‘For Every Hotel We Have, There’s Another One Coming Up’
By Angad Singh Thakur
On April 8, shareholders of both Marriott International Inc and Starwood Hotels & Resorts Worldwide Inc voted in favour of a merger between the two groups, which will create the largest hotel chain in the world. This was preceded by a dramatic few days that saw the surprise entry of China’s Anbang Insurance Group into the bidding fray for Starwood, and its equally abrupt exit. On the eve of the shareholder meetings in early April, Craig S Smith, president and managing director, Asia Pacific, Marriott International, spoke to Forbes India about the impact the merger is set to have on the Indian hospitality sector. Edited excerpts:
Q. Assuming that the Marriott-Starwood merger goes through, what will its impact be on the Indian market?
I think it would be positive for the market. Obviously, you’re going to have a much stronger hotel company in Asia. Think of the results from fusing these two sales groups into one. Not just to sell hotels to Indians in India, but even outside India. Even the power of advertising, which I think is a big advantage. Today, we (Starwood and Marriott) share a lot of owners [of the hotel properties]. Their life becomes easier because now they just need to speak to one group. Being the largest company also gives you an advantage in negotiations. Imagine something as simple as chicken. One hundred hotels negotiating chicken with a vendor are going to be able to negotiate much better. For the people of India, it means a much bigger international company creating jobs. It’s going to be exciting.
Q. It’s nearly a year since you took over as Asia Pacific head for Marriott International. What have been your areas of focus?
Growth continues to be one of our focus areas. Growth means more incentives, more opportunities for people who work for us. That has also helped us retain talent. We’ve been able to allow people to grow within the organisation. Another focus along the same lines has been talent. We spend a lot more time grooming and building plans for our best foreign talent. Then there’s also a lot of focus on digital. In the case of our company, we have these two big generations that fill up our hotels: Baby boomers and millennials. Millennials are going to be the guests of the future. They’re different in the way they act and how they book. But even the baby boomers are adopting digital. Marriott does over $10 billion a year in direct sales through marriott.com. A lot of people don’t realise this, but that makes us one of the largest retail sites in the world. And that doesn’t include bookings from Expedia, Booking.com, etc. So the focus is on how we make that more actionable in countries like India, China and Japan. In the old days, the general manager would stand in the lobby and talk to guests to find out what they like or didn’t like about the hotel. These days, guests are telling you what they think of the hotel even before they check out.
Q. What does growth entail for the Indian market, and what does your pipeline look like?
Growth in India would be double. The hot question everybody’s asking is about the Marriott-Starwood merger. In India, we will be 100 hotels strong by the end of the year. This is Marriott and Starwood together. That alone makes us the biggest hotel company in India. That’s larger than Taj, which is a very respectable competitor. Besides that, we have an equivalent number of hotels in the pipeline under construction. It’s safe to say, for India and China, that for every hotel we have, there’s another one coming up. In India it takes a little longer than most places because of the licensing and other factors.
JW Marriott Mussoorie Walnut Grove Resort & SpaQ. The question in India tends to be whether it is getting any easier to do business here. Is it?
Well, it’s getting easier, but it is not easy. I would say that it is still one of the toughest places to do business. When you think of the hotel business, there are a couple of impediments for hotels in India. The first is the cost of land. Land is extremely expensive in India, especially in metropolitan areas. The second is cost of capital. For the hotels we build, the interest rates are somewhere between 12 and 14 percent. Those would be great returns anywhere in the world. I think there’s a little bit of difficulty with that. But now we see more capital come in, including private equity.
Q. Within India, larger hotel chains have focussed on the metropolitan areas. Is that changing now?
I think you’ll see that there’s still space to grow. We have four hotels in Mumbai. We could easily do a dozen more. We have about 50 hotels in Atlanta, Georgia. There’s room to grow. But we also see room to grow in secondary or tertiary locations. You may not see a JW Marriott in the smaller cities, but you might see a Courtyard or a Fairfield. It is also worth noting that as you look across India, it is almost like there are all these independent states. The states that are progressive have grown a lot more. The hotel growth too is going to be faster in the progressive states, because there’s more business there.
By Deepti Chaudhary
‘We don’t need an aggregator to bring value to our guests’
Well-informed consumers and a competitive market makes India an attractive prospect for US-based hotel and leisure firm Starwood Hotels & Resorts Worldwide Inc. Starwood, which has brands like St Regis, The Luxury Collection, W, Westin, Le Méridien, Sheraton, Tribute Portfolio, Four Points by Sheraton, Aloft and Element globally, plans to add 33 hotels in India over the next three years. At present, it has 47 hotels in the country, of which 11 from The Luxury Collection are in partnership with ITC Ltd, along with one hotel under the Sheraton brand. The chief executive of Starwood Hotels, Thomas Mangas, talks about the chain’s India plans and threat from aggregators. Edited excerpts: Q. How important is India for Starwood Hotels?
We are very excited about the growth that we see in India. We had a record year in signings and openings in India last year, and we expect that pace to accelerate, given the economic upturn in the country. We have 47 hotels and an active pipeline of 33 more, which are at various stages of construction and development. We are at pace to double our footprint in India in the next three years. I expect to have a similar pace of signings as we did last year. We can easily see ourselves having 100 hotels in India in three years. Q. Where does India stand in the pecking order?
It’s the fourth largest market today and we feel it can be the third largest market [for us] in the calendar year 2017. Right now, the US, China and Canada are our top three markets. At the top of our offerings is the luxury segment with St Regis and The Luxury Collection. We recently opened the first St Regis in India, in Mumbai. We have a significant presence in The Luxury Collection through our partnership with ITC and we are opening our first W brand hotel in India [in Goa] this summer. In our upper scale segment, we have Westin, Le Méridien and Sheraton. We have 10 Le Méridien hotels here, which is a tremendous presence.
Q. Room aggregators are a rising business in India. How do you see this trend and does it worry you?
We want to keep working directly with our consumers; we don’t want anyone getting between us and our guests. We don’t think we need an aggregator to bring value to our consumers and guests to help build our brand recognition. The way we are building our digital platform, the great plans and standards that we have, the way we activate our hotels with great products and showcase our hotels with music for example, or art and fashion in W hotels, helps us keep aggregators irrelevant to our guests. As of today, they are focusing on budget hotels, where we don’t play. But such phenomena where a company tries to pull guests out of your distribution channel are a threat. Q. What is the biggest shift in consumer behaviour in India?
The Indian consumer is a very demanding consumer. Their experiences as business travellers are influencing their expectations of leisure experience. The Indian consumer who is under the age of 35 has the same expectations as an American or a Canadian consumer… they are well informed, have tremendous access to information, they research every day with online sites that have advice and reviews, and use these tools in their decision-making. There is a competitive battle out there for these consumers and that is one of the reasons why we find India an attractive market. Q. What gives you the competitive edge? What differentiates you from the others?
Hotels are a product; it is about how you activate the product. W, for example, has a very active bar scene. Hence, night life, fashion, music are all intertwined in your stay. If you like fashion and music, you are drawn to that. If you see The Luxury Collection here, we are trying to be very authentic, connecting with local artisans, history of the place. That’s what the brand themes are doing and we are doing that better than the others. Experience from a generic term to a very specific consumer experience is activated at the hotel where it permeates through the food, bar, meeting spaces or rooms… so you walk out totally feeling that experience and we believe that is our competitive advantage.Q. Hotels don’t make profit easily. How feasible is the business in India?
For us, our investment is quite limited at the local level, so when we open a hotel, we invest in marketing it. Most of our investment is in building the global branding and creating the IT system that allows reservations to flow. So, hotels in general break even or become quite profitable in a couple of years. So it’s very attractive for us. It’s an asset-light business model; we are not building the hotels on our balance sheet; we are franchising or managing them. Franchising is an extremely profitable model. The heavy capital is from those who are building the hotels, and yes, it’s a much longer pay-off, but with a much greater margin that enables that pay-off. Hotels may take three to four years to build and need big outlay of cash upfront, but with the right management and brands, one can drive occupancy and rates in such a way that they can be earning 40 to 50 percent margins over the years. It’s a much longer payback business. Q. How will the Marriott merger impact your India plans?
We are committed to India and so are they. We are a leader in this part of the world and the combination provides an accelerator here. They are eager to reap the benefits of our experience here. The joint entity would make for the largest hospitality business in India by number of rooms.
(This story appears in the 13 May, 2016 issue of Forbes India. To visit our Archives, click here.)