Name: Marriott’s CFO Leeny Oberg Talks Hotel Growth, Brand Development and ROI
Uploaded: 2024-04-03T12:15:00Z
Duration: 11 min 34 s
Description: Marriott has over 30 brands with a presence in 139 countries and territories. CFO Leeny Oberg sits down with WSJ to discuss how the hospitality giant plans to grow further and what amenities have the highest returns on investment. Photo: Marriott, Umit Gulsen

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Marriott has over 30 brands with a presence in 139 countries and territories. CFO Leeny Oberg sits down with WSJ to discuss how the hospitality giant plans to grow further and what amenities have the highest returns on investment. Photo: Marriott, Umit Gulsen

https://m.wsj.net/video/20240403/ac1b8df0-bc9c-4975-bded-eadedd76efa9/2/hls/manifest-hd-wifi.m3u8

Marriott’s CFO Leeny Oberg Talks Hotel Growth, Brand Development and ROI

Marriott, by many measures, is one of the largest hotel chains. But reaching over 8,700 properties in 139 countries and territories didn't happen overnight. It got here by being one of the first hotel chains to sell off its real estate to outside owners and instead focus its business on its brands. CFO and EVP of Development Leeny Oberg sat down with the Wall Street Journal to discuss why the company's operating model works and where it's going next. How does the Marriott experience differ from its competitors?

We are the largest, we're the global hospitality leader, but with only 7% of market share, one of the best things is we see lots of opportunity for future growth.

What is that strategy that you're betting on?

We were the first ones to really do the concept of separating the real estate from the management, which allowed us to be better at building brands, allowed us to be better at growing, allowed us to listen more to our owners and franchisees and customers. And I think that innovative style really puts us at the front. We started as a developer, owner, and operator of hotels. Actually, of course, we really started with Hot Shoppes, but then moved into hotels. And one of the things we realized as those hotels got more and more popular is that by building them all on balance sheet and with dealing with economic cycles, we were constrained. Our growth was constrained. So by being able to split the real estate from the management and the brands, we were able to not only tap additional sources of real estate investment capital, we were able to focus on the brand, the service, the systems, the processes, to make sure the brands were as strong as possible, and then to grow faster. When I think about the size of our system, that could be almost over half a trillion dollars of value of real estate. We could never do that on our books, on our own balance sheet. So it's really important to be able to access capital around the world locally to be able to have all the hotels that we have to then deliver these experiences.

And what changes can the customers see with that shift in the industry?

Oh, I think for sure when you think about the types of hotels, I mean, even as recently as 40 years ago, we had very, very few international hotels, and we are now, you know, almost 40% international, outside the US. That has happened so much more quickly as a result of this asset-light model. That is all a function of being able to go and find capital in all these different markets. Take our brands, which are proven brands, demonstrate that they deliver good returns for the owners, but also deliver great experiences for the customer, which then engenders more growth.

Why do you think that there is a rise in brands across the industry?

Remember that branding hotels has really evolved. We're now probably where about 50% of the hotels in the world are branded. And with the evolution of the way that media works, that advertising, marketing, all of those things, the power of the brands and what they can deliver to the top line, and then the economies of scale that allows you on the cost side to help deliver results to the bottom line, I think has really demonstrated that having a branded hotel can really help a real estate investor get the best returns on their asset possible. I think also similarly for the customer, having this range of brands gives us the ability to appeal to our customer for every experience and location that they want. And that is really important for Bonvoy. When you think about our overarching loyalty brand of Marriott Bonvoy, the ability to say, "Listen, whatever you need, wherever you'd like to go, we've got a place, we've got the kind of price point you're looking for, we've got the level of amenity and service that you're looking for, and we've got a Bonvoy program that's gonna offer you tremendous value and also a great way to communicate with us." So I think you put those all together to come up with what gives us a great long-term sustainable growth story.

So this shift to the asset-light model is what allowed this sort of rise in brands.

I would say yes, the rise in brands, but most importantly the growth. Because if you think about what you'd be able to do if you were building all these hotels yourself and having to go and borrow every time you were building a new hotel and dealing with all of that construction, if you really think we're leveraging capital all over the world for our owners and franchisees for them to be building or buying hotels and putting our brands on them, so it's really like multiplying what you can do. And as you know, growth kind of feeds on itself, and the more customers know you and like you, it allows you more opportunities. We've just been able to grow much faster this way.

And how do you know when to add a brand?

Well, like most businesses, first studying the market, right? Where's the customer going? What changes are we seeing in travel patterns? What are we thinking that customers want, what they don't have? StudioRes is a great example of our entry into the mid-scale space in the US that really demonstrates that. Came from a combination of working on our customer research, but also talking to owners and franchisees who were saying to us, "You've got great expertise in extended stay. We see a lot of demand and would love to invest in properties that are in your system at the lowest cost per key that you have on any of your products, but also meet this customer demand for extended stay in a really super sleek and modern operating model." And that was a lot of the genesis of how we came up with StudioRes, which again meets customer needs as well as owner and franchisee desires.

And what does this rise of brands, this loyalty program allow the company to do and offer?

One of the best things is really helping people understand the wide, wide range that they have of choice, while at the same time managing this relationship where you don't have to repeat over and over again that I really like this kind of pillow or I really like to know that I'm gonna be able to check in on my mobile phone and walk in the door. So having that ability to tailor your experience for you and what you like, but at the same time have the widest range of possible choices we think makes us particularly competitive.

And when you talk about that wide range, there are so many hyper-specific brands these days. Is it important that the customer know all of the different niche brands?

As is often the case in everything, all customers are different and you've got some customers who say, "You know what, Residence Inn is where my heart is. I just know that wherever I go, I'd like to find a great extended stay product like Residence Inn or Element, et cetera." In that respect, the wide variety is important, but also knowing consistency. One thing that really came out of COVID is that customers do appreciate knowing what they're getting and being able to go and say, "I'm staying at this kind of brand and I know it's gonna have this set of amenities and this kind of price point, while if I go somewhere else, it'll be a different kind of experience." And being able to count on that and enjoy the variety, I think has again proven to be a really good competitive advantage.

What amenities in hotels have the highest return on investment?

Hotels are long-lived assets. We want them to be there for many, many years, to be a part of the community and to be welcoming guests and to really provide returns to that investor for many years. That means that that hotel has constantly got to be thinking about what investment does it need to stay current. You think about it, you go to a hotel that's 40 years old and if you can't plug in your phone next to your bed, I know you're not happy. In every single hotel room, you've gotta make sure that you're making it easy and accessible for people to manage their lives, which now is so much more technology-enabled than it was 15 years ago. Then I think from the overall hotel experience, I think the public space and the way the public space makes it comfortable and enjoyable for people to just be there, I think has become an increasingly important part of the investment. And where we see tremendous returns is where you might have, you know, a bar that kind of allows people to both work and maybe have a light bite or even a meal. So there are multiple uses to that public space and that is where really in all kinds of our hotels, we have seen the returns on that particular space. You think probably 15 years ago, it was kind of dead space, right? You'd walk in, you'd really go to your room, and now it has become much more of a community space that has meaning and ROI for how it is laid out. Those are the kinds of things that we, as part of a business of the brand company, work with our owners to make sure we're picking the hotspots for them to reinvest in.

Where is the hotel industry going in the next 10 years? What are the kind of the main challenges?

The good news is travel is powerful, and as we talked about kind of our purpose in connecting people. I think coming out of COVID, you've definitely seen that people don't take travel for granted anymore and they really appreciate it. And then I think for a company like Marriott, the size and scale we have I think will allow us to build on those advantages and to grow even faster and be even a bigger leader. You know, critically, we need to provide adequate returns on these real estate investors' capital and being efficient on the cost side, but also drawing in as much revenue from the customer. That's the critical equation to making sure that we are driving the returns on investment that our owners expect. So I do see a lot of great potential for the hotel industry. Or also, you know, the adjacencies that we're playing in, whether it's Ritz-Carlton Yacht or the co-branded credit cards or travel insurance, again, allow us to really try to make you feel like all of your travel can really be done within Bonvoy.

So it sounds like a variety of customers, not just the person that's checking into the hotel. There's experiences, there's investors, there's a ton of different customers.

Oh, yes. I talk about our constituencies all the time. From the standpoint of listening, communicating, collaborating with associates, owners and franchisees, customers and shareholders at the end of the day is what drives the long-term success of our business.

Marriott’s CFO on Growing the Largest Hotel Chain and What Comes Next

Get insights into hotel management strategy and the economics of hotel growth in this video series.

Marriott’s CFO on Growing the Largest Hotel Chain and What Comes Next

Economics of Hotels

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