 3.99 3.02 2.38 2.21 2.01
EBITDA Margin 4.40% 16.00% 15.40% 15.70% 18.70%
Sales/Net Working Capital 4.32 4.31 4.55 7.65 8.10
While they only dominate 4% of the total market share, Starwood is an incredibly
profitable company, with more average profit per room (RevPAR) than any of its major
competitors. This profitability comes across in Starwood’s extremely strong financial
ratios. Starwood’s current ratio is healthily above 1.0. This number fluctuates in years of
high investment. The high standard for every hotel it manages results in increasing costs
for development and using short-term debt to fund expansions.

Strong equity numbers show Starwood’s dedication to a small, focused group of well-
managed properties. They carefully craft each brand and hotel, allowing for a minimum of
wasteful spending. This thriftiness allows them to fund their operations largely through
equity, rather than the less healthy high-liability models of some of their competitors. A
high Fixed Assets to Equity ratio is standard for the hotel industry, but even among their
peers Starwood ranks well, beating the average set by their largest 4 competitors handily.
These ratios will likely stay low, with the Debt to Equity seeing a slight increase preceding
years of investment, and the Fixed Assets to Equity continuing to fall towards the industry
average of 1.10

Starwood is a very profitable company, exhibiting extremely favorable EBITDA and

Sales/Net Working Capital ratios that have improved since the 2008-2009 recession.
Because Starwood’s has a high-end customer base, it isn’t impacted by recessions as much
as its competitors and can quickly recover from revenue losses. In 2010, following the
recession, its EBITDA ratio was one of the highest margins in recent years. Over the next
five years, stakeholders can be confident that Starwood’s financial ratios will not only be
stable, but profitable as well. They should expect the company to manage its finances
excellently and with the same degree of craftsmanship that it manages each and every
property in its portfolio.

Starwood has a volatile stock that has only just recovered from the 08-09 recession. Their
current market cap is 13.9B, with a price per share of 79 as of November 28th. The

Marriott 17
Starwood stock regularly deviates by as much as $2 within a single day, making it popular
for day trading but too volatile for long term investment.

Competitive Advantage
Starwood uses a focused differentiation strategy by only operating in the luxury and
upscale hotel segments in full-service lodging, vacation ownership, and residential markets.

Starwood excels amongst its competitors due to the highly quality and luxurious brand
reputation.

LUXURY UPSCALE

THE LUXURY COLLECTION HOTELS &

LE MERIDIEN ALOFT HOTELS
RESORTS

W HOTELS WORLDWIDE WESTIN HOTELS & RESORTS ELEMENT BY WESTIN

FOUR POINTS BY
ST REGIS SHERATON HOTELS & RESORTS
SHERATON

Their competitiveness is accounted for in the luxurious quality of their rooms. Despite
being only the seventh-ranked hotel chain in terms of number of rooms, Starwood brings in
more revenue per room than any competitor due to its focus on luxury accommodations.

Starwood only focuses on high-end hotels, with some of the highest publicly available room
rates in the industry. This allows them to focus on the upscale market and use all their
resources improving their upscale offerings. With focus comes efficiency, and Starwood
reaps the rewards in efficiency with their high profit margins.

Competitive Position
Starwood is the most global high-end company in the world with more than 1,200
properties among 100 countries. According to Hoovers, Starwood placed 424 in the fortune
500 as of June 2014.

Starwood’s strengths rest in the luxury lodging industry. Starwood operates in the luxury,
upper upscale, and select service segment of the full-service lodging sector. Its selective
offerings allow it to focus on providing a top-quality experience for its customers, even if it
comes at a higher price. Starwood has also underperformed in a few areas within the
company. One is dealing with high debt burden that has limited its financial flexibility. In

Marriott 18
2013 the statistics show they had a long-term debt of 1,265 million dollars. Its long-term
debt-equity ratio was around 37.6%. This amount of debt can lead to limitations on future
working capital, capital expenditures and other general requirements that may need to be
filled. It also can improve on its dependency on third party internet reservations.
Starwood’s hotel rooms are booked through third-party travel sites such as booking.com
and Ctrip.com. The problem with depending on a third party is that it could have a negative
impact on the company’s hotel room booking. Starwood has the core strategy of focus. It
offers one type of experience, and expects its customers to pay an appropriate price for the
services that are provided.

Marriott 19
Wyndham

Market Performance
At 4.1%, Wyndham holds the fifth largest market share in the hotel industry. This is a
position likely to remain fairly stable, since Wyndham is expanding across the domestic
market.

Wyndham competes by attempting to be the price leader for hotels of its quality,
dominating the middle-class and lower-class hotel and motel segments. Its hotels often
include a number of free amenities and services on top of its incredibly low rates, making
Wyndham hotels very appealing to travelers and short-term guests.

Wyndham manages its major industry factors, Reinvestment, Brand Portfolio/Reputation,

Investments in Human Capital, and Geographical distribution, by continually focusing on a
low-cost model, sometimes to its detriment. Wyndham is running out of domestic areas to
expand, with hotels from the East to West coast. Wyndham manages 17 brands, which
dominate economy and midscale segments of the market. It can afford to invest less in
human capital than its major competitors since guests do not expect the same service at a
Wyndham hotel as a four or five-star location. Its U.S. concentration is extremely high,
leaving it vulnerable to U.S. economic downturns. Wyndham should consider expanding
into foreign markets in order to build a more stable profit base.

Financial Performance
Wyndham eschews the high-end business model of its major competitors in order to focus
on the middle-class lodging market, a segment that it dominates. Its cheaper business
model and aggressive price controls lead to a stable current ratio, even during periods of
high investment, since its investments into a property are generally much cheaper than its
competitors. With no major plans to adjust the business model looming, Wyndham’s
current ratio is expected to remain stable over the next five years.

Marriott 20
Wyndham’s equity is used to support its generally high amount of short-term liabilities,
causing its Debt to Equity and Fixed Assets to Equity ratios to climb higher than most other
hotels that operate in the segment, even during periods of relatively little growth.

Wyndham’s EBITDA Margin and Sales/Net Working Capital are indicative of a company
that is focused on profitability. Constantly high revenue and costs maintained with a focus
on savings makes the popular Wyndham model of value an extremely lucrative one. Even
when the industry takes a hit, Wyndham remains stable, choosing to conserve investments
in order to keep profits high. Due to normalization of the domestic hotel market in the next
five years, Wyndham can expect to see a slight resurgence of EBITDA and a lowering of its
Sales/Net Working Capital.

Wyndham 2009 2010 2011 2012 2013

Current Ratio 0.92 1.11 1.11 0.097 1.08

Debt to Equity 1.31 1.28 1.80 2.36 2.98
Fixed Assets to Equity 2.83 2.63 3.26 3.94 4.81
EBITDA Margin 20.00% 22.60% 21.70% 17.30% 19.70%
Sales/Net Working Capital 7.53 7.67 8.88 8.82 10.20
Because Wyndham places a heavy emphasis on American markets, it relies on the
American economy for its wellbeing. Barring another economic downturn, Wyndham is
expected to remain stable over the next five years.

Wyndham has a market cap of 10.17B with a stock price of $83.36 per share as of
November 18, 2014. Their stock price has risen steadily as they continue to develop and
expand over the last 5 years. The recession caused their price to stall, but not fall
significantly in value. Wyndham has the highest dividend yield out of the 4 companies
addressed in this report, actively looking for investors to drive up prices for future
fundraising efforts.

Competitive Advantage
Wyndham competes by using a low cost strategy. Although they operate in upscale hotels
and resorts, amongst their competitors (Marriott, Starwood, and Hilton), they earn the
least revenue per room due to the budget-focused nature of their lodgings.

Marriott 21
Wyndham excels in the midscale markets by offering a variety of budget-focused hotels.

LUXURY UPSCALE MIDSCALE

WYNDHAM GRAND
WYNDHAM HOTELS AND HAWTHORN SUITES BY
HOTELS AND SUPER 8
RESORTS WYNDHAM
RESORTS

TRYP BY WYNDHAM WYNDHAM GARDEN HOTELS MICROTEL BY WYNDHAM RAMADA WORLDWIDE

BAYMONT INN &

PLANET HOLLYWOOD WINGATE BY WYNDHAM
SUITES

NIGHT DAYS INN TRAVELODGE

DREAM HOTELS KNIGHTS INN HOWARD JOHNSON

Currently, Wyndham is the world’s largest hotel company. Operating on a global scale, they
have approximately 7,340 hotels, representing over 627,000 rooms in over six continents.
Their competitiveness is accounted for by deriving economies of scale in operation and is
improving its operating efficiency and margins.

Competitive Position
Measured by number of rooms, Wyndham is the largest hotel company in the world. While
they may not be the most profitable, they are absolutely a known and respected force in the
hotel and lodging industry.

Wyndham operates in the middle-class and economy segments, performing well in both of
them. Each of its larger competitors focuses on the upper-class markets, leaving a large
portion of the market to be infiltrated by Wyndham. Wyndham excels in these markets by
offering a number of brands distributed throughout the North American markets. A
comprehensive focus on the middle-class and economy segments hinders Wyndham from
fully competing in upper-class segments; the few upscale and luxury brands that Wyndham
owns- Night, Dream Hotels, Planet Hollywood, and TRYP- are very carefully maintained and
individualized that it has yet to open many locations for each of these brands.

Wyndham operates by being the cost leader in the industry, allowing it to cater to a large
customer base that is seeking a budget-friendly hotel.

Marriott 22

Porter’s Five Forces Analysis
Bargaining Power of Suppliers
 Interior design and
furnishing
 Property owners
 Management and training
service
 Information and computer
technology
Strength: Moderate
23
Potential Development of
Substitute Products
 Low cost of switching
 Similar price points
 Casinos
 Economically driven
Strength: High
Rivalry Among Bargaining Power of Consumers
Competing Firms  Leisure customers
 Portfolio of brand names  Spas and gyms
 Number and size of  Corporate buyers
companies Strength: High
 Geography and
globalization
 Differentiation of products
Strength: High
Potential Entry of
New Competitors
 High start-up price
 Suppliers difficult to attain
 Brand recognition is key
Strength: Low
Marriott
Porter’s Five Forces Analysis: Detailed

Substitute Products
Low Cost of Switching: Outside of revenue loss, there are currently no tangible switching
costs for choosing substitute products.

Similar Price Points: Cruise and timeshare pricing is similar to that of luxury hotels.

Casinos: Hotels that include casinos generate most of their revenue from casino-related
activities and therefore compete primarily in the gaming industry.

Economically Driven: While the hotel market dominates the lodging industry, consumers
are economically sensitive and will choose to travel less or camp in their cars during tough
economic times.

Supplier Power
Interior Design and Furnishing: Hotels are pressured by consumers to choose
environmentally responsible firms and suppliers.

Property Owners: Global locations allow for high differentiation amongst diverse markets.

Developers and Real Estate: High differentiation between firms regarding quality of location
and architecture.

Management and Training Service: Management, training, and reasonable wages heavily
influence quality of service provided by staff.

Information and Computer Technology: Relevant and innovative technology is key for
property management and collaboration with partnering firms.

Buying Power
Leisure Customers: Since consumers are economically sensitive, hotel visits are viewed as a
disposable luxury. During tough economic times, consumers will opt to travel less
frequently.

Spas and Gyms: Consumers are more likely to frequent hotels that offer spa services and
gym facilities.

Marriott 24
Corporate Buyers: Do to the large size and considerable financial impact of corporate
buyers, hotels must be sensitive to offer services that cater to the business-related
travelers such as free Wi-Fi or laundering services.

New Entrants
High Start-Up Price: Incredible amounts of capital needed for building and property
acquisition. The average start-up price begins at approximately $22 million.

Suppliers: Supply contracts needed for furniture, electronics, key cards, software, locks, etc.

Brand Recognition: Customers more comfortable with known brands that are well rated
and highly reviewed.

Rivalry
Portfolio of Brand Names: Having different brand names allow each company to cater to a
wider variety of buyers.

Number and Size of Companies: Although there are only three major competitors, the top
five hotel and lodging companies dominate 45% of the total market share.

Geography and Globalization: Because the industry is divided into business and leisure
segments, hotel location is critical. Business hotels should be located near other large
companies (e.g. Houston, TX); Leisurely hotels should be located near destination spots
(e.g. Orlando, FL.). Proper placement of hotels can greatly contribute to maximizing profits.

Low-Cost Switching: Having multiple brands allows the company to cater to more people by
offering a variety of hotel brands at varying price points. This is necessary so that the
company can cater to a wide range of consumers rather than lose them to competitors.

Differentiation of Products: Companies can differentiate themselves from their competitors

by offering services such as free Wi-Fi, indoor and outdoor pools, fitness centers,
continental breakfast, and room service to its guests.

Marriott 25
 Industry Analysis
NAICS: 72111

Overview

Analysts Observations
The hotel industry is fueled by the spending power of the American public, both
domestically and globally. When the U.S. economy is strong, people are more likely to
spend money on travel, including lodging in hotels and motels. This ties the health of the
hotel industry to American economic well-being incredibly directly, with the only major
dips in the industry being recessions. When the economy grows, the hotel industry grows
as well.

The hotel industry is defined as all hotels, resorts, and motels that do not house casinos.
Revenue is generated via room and conference center rentals, in addition to food, gift shop,
and drink services offered by those hotels. Most of the industry revenue, 73.1%, comes
from leisure travel, with the remaining 26.9% attributable to business travel.

Hotels represent a significant employer in the U.S. job market, with more than 1.5 million
domestic employees and an employment growth rate of 1.4% per year. Both full and part
time workers participate in hotels, with more casual workers and part time workers
favoring split shifts. Flexible work hours are available in the form of on-call workers for
maintenance and housekeeping, night audit positions, and early cafe shifts.

The hotel industry is fairly profitable, with a profit margin of nearly 17%. The industry
produces a profit of 24.6 billion 2014 USD each year, the 61st best in an economy teeming
with over 1285 industries. A majority (64%) of the industry revenue comes from room
rentals at locations with 25 or more rooms, with other notable revenue streams being
motels (12%) and food and alcohol sales (12%).

The industry is fairly concentrated, with 41% of the market controlled by the top 4 players,
Hilton Worldwide, Marriott International, InterContinental Hotels, and Starwood Hotels
and Resorts.

Marriott 26
Trends
Analysts predict strong growth in the hotel industry, as much as 2.5% annually for the next
5 years (IBIS). The most rapidly growing segments of the industry are foreign hotels,
boutique hotels, and resorts (also known as extended stay hotels). These chains,
strengthened by investment during the 2008-2009 recession, show strong potential for
revenue gain, and will offer some protection against hiccups in the American economy.

Following the recovery period since the 2008-2009 recession, domestic trips (trips taken
within the United States) have been steadily increasing and are expected to reach a new
average of 780 million trips per year by 2016, as opposed to the current average of 666.8
million per year. This trend correlates directly with the predicted revenue gain across the
industry.

New entrants to the market have remained sparse, and show no signs of improving. Less
than 1% of enterprises each year are new since 2007, and the barriers to entry only grow
steeper as brands capture more customers through rewards programs. Another strong
barrier to entry is the cost of capital to start a new hotel brand, with an average start-up
cost for an 80-room hotel resting at an average of $22.2 million.

The growth of technology has also contributed to the trend for market growth. With
consumers able to leave reviews, share poor conditions, and warn other away from hotels
on the fly it has become imperative for hotels to provide top-notch service from check in to
check out.

Industry Forces
In any industry where switching costs are low to negligible, firms need to find ways of
differentiating themselves from their competitors. In the hotel industry these strategies for
differentiation include offering rewards programs, exclusive amenities, and strong brand
reputations for service, price, and cleanliness. Innovation and modern social areas, such as
the kind offered by boutique hotels and resorts, attracts new consumers to the industry, as
well as ensuring repeat sales from existing consumers.

Some suppliers have disproportionate power due to high technology costs for industry
essentials, such as radio frequency identification (RFID) scanners and blue tooth enabled
room controls. Additionally, hotels rely on sophisticated property management system
(PMS) software, only created by a handful of firms. Conversely, many goods that hotels

Marriott 27
require to operate, such as office goods, and bulk electronics, can be obtained cheaply and
from a number of firms, causing supplier power over the industry to remain weak, with a
few exceptions.

A number of substitute industries exist, such as casinos, cruises, timeshares, and short-
term rentals. For leisurely consumers who are sensitive to price, they may easily jump
between the hotel market and these substitute industries. This makes the threat of
substitution competitively high within the industry.

Buyer power remains middling within the hotel industry. Despite the existence of
substitutes, many services can only be provided by hotels. Hotel stays are flexible, which is
ideal for catering to a wide variety of buyers. Significant buyer groups include travelers on
vacation, travelers visiting relatives, travelers away on business-related purposes, and
travelers in town for local conventions. Because traveling is an important function in most
business sectors regardless of economic recessions, buying power was able to maintain its
middling position despite the industry’s low revenues following the recession of 2008-
2009.

Marriott 28
Economic Forecast

Growth
Currently, the leisure and hospitality
sector is among the top six priority
sectors likely to drive domestic
employment growth over the next 10
years (Mourshed, 2014). This sector
is largely impacted by travel and
tourism.

In 2012, the US government launched

a National Travel & Tourism Strategy.
This strategy was designed to inspire
international travelers and domestic
citizens to visit some of America’s
most beautiful cities and iconic
landmarks. This initiative is estimated
to increase international travel to America by 50% by 2021 (OTTI, 2012). This expected
rise in tourism paints a promising picture for the expansion and growth of the industry.

Internationally, growth continues to rebound from the 2008-2009 recession. IBISworld

estimates international travel to grow 4.2% annually for the next 5 years. These new
markets will make up a substantial part of the .4% growth rate of institutions predicted by
IBIS world. Competition between domestic and international growth is expected to push
industry growth beyond pre-recessionary highs within 5 years.

Existing Markets
Existing markets continue to recover from the recession with a healthy speed. Travel drives
the hotel industry, and during economic downturns consumers actively seek alternatives
such as rooming with friends, sleeping in vehicles, and staying at timeshares. The global
economic rebound has put more disposable income in the pockets of travelers, and they
have returned to the hotel industry both for business and vacation related travel.

Marriott 29
Emerging Markets
In order to maintain a cutting edge in the highly competitive hospitality and lodging sector,
many hotels are opening new contemporary chains and resorts both domestically and
internationally. European fashion houses inspire these modern, design-focused hotels
brands (Moxy and AC Hotels), which are internationally recognized as “boutique hotels.”
Marriott is one of many companies to target younger generations of international travelers
who seek, in the words of Marriott International's CEO Arne Sorenson “a younger
sensibility, [and] for whom contemporary style is paramount”.

Changes in Consumer Demand

Like most service-oriented industries, the hotel and lodging sector experienced a dramatic
hit to sales during the 2008-2009 recession. Sales dropped nearly 14% (Marriott’s 2013
Annual Report). Despite less consumer spending domestically during this time, many
hotels expanded further into global territory by opening hotels in Asia, the Middle East, and
Africa. US sales quickly picked up again in 2010 and have continued to fluctuate in an
upward trend of ~6.6% each year (Marriott’s 2013 Annual Report).

Global Competition
Competition globally is still U.S. centric, with many of the largest firms in the industry being
based domestically. Foreign competition has been growing steadily, but with brand
recognition being a key factor in the industry and many travelers flying from the U.S.,
foreign brands such as Legacy Hotels or Rex Hotels, have difficulty competing with
American hotel chains and resorts.

Marriott 30
Finances

Financial Standing

The financial standing of the hotel and motel industry have been dampened due to the
recovery efforts after the recession of 2008-2009, but still shows steady growth. The
recovery is expected to be complete by 2018, with many significant stats and ratios already
fully recovered or higher than prerecession levels.

One major impact of the recession was a change in the purpose for travel. During a
recession the leisure travel segment of the industry suffers, but since the recession has
returned to a healthy 73.1%, with 26.9% of travelers using a hotel for business related
reasons. Even though businesses were affected by the recession, the leisure travelers were
affected at a higher rate. When businesses have to cut back they either lay people off or
send less people on business trips. When individuals and families have to cut back,
vacations and leisure travel are often the first to go.

Marriott 31
Major Financial Ratios- Solubility Measurements
It is important for any industry to maintain liquidity, or solubility. This allows for the rapid
sale of assets in order to ride out economic hardship or make immediate purchases when
opportunity presents itself. Industries that are more soluble can adapt to changing market
conditions more quickly, and quickly put an end to unprofitable activities. The industry’s
solubility is heavily dp on the following ratios: Current Ratio, Debt to Equity Ratio, and
Fixed Assets to Equity Ratio.

Current ratios compare the company’s current assets to their current liabilities. When
measuring the current ratio it is better for a company to have a higher number, anything
below a 1 indicates that a company will not be able to pay off its short-term liabilities. In
2009, the hotel industry had a median current ratio of 1.20, which is good but not ideal.
From 2010-2012 the current ratio was maintained at a 1.10 and decreased to 1.00 in 2013.
The total CAGR for this period was -.03581. Even though the industry median drops over
the years the lower end of the ratios shows steady progress topping off at 0.70 in 2013.

The debt to equity ratio compares how much of the growth of a company is funded by debt
versus raising funds through selling stock (equity). The lower the ratio the better. Ratios
over 1.00 mean that a company is either funding its expansion or staying afloat by
incurring debt. Ideally a company would have most of the funding coming from the owners
(shareholders). In the hotel industry the ratios have been unfavorable between 2009 and
2013. In 2009 the ratio was 1.455 and from 2010-2013 it dropped from 1.4900 to 1.3590,
1.3500, and .9010, respectively. The total CAGR for this period was -.0914. The significant
drops in the debt to equity ratio between 2010-2011 and 2012-2013 show that the
industry is starting to have the capability of funding itself rather than being funded by
creditors.

Comparable to the debt to equity ratio, the fixed asset to equity ratio shows how much of a
company’s investments is funded by debt or shareholders. Instead of a 1.00 being the cut
off for a desirable ratio, for the fixed asset to equity ratio .75 is more appealing. The hotel
industry took a major hit to this ratio in order to fund international projects during the
recession, allowing their 2010 ratio to get as high as 1.791. In the following years, their
ratio improved, but still has not entirely dropped to a healthy amount from it's elevated
perch of .978 in 2013. The total CAGR for this period was -.088

Marriott 32
Major Financial Ratios- Efficiency & Recovery
Sales to Net Working Capital compares an industry's average revenue to its average net
working capital. Net working capital can be thought of as currently held inventory or, in the
case of hotels, rooms + room furnishings. The average for a hotel's net working capital is
$2,500 per room, with strong variance from hotel to hotel. A high ratio indicates either
high sales, or low inventory. The hotel industry's Sales/Net Working Capital was 7.5 in
2009 following the recession, and has fluctuated greatly, in part due to increased domestic
and international tourism. The total CAGR for this 5 year period was .15774, positive, but
only just.

Another important ratio is the share of the economy. This ratio compares an industry's net
revenue to that of the entire U.S. economy to determine how much of a contributor that
industry is to the economic welfare of the U.S. Due to the recent recession the share of the
economy of hotel and motel industry fell in 2008 from 0.47% to 0.40% in 2009. The hotel
and motel industry held a 0.40% share in 2009 and has grown to a 0.45% share in 2013.
This puts the CGR at .0238. The share is expected to grow to 0.47% by 2018. This behavior
reveals two things about the industry. First, the industry was hit disproportionately hard
by the recession, since if all industries were affected equally the ratio would not fall.
Second, the industry is growing at a fast rate, again using the comparative nature of the
ratio to see that it is increasing due to its relative success compared with other companies.

Marriott 33
Marriott 34
Technology

Dominant Technologies
Online booking is growing increasingly popular in the industry with the largest site,
Marriott.com, pulling in ~44 million site visitors every month (with approximately 27% of
visitors booking directly through the web). These web guests are prompted to create an
account and sign up for rewards programs for virtually all of the major companies. Loyal
guests, or returning guests, are then rewarded with incentives such as airline miles, free
hotel nights, and mini vacations based on their reservation history. In 2013, loyal, rewards
program members filled more than 50% of hotel rooms. Rewards programs also
incentivize return business to hotels, stimulating an industry-wide factor of low cost
switching for customers.

A guest at virtually any modern hotel can expect several standardized technology options
available to them, such as in-room Wi-Fi, high-def. satellite TV, mp3 docking stations, and
RFID based key technology. This technology, while occasionally expensive to implement for
the hotels, shows their dedication to staying at the forefront of technological features.

Effect of Future Technologies

In 2013, mobile check-in and reservation services were launched, allowing guests
increased flexibility and ease-of-access without compromising the security of personal
information and privacy. Standard industry safeguards require that guest information be
transferred over a Secured Sockets Layer (SSL) connection. This push towards a more
technology-driven industry puts more power in the consumers’ hands and appeals to a
younger target audience. As more hotels adopt app-based business and switch traditional
locks to RFID enabled scanners, cutting-edge technology will continue to be a necessity at
any competitive hotel.

Marriott 35
Driving Forces

Some major driving forces that affect the hotel and lodging industry are domestic trips
taken by US residents, consumer spending, inbound trips by non-US residents, and
consumer confidence index.

Domestic Travel by US Residents

The rate at which consumers travel is directly related to the consumers’ need for
accommodation. Since the recession (and rapid decline of domestic traveling) in 2009,
travelers have slowly started to regain confidence in the market and are now traveling
more frequently. Domestic traveling is expected to continue to increase over the next five
years.

Consumer Spending
Consumer spending levels also significantly impact the hotel industry. When consumer
spending is high, consumers are more likely to spend money on travel and
accommodations (Market Line).

Inbound Trips by Non-US Residents

Trends in international visitors also help drive the hotel and lodging industry. IBISWorld
predicts that international traveling will increase by approximately 4.2% over the next five
years.

Consumer Confidence Index

The consumer confidence index refers to how consumers choose to spend their money at
any given time, but is particularly watched during recessions. When consumers’ are
confident in the market, they are more inclined to spend on entertainment or traveling.
When consumers lack confidence in the market, they are more inclined to spend their
money on necessities.

Going Forward

Best Case Scenario

Because the hotel and lodging industry is still in the process of recovering from the massive
fiscal crisis of 2009, the best course of action would be to continue strengthening brand
recognition and expanding globally. With expected international travelers increasing

Marriott 36
nearly 62% over the next 7 years, hotels can be hopeful for an average annual revenue
increase rate of 3.0% to about $167.0 billion (OTTI, 2012).

Worst Case Scenario

The worst thing that could happen to the hotel and lodging industry would be another
major economic recession. Consumers are economically sensitive, so when the economy is
bad, people tend to be more conservative with their money and are less likely to spend on
vacations and other leisurely activities. During the 2009 recession, the hotel and lodging
industry experienced a 14% decrease in revenues. In the wake of another recession, hotels
are likely to experience a similar loss revenues and profitability.

Another crippling blow to the hotel and lodging industry could come in the form of new
legislation that limits trade with major partners. With international business and leisure
travel being a major source of revenue worldwide for the industry, any legislation or
political situation that limits travel or trade with major regions of the world (China, the EU,
the US, the Arab League).

Finally, any major spike in the cost of travel will directly injure the hospitality industry in
that country. Fuel embargos, airline industry hikes, and fuel shortages are all events which
can drastically reduce leisure travel within a country, and fewer travelers means less revue
for the lodging industry.

Marriott 37
 38
Primary Levels
Sales Quality Property Additional
Profit Margin
Marketing Control Management Services
Value Chain Analysis

Human Resources (HR)

Technical Support

Cost Evaluation

Marriott
Secondary Levels
 Value Chain Analysis: Detailed

The primary activities of Marriott are 1) Sales/Marketing 2) Quality Control 3) Property

Management 4) Additional Stay Services. The secondary, or supporting, activities are 1)
Technical Support 2) Cost Evaluation and 3) Human Resource Management.

Sales/Marketing
Sales and marketing focuses on bringing in new customers, retaining current customers,
reaching out to business clients, and forming new corporate partnerships. Marriott focuses
on this with an aggressive rewards program, a strong central social media marketing team,
and a travel agent partnership that is still available. The rewards program was recently
ranked the best hotel rewards program by the U.S. News & World Report for 2014-2015. It
brings more than 250 benefits to members at 14 different Marriott brands. This incentives
customers to return to Marriott properties in the future to earn more rewards. The social
marketing team is present on most current social media sites, and is charged with keeping
the company’s marketing current and appealing to leisure travelers. The travel agency
partnership is a continuation of a program many companies used to offer, in which travel
agents receive a commission on sales, turning 3rd party assets into incentivized Marriott
sellers.

Quality Control
Quality control is a number of actions taken to ensure that customers have an excellent
time once on site. This is achieved by setting and ensuring room standards, soliciting guest
feedback, and developing employee standards. Room standards ensure that room quality is
consistent at all properties for a brand. Guests will have a stay comparable at all locations
that will leave them satisfied and give them an experience they are familiar with. Feedback
is solicited either through check-out questionnaires, follow-up emails, and surveys of the
rewards community. This allows the properties to quickly address any issues with staff or
room preparation. Employee standards allow for employees to be trained quickly and
efficiently, reducing hire time and allowing for confidence in the employees who are
trained at each property.

Property Management
Property management involves the daily going on of a property, from maintenance and
housekeeping oversight to buying new furniture and electronics. It focuses on the activities
of managers at all levels, rather than the front desk, maintenance, or house keeping

Marriott 39
employees. With a subsidiary management strategy, Marriott is able to focus on managing
properties and can address struggling brands immediately by addressing their
management directly. Brand specific companies and CEO’s allow for an individual focus on
each brand, making each offering under the Marriott name a unique experience that can
capture a different segment of the market. This managerial focus across the spectrum
allows for high quality managerial training and internship programs, and the consistently
high level of skill that comes from those programs can be transferred to any other property
or brand with little re-training.

Additional Stay Services

Some properties, specifically in the upscale, luxury, and resort segments, offer services
outside of standard lodging facilities. These services usually come at an additional cost to
the basic room rate, and can be highly profitable. Many hotels offer in-house restaurants or
cafes which can be both an attractive feature that guests look for and an amenity that
guests expect at certain kinds of hotels. Guest credit or financing is offered at the corporate
level for Marriott, allowing for business or individual guests to bank through the company
on a company card, ensuring timely repayment of debt and making a small profit off the
partnership with the banking company who manages the credit cards. Spas and salons are
usually only found in luxury hotels, but are extremely profitable if targeted towards the
proper kinds of customers.

Marriott 40
 41
Marriott 2009 2010 2011 2012 2013 Industry
Current Ratio 1.25 1.35 0.52 0.53 0.71 1.00
Statement of Financial Condition

Quick Ratio 0.41 0.57 0.38 0.40 0.45 0.70

Profit Margin (3.17%) 3.92% 1.61% 4.83% 4.90% 4.92%
EBITDA Margin 1.00% 7.40% 5.20% 9.10% 8.70% 15.20%
Sales/Net Working 6.34 6.76 30.72 25.19 Negative 15.60
Capital NWC
Book Value per $3.19 $4.32 ($2.35) ($4.13) ($4.75) $1.64
Share
Revenue per $79,839 $90,877 $102,924 $93,279 $103,088 $96,940
Employee
Δ RevPAR (19.30%) 9.70% 6.90% 6.40% 5.40% 5.20%
ROA (4.12) 5.43 2.67 9.35 9.45 3.00

Marriott
Growth Rate 6.70% 5.1% 4.3% 7.6% 9.64% 4.60%
 Statement of Financial Condition: Detailed

The two largest events that have effected Marriott’s finances in the last 5 years were the
end of the 08-09 recession and the division of their time share company into a subsidiary
company in 2011. The recession was difficult for the industry, and the largest companies,
Marriott included, just managed to operate at a thin enough margin to remain profitable.
During this time Marriott began expanding overseas, beginning construction on their
projects in France, India, and Germany. The 2011 split caused a massive loss of assets with
little effect on profitability, since Marriott still received income via management fees
leveraged against the timeshare company.

Current Ratio
A company’s Current Ratio measures its current assets over current liabilities in order to
judge its ability to pay off its short term obligations. This ratio is calculated by dividing
current assets by current liabilities. The industry’s average current ratio is 1.00. In 2009
and 2010, Marriott performed well above the average of 1, but upon dividing their
timeshare assets in 2011 Marriott lost a great deal of inventory. This caused their current
ratio to drop to 0.52 and 0.53 in 2012. In 2013, Marriott redoubled global expansion
efforts, and began to increase their ratio as new properties began opening. Marriott can
expect its current ratio to approach and exceed the industry standard ratio of 1.00 over the
next five years due to continued property openings worldwide.

Quick Ratio
The Quick Ratio uses a similar formula to the Current ratio, but with current inventory
subtracted from current assets. This show a company’s ability to pay off short term debt
using only its most liquid assets. In the hotel industry, a low quick ratio is not unusual, with
the average resting at just .7. Rooms are listed as current inventory and subtracting them
from current assets disproportionally effects this industry’s quick ratio. Marriott, which
normally operates asset-light (.41 in 2009 and .57 in 2010) by managing subsidiaries
instead of owning properties in house, has a very low quick ratio currently, but should
expect to reach the industry average, or a comfortable point slightly below it, within the
next 5 years.

Profit Margin
A profit margin is defined as net income divided by revenues, or net profits divided by
sales. This shows if a company is profitable, and how much revenue they actually receive as

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profit after expenses and taxation. The hotel and lodging industry currently has an average
profit margin of 4.92%. During the 08-09 recession this number was significantly lower
across the industry, and Marriot’s 2009 profit margin of -3.17% reflects this. They quickly
recovered from the economic strife of the recession, bouncing back with a profit margin of
3.9% in 2010. Their merger brought about a massive amount of administrative, licensing,
and restructuring fees, and their margin dropped to 1.61% in 2011. Since then they have
been quickly recovering, with a current profit margin of 4.9% and a predicted growth that
will put them above the industry average within 2 years.

EBITDA Margin
The EBITDA margin (Earnings Before Interest taxation Depreciation Amortization over
Revenue) is a measure of operating profitability. It is equal to EBITDA divided by revenue.
Marriott’s low 1% margin in 2009 shows that even during the recession they were slightly
profitable. They quickly recovered to 7.4% the following year, only to drop to 5.2% in 2011.
Since then it has increased steadily and is expected to continue to grow over the next 5
years. The high industry average (15.2%) is due to a large number of independent
reporting small hotels which oversee only one or two properties.

Sales/Net Working Capital

Sales/net working capital is a measurement of working capital efficiency. This
measurement is derived by dividing net sales by net working capital. The ratio was low in
2009 and 2010, 6.34 and 6.76 respectively, due to the recession. The ratio inflates in 2011
due to a loss of inventory when the timeshare assets were divided from the main company.
This ratio has fallen since and is expected to continue to fall as more properties are opened
in new, expanding lines across the globe. The Industry average of 15.6 is reflective of many
small operations with low inventory like resorts and small motel chains.

Book Value per Share

The book value per share ratio reflects what each share of stock is literally “worth”, should
the company divide its equity to shareholders. Book value per share is calculated by
subtracting preferred equity from total shareholder equity and dividing the difference by
the total outstanding shares. High equity and stock ownership between 2009 and 2010
gave Marriott an industry competitive book value per share ratio in comparison with the
industry standard of 1.64. The loss of assets from the 2011 timeshare split resulted in
temporarily low ratios, but Marriott expects to regain equity strength over the next few
years as it continues to increase its assets.

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Revenue per Employee
Revenue per employee is a productivity measure that weighs sales in relation to the
number of employees. It is calculated by dividing revenue by the number of employees.
Marriott’s low revenue in 2009 hurt their ratio, causing it to be much lower than following
years. A recovering economy caused increased revenues, and an increased ratio. The 2011
spike is caused by a decreased number of employees, and the decrease as new managers
were hired for developing properties is natural. Even so, in 2013 Marriott’s ratio of
$103,088 is much higher than the industry average of $96,940.

Δ RevPAR
This ratio measures the change in RevPAR, Revenue per Available Room, averaged across
all properties managed by a company. This measure, unique to the hotel industry, is found
by comparing the current period’s revenue over available rooms (in this case, the period is
years) to the previous periods. 2009’s low ratio is due to a suffering year, showing that
revenues dropped significantly. 2010’s jump is natural after such a low revenue year.
Marriott has consistently posted high Δ RevPAR since the recession, always meeting or
beating the industry ratio (currently 5.2%).

ROA
A fourth profitability measurement, ROA shows how profitable a company compared to its
assets. This is calculated by dividing net income by total assets. Marriott ‘s low asset totals
and high profitability give them a high ratio compared to the industry average of 3%, with
most of its profit coming from flat management fees for hotels they do not directly own.
This excellently shows how different its business model of subsidiaries and management is
from a majority of the hotel industry.

Growth Rate
The growth rate ratio is the amount that a certain metric has increased, in this case net
income. The industry average for annual income growth is 4.6%. Marriott’s consistently
aggressive business growth and excellent operations has led to consistently high income
growth. Marriott is expected to continue growing over the next 5 years as more and more
property investments come to fruition.

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 SWOT/TOWS Matrix

STRENGTHS WEAKNESSES
 Brand Recognition  Negative Equity
 Technology  Bad Press
 Geographical  Operational
Distribution Inconsistency
 Customer Service
 Managerial Expertise

 Partner with foreign  Create university

OPPORTUNITIES firms to expand into partnership to ensure
 Growing Foreign China well-trained new
Markets  Implement new managers
 Managerial Training service systems  Reinvest in company
 Eco-tourism (PMS) finances to improve
 Cheap Fundraising  Create new resort debt/equity ratio
 Emerging Boutique leveraging natural  Standardize service
Market resources in Brazil training with brand-
wide programs

 Expand under-  Improve rewards

THREATS
developed markets program to prevent
 Threats from to reduce reliance on switching
substitutes domestic markets  Generate good PR by
 Third party websites  Develop user implementing
 Low cost switching friendly apps to attractive programs
 Economic downturn reduce third party  Invest in Canadian
usage Market to support
 Launch new guest weak segments in key
service program areas

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 SWOT/TOWS Matrix: Detailed

Strengths
Marriott has a wide portfolio of strengths, built up over the history of the company by a
focus on operational and internal growth. The Marriott name is one of the most widely
recognized hotel brands in the world with properties in over 70 countries. They leverage a
strong technological development team that consistently develops new hardware and
software which is quickly adapted into the industry as an industry standard. Marriott’s
wide global distribution provides access to wide global markets. Finally, their focus on
managerial training and customer service gives them expert levels of both.

Weaknesses
Marriott’s primary weaknesses are due to its’ unusual corporate structure, with a large
web of 57 subsidiaries supporting the main company. Presently, Marriott has a negative
equity and several other unappealing financial statistics caused by the division of their
timeshares in 2011. Marriott has picked up some bad press recently, and like any company
supported by a strong reputation they are particularly susceptible to negative publicity.
Marriott can also be said to suffer from some operational inconsistency, since each brand’s
existence as an independent private business can lead to different practices between hotels
that can be a headache for customers.

Opportunities
The market is strong for hotels currently. Strong demand for global expansion and cheap
costs for developing overseas leaves open an easy avenue for profitable growth. Managerial
training programs improve each year, with telepresence and the initiation of several new
college level hospitality degree plans. New waves of tourism, such as eco-tourism, create
more and more opportunities to seize the lucrative resort market with the next big thing.
Excitement over industry growth makes fundraising for hotels easy. Finally, Marriott is
creating a new market segment of boutique hotels, an opportunity for untold levels of
growth with the first Moxy hotel opening in November, 2014 with plans for 6 more Moxy
hotels across Europe.

Threats
Marriott is threatened primarily by substitutes to the hotel market. An untold amount of
possible customers choose to stay with friends, at campsites, or just avoid traveling
whenever the economy suffers even the slightest hiccup. Third party websites, while often

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useful for advertising purposes, leech customers away from rewards programs and full-
fare rates. The industry wide low cost of switching means that any misstep or mistake can
cost you customers immediately. An economic downturn can strike at any time for a
number of reasons and, despite their global coverage, an American centric business
structure makes Marriott highly susceptible to domestic economic hiccups.

SO Strategies
The first strategy capitalizes on the cheap cost of gathering funds, growing foreign markets,
and Marriott’s excellent managerial expertise and brand recognition; expanding operation
in China. A joint venture with a Chinese firm could put Marriott in a key position to control
the revenue from the quickly growing Chinese market. Implementing a new PMS would
mean deploying Marriott’s technological resources to create software which manages
hotels, and improve on the currently most widespread PMS’ flaws, namely weak event
hosting support and rigidity of rates and reservation types. This new system would be
easily marketable to other hotels, most of whom are still using systems 6 years old or older.
The final SO strategy employs Marriott’s resort experience to create a new resort attraction
in the Amazon. This capitalizes on the eco-tourism movement to create a resort cheaply by
using the attractions native to the Amazon.

WO Strategies
Creating a university partnership will allow for a minimizing of operational inconsistency
and possible bad press by leveraging managerial training demands and creating or own
university program. By training possible managers for 4 years Marriott will get to recruit
with full knowledge of their future employee’s qualifications. A reinvestment internally
could adjust some of Marriott’s less appealing ratios and equity by doing a bit of managerial
“housekeeping”. Service training could be improved to minimize inconsistency and
potential PR missteps. This strategy would create and implement brand-wide programs
which could be modular in nature ot fit the needs of each brand.

ST Strategies
Addressing the threat of a domestic economic downturn means expanding existing
operations by building new hotels across the world with no specific focus. This will create
more steady and reliable revenue in case of domestic issues. Another possible strategy
addresses third party websites by using Marriott’s technology divisions to create apps
which will supplant the third party websites. By bringing the user experience in house, so
to speak, we can control their purchasing decisions more directly. Finally, a new guest
service program like standardized hotel shuttles will make strategic hotels more appealing.

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WT Strategies
Launching new rewards options has been shown to reduce the attractiveness of substitutes
and other hotel chains by building more value into the Marriott stay, improving repeat
business chances. Marriott can generate good PR internally by launching another appealing
employee support program. 2014’s “The Envelope, Please” campaign has received positive
response from the press and the hotel workers unions. Another great program could
provide a massive PR boost. Finally, investment into the large but relatively untapped
Canadian market could yield great returns. A line of boutique hotels could help expand the
segment, help PR, and prevent switching by offering a unique experience.

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 Strategies, Recommendations, and
Implementation Plan

Partnership with Huazhu

Strategy #1
Time Period Covered: January 2015-January 2019
Develop new Asian brand of hotels by partnering with Huazhu.

Rationale
By employing currently available local resources for hotel construction and development,
Marriott can move into a very profitable geographic sector. China is a rapidly growing
international economy that boasts the largest non-US GDP and huge economic growth.
Partnering with an experienced Chinese firm gives us a wealth of hands on resources to
work with. Huazhu is the largest Chinese hotel development/building company, and their
local resources will be a tremendous benefit. This plan will add 120 new hotels to our Asian
portfolio.

Estimated Costs and Revenue Projections

This strategy plans to begin construction within a year, and the budget reflects year 1 as
the beginning of development and the place where the administrative cost for purchasing
the land and securing the partnership is represented. This assumes a cost share for the
hotels with Huazhu, and a price for construction of each hotel of 10 million. Following the
construction, year 5 uses estimates from similar sized Asian hotels to arrive at our figures.

Projected Revenue (Millions) Year 0 Year 1 Year 2-4 Year 5

Net Revenue 12784 0 0 2061
Net Direct Costs 11070 250 155 1524
Gross Margin 1714 -250 -155 537
Costs
Construction 0 125 125 0
Administrative 0 125 30 0
Operations 0 0 0 1524
EBIT 1714 -250 -155 537

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Implementation Control Methods

The primary concern with this strategy is the nature of the partnership with Huazhu. We
will tap their Asian market knowledge and resources and allow them to oversee
construction, and we will manage the hotels after the fact. The initial offer to be placed
before Huazhu is a profit and cost sharing partnership, with full ownership being granted
to Marriott after an agreeable number of years of Marriott management. Beyond that point,
only sales and growth matter for our considerations.

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 Brazilian “Spirit of La Selva” Resort

Strategy #2
Time Period Covered: January 2015-December 2020

Open a new resort in Brazil using the rainforest as a natural feature and key attraction.

Rationale
Brazil is an entirely untapped market for Marriott, but a growing center of industrial and
economic power. It is the seventh largest world economy, with moderate projections
putting it within the top five within the next 20 years. It holds the fifth most billionaires
amongst its wealthy populace, and acreage is cheap, averaging out at ~$250 per acre.
Establishing resources will allow for cheaper future developments as well. The growing
wave of eco-tourism has caused resorts that are harmful to the area around them to lose
popularity in recent years while many “natural” resort destinations, such as mountains,
beaches, and islands, are still as popular as ever.

Estimated Costs and Revenue Projections

The initial year’s administrative cost is largely the purchase of land (6400 acres), the cost
of obtaining licenses to operate in Brazil, surveyors fees, the cost of assembling the team
(including opportunity cost on current projects), and initial contractor hiring. Each year
after the first should see construction totaling at $800 million, with the majority of costs
being the resort building itself, renovations for a strip of beach, and some basic trail-blazing
and tailoring of paths through the rainforest. Operations costs for year 6 are generous
estimates based on several similar operations.

Projected Revenue (Millions) Year 0 Year 1 Year 2-5 Year 6

Net Revenue 12784 0 0 200
Net Direct Costs 11070 90 225 100
Gross Margin 1714 -90 -225 100
Costs
Construction 0 0 200 0
Administrative 0 90 25 0
Operations 0 0 0 150
EBIT 1714 -90 -225 100

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Implementation Control Methods

This strategy requires the creation of an oversight team assembled from South American
resources and resort development professionals. They will be directly responsible for the
purchase of land and building contracts, licensing for the operation, and furnishing the
resort. The Oversight team will work with resources in Sales and Marketing to develop
brand advertising for the new resort. Post launch we will be concerned with profitability
and quarterly growth, as well as any growing political concerns in Brazil.

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 Canadian “Aurora” Boutique Hotels

Strategy #3
Time Period Covered: January 2015-January 2017

Create a chain of boutique hotels for Canadian markets.

Rationale
Canada is a nearly untapped market with only 90 Marriott hotels across its large
population. The new boutique hotel segment of the international hotel market is perfectly
developed to capitalize on cities with notable culture scenes. Canada has a series of cities
globally known for their art and music scenes, and is perfect for boutique capitalization.
The main centers for boutique development would be Calgary, Toronto, and Vancouver.
These cities have been chosen for their high traveler rates both for business and leisure,
convenient location, and abundance of local culture. The goal would be to create 6 hotels
across the 3 cities, with room in the strategy for one or more to be allocated to alternative
cities to prevent crowding.

Estimated Costs and Revenue Projections

The initial year will require a large initial cost as land is purchased, the Canadian board is
assembled, and contractors are reviewed. Each following year allocates 200 for
construction costs, based on industry average pricing for 100 room hotels and concert
venue space. This is likely an overestimate of around 10%. Administrative costs are
assessed both as direct costs and the indirect cost of displaced assets. The profits and
operating costs for the 6 hotels are based on a survey of several other boutique hotels in
European and American markets and EBIT profitability for that segment.

Projected Revenue (Millions) Year 0 Year 1 Year 2-4 Year 5

Net Revenue 12784 0 0 600
Net Direct Costs 11070 120 210 400
Gross Margin 1714 -120 -210 200
Costs
Construction 0 0 200 0
Administrative 0 120 10 0
Operations 0 0 0 400

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EBIT 1714 -120 -210 200

Implementation Control Methods

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This project will need direct oversight from a team composed of resources already
experienced with boutique development. We will tap Canadian managers, resort staffers,
and the Boutique development team to assemble a new Canadian Resource team. They will
have oversight on distributing costs and making budgets, purchasing land, and hiring
contractors. Once built, the sites will staffed internally and regional managers will work
with local managers to furnish the hotels and concert venues. Sales and market awareness
will be our primary metrics of concern post-launch.

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