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Tue 22 Jan 2019 12:35 PM

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Marriott CEO Arne Sorenson's relentless pursuit of growth

Despite growing pains as a result of a breakneck pace of growth, nothing will stand in the way of Marriott CEO Arne Sorenson's resolve to create the greatest hospitality chain the world has ever seen

Marriott CEO Arne Sorenson's relentless pursuit of growth
Sorenson believes the UAE and overall GCC are mirroring a growth trend that gives more credence to why Marriott won’t let off the gas on in its development portfolio.

Under clear blue skies stands the stark brown residences of the Bulgari Hotel, set against a backdrop of the Arabian Sea shimmering in the sun. Keen eyes will discern camouflaged attendants sheltering from the glare outdoors, and you half expect a pack of Dalmatians to be lounging near a pool amid the lush grounds.

It’s at this most pristine resort in Dubai’s most upscale district, that the king of Marriott International’s castle, Arne Sorenson, holds court during an interview with Arabian Business. The company’s global CEO allows us a peak into the mind of the world’s biggest hospitality executive, and how he thinks the company can conquer the industry and, along the way, this region.

Sorenson is pragmatic, with a disarming sense of humour. He also has carries a relentless drive to grow, a fact he established two years ago during our last conversation with him. Fresh after closing a $13.6bn merger with Starwood Hotels in March 2016, he was in Rwanda at the Africa Hotel Investment Conference, on the path to creating the defining hospitality group of our time, when he remarked that, “We have just one hotel room in 15 around the world, which is just six percent.”

Bumps in the road

Today, Marriott is the biggest hospitality chain the world has ever seen, yet Sorenson is still gunning ahead. “We’re competing to win, not just today, not just in 2019, but in 2030 and decades from then. We’ve been in business for 91 years and are much more interested in succeeding in the long term than the short term,” he says.

The breakneck pace of growth – for some context, Marriott now has over 1.1 million rooms in more than 6,700 hotels worldwide, with another 1,000 hotels to come – hasn’t come without its pains, as Sorenson acknowledges. “It would be nice to keep talking about how the Bulgari is the leading hotel in the region,” he says. “But the fact of the matter is that a big business like ours will inevitably see bumps in the road. The right thing to do is face them, solve them, and move forward.”

Sorenson is hinting at challenges Marriott has faced this year. Concerns about declining industry margins in the UAE, where the group currently has 54 hotels, roughly 15,000 rooms and nearly half of its luxury portfolio, “have been ongoing for years,” he says. “Operational issues that we didn’t anticipate” also manifested in the form of a combined Starwood and Marriott loyalty and rewards programme that has yet to bear a name. When asked why it has taken so long to iron out issues with the programme Sorenson jokes, “I’ve asked that question myself”.

About the latter, Sorenson has a plan. “The first phase involved the merging of technology systems, call centres, and the much less exciting stuff that yields powerful results further down the line. So we wanted to be ready with all that before the marketing began,” he says. When asked if Marriott now has a name for the programme he speaks with authority, “Yes and I know it,” as if to say it will be disclosed when he is ready.

Meanwhile, more prominent among Marriott’s bumps on the road toward growth in the region was the decision to step out of a six-year contract to operate three hotels with the Habtoor Group, leaving a void that competitor Hilton swooped in to fill (see boxout). “It was a logical step to take, all things considered,” Sorenson says, and the step back hasn’t deflated any of Marriott’s drive to continue working with the entity, with others, or to grow in Dubai either.

“Hotel owners see the value we bring and how we demonstrate returns along with the growth in our brands,” he says. “It’s why 70 percent of the hotels in our UAE portfolio are with owners who have more than one property with us.”

Regional promise

Despite losing 1,400 rooms at Al Habtoor City, Marriott will have opened five more properties in the UAE by the end of 2018, an “extraordinarily exciting market that has experienced continued extraordinary growth,” he says, adding that the nation still holds rich promise, despite slower growth in recent years. “The challenge with living here is that you might not be as surprised by its dramatic growth. But what I’ve seen gives me a lot of enthusiasm for the next decade and more.”

Over the next five years, the chain will add 20 more properties in the country. In Saudi Arabia, Marriott is even more bullish. A $2bn investment over five years will yield the delivery of 27 hotels on top of the 25 currently in operation.

Marriott also had a big win this year when it took over operations at what was formerly the Viceroy on Yas Island. The hotel, with its iconic façade that lights up for Abu Dhabi’s annual F1 Grand Prix, will debut as a W Hotel next year, the first in the emirate.

However, as new Marriott hotels pop up around the country, luxury brand hotels might have had their time in the sun, according to Sorenson. Marriott has five luxury properties across 15 locations in the UAE, but 70 percent of its development pipeline is for select-service brands such as the Aloft and Element.

A cooling in average revenues per available room (RevPar) is the reason. It isn’t a sign of a downturn in the region’s hospitality industry though; Sorenson believes the UAE and overall GCC are mirroring a growth trend that gives more credence to why Marriott won’t let off the gas on in its development portfolio. “The growth of select service isn’t just a Middle East phenomenon,” he says. “The first wave of global hotel brand development appeals to the classically international group of travellers. As markets develop and local business grows, a broader section of travellers drive the market toward select-service brands.”

A major move the company will make over the next few months will be the roll out of a “dramatically reinvented” Sheraton brand. One of the most storied brands in hospitality history, the Sheraton is a former Starwood brand that Marriott executives believe will be a draw for travellers in the Middle East familiar with its past prestige. “Sheraton is a big, prominent brand but resembled what Starwood was. And the longer a full-service brand has been in service, the more likely it will have quality issues that are a challenge in terms of the capital needed for reinvestment to keep them up to speed. An older hotel that hasn’t received that investment is a problem that will intensify each year,” he says.

It’s going to take a more “aggressive development and implementation of standards” to reawaken the Sheraton says Sorenson. Immediately after the merger, he initiated a plan to pull together all Sheraton owners to decide on new quality standards. “We’ve made it clear to the owners that if they don’t meet those standards then they’re not going to stay in the system,” he says.

This new standard will take a few years to kick in, says Sorenson, but the first steps toward what they will be were unveiled in Cairo last week. “We’ve already gotten rid of some lousy hotels and that has raised average experience up materially as a consequence. And we’ll see more of that as we go forward.

What happened at Al Habtoor City?

The abrupt deflagging of 1,400 rooms from Marriott’s roster at Al Habtoor City was the largest such incident in the hotel chain’s history

The subject of much speculation, the decision to end operations at three porperties at Al Habtoor City was attributed by industry analysts to oversupply in the luxury segment causing margins and occupancy to dwindle – it didn’t help, they said, that Marriott’s three luxury brands at Al Habtoor City were a stone’s throw away from its flagship JW Marriott Marquis in Business Bay.

Sorenson reaffirms the decision to have the St Regis, W, Westin, and Marquis brands all within shouting distance of each other was a good one. “We had a plan to incrementally increase returns across all brands, because we’ve seen that we perform better with more market concentration.”

Tangentially, he acknowledges that was a belief the Al Habtoor Group did not share. Discussions took place over the course of a year, according to Sorenson, but neither party saw eye to eye in Al Habtoor Group’s eventual course of action either – to manage the properties under a franchise agreement with brands in name operated by the owners themselves at the benefit of lower service fees.

Forfeiting the ability to control service standards was a key determinant in Marriott’s decision to part ways “amicably” says Sorenson. “We’re not in the business of departing hotels, but differences in the economics of franchised and managed operations made it the logical step to take.”

The Al Habtoor Group remains an important partner for Marriott globally, acorrding to Sorenson, one that the hotel chain works in other locations across Dubai as well as in Europe.

“It was a business decision at the end of the day,” he says.

The global picture

As one of the world’s biggest CEOs, Arne Sorenson is optimistic about the global economy, even if a bit less enthusiastic

The view, earlier this year, was that we had a fairly synchronised global growth environment. That was the language that we all used, that everyone was growing and how exciting it was.

The embrace of that idea now is a bit less enthusiastic. You see a world where we are working through trade issues and differences in performances from place to place – some markets are still growing but slower than anticipated nine or 12 months ago. That makes us a little more cautious in terms of the words we use.

The US economy is obviously hugely important in terms of how the globe works, but we can be fairly optimistic because of roughly $2 trillion of stimulus coming from deficit spending and tax reforms. Both are driving the US economy toward historically low levels of unemployment, which in turn is going to drive pricing power growth. Trade is a risk, but if you look at the cold math, the negatives to the US from trade are likely to be dramatically smaller than the stimulus the economy will receive.

That would suggest to me that we at least have another two years of strong US economic performance. The trade dispute could have more impact on the Chinese economy because of the share of its economy driven by trade. At the same time, China is moving toward a consumption environment. It’s a big population so it’s almost inconceivable that it won’t continue to post meaningful GDP growth numbers even if they are, shockingly, at four to five percent.

In the UK, Brexit is more concerning than factors in other European markets, India is a good market even though there are things there to watch out for, and France and Southern Europe are performing well. On balance, there’s still a positive growth story around the world, albeit just a little less enthusiastic in terms of the synchronised growth that we had all earlier hoped for.