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Marriott Gets Aggressive In Puerto Rico

Spurred by the success of its San Juan Marriott Resort & Stellaris Casino as well as the Ramada and The Ritz, Marriott International plans to add four new hotels within the next four years, for a total of 2,700 rooms by 2004.


February 22, 2001
Copyright © 2001 CARIBBEAN BUSINESS. All Rights Reserved.

Room for growth: Where some see a glass half empty, Washington D.C.-based Marriott sees it brimming with opportunity -- opportunity to become the largest hotel management company on the island.

Marriott International is emerging as the most aggressive hotel management company in Puerto Rico.

Over the next four years, Marriott could likely operate or franchise at least seven hotels and resorts on the island, totaling an estimated 2,700 rooms.

Marriott, a growth-oriented company, claims its core strategy is to go where the opportunities present themselves–and they see Puerto Rico as a strong opportunity destination.

In the last six to eight years, that strategy was pursued mostly in the States. Not anymore. The international market–of which Puerto Rico is considered a part–is now making a bigger contribution to Marriott’s growth numbers than it did in the past.

By year’s end, Marriott will be operating a hotel in almost every capital city of the Caribbean and Latin America.

Eight years ago, Marriott had only two hotels in the region, both in Mexico--one in Cancun and the other at Puerta Vallarta. By December, Marriott will have close to 40 properties in the region, including Mexico.

Marriott opened its flagship property in Puerto Rico back in 1994–the San Juan Marriott Resort & Stellaris Casino in Condado, at a time when Puerto Rico’s tourism industry was beginning to show signs of growth and financial vitality, especially in hotel development.

"I think what we are going to find is that international market growth will prove to be a very profitable segment of our overall global hotel business," said Nick Ward, senior vice president of international hotel development at Marriott International headquarters in Washington D.C.

In Puerto Rico, Marriott currently manages two hotels: the 525-room San Juan Marriott Resort and, the 419-room Ritz-Carlton San Juan Hotel, Spa & Casino. It also franchises a third hotel, the 95-room Ramada San Juan.

Two more hotels–a 331-room San Juan Courtyard in Isla Verde (estimated for completion by 2003) and a 450-room J.W. Marriott Resort Dos Mares in Fajardo (estimated for completion by 2004) will be officially announced this week by the company.

Also on the agenda, although not confirmed by Marriott, is an 800-room hotel at the new Puerto Rico Convention Center in Isla Grande (still in the negotiation stage) and a 150-room Marriott Courtyard in Fajardo (too early to announce). Combined, Marriott is expected to have over 2,700 rooms in Puerto Rico by 2004.

Marriott has various distinct lodging brands: Marriott Hotels, Resorts and Suites; Renaissance Hotels, Resorts and Suites; Ritz-Carlton; Courtyard by Marriott; Fairfield Inn by Marriott; Residence Inn by Marriott; ExecuStay by Marriott; Marriott Executive Apartments; Marriott Conference Centers; Marriott Vacation Club International; SpringHill Suites by Marriott, and TownePlace Suites by Marriott.

Franchise refers to when a hotel management company allows another company to operate a hotel under one of its brand names.

CARIBBEAN BUSINESS traveled to Washington D.C. and Fort Lauderdale, Fla. for exclusive interviews with two of Marriott International’s senior vice presidents responsible for the Caribbean and Latin American regions. Nick Ward and Chuck Kelley discussed why Marriott is so enthusiastic about Puerto Rico.

Why Puerto Rico?

"Puerto Rico is a natural market for our company because of its special relationship with the U.S. mainland," Ward said. "Our brand power is strong in Puerto Rico because most of the companies that deal with us in the States are also found there."

Marriott is a true believer that Puerto Rico is an obvious place to incite growth across the board for all of its brands, and that’s exactly what the company is doing.

"You need the right ingredients and the right circumstances to make a hotel project successful," Ward said.

And it seems that Puerto Rico has most of the winning elements such as demand, affluence, strong customer base, and attractive financing for establishing a profitable enterprise.

"Puerto Rico happens to have the best airlift in the Caribbean, and it’s only natural to want to expand in an area that has great infrastructure," said Kelley, senior vice president of the Caribbean, Latin America at Marriott International Lodging regional office in Florida.

The island’s tourism industry has proven its strength in the last three years. The market has been able to digest additions to its hotel supply, particularly in the resort segment, without really hurting the overall occupancy or rate in the marketplace.

"I happen to think that Puerto Rico has established an attractive base of hotel supply and that the destination has effectively minimized the downside risk of somehow falling out of favor with the tourism segment of the market due to the quality of product the island has today vs. 15 years ago," Ward said. "So I think Puerto Rico has done a marvelous job of codifying its position in the marketplace."

Marriott’s first deal on the island

In the early 1990s, AIG, the insurance company that owned the building that once showcased the former Dupont Plaza in Condado, called Marriott headquarters because they wanted to assess what to do with their beachfront building.

"You would go to San Juan and see this huge building sitting there on the beach unoccupied, and ask what’s that all about?" said Ward, who was the person responsible for closing the deal on the San Juan Marriott Resort in 1993. "What we knew about the building was that it used to be a Sheraton hotel and then there was a fire."

According to Ward, AIG asked Marriott if they thought the former hotel could be redeveloped and reopened, and if so, how would it do if it were branded a Marriott hotel.

And that’s how negotiations began.

"It was a difficult and challenging negotiation for us because it was a building that was designed and built 20 years previously that had gone through a fire," Ward said. "It’s a difficult thing when you have to cope with the task of redesigning and reopening a building that was built to standards applicable 20 years before."

Marriott claimed the physical aspect of redesigning the former Dupont Plaza was not only challenging, but very expensive. Ward would not disclose how much was invested in the building to bring it up to Marriott standards.

Another issue Marriott had to deal with was how the local marketplace was going to respond to the new resort, and if the resort’s casino would draw the Condado community or whether there was going to be a dark cloud over the property because of the Dupont Plaza fire.

Fortunately for Marriott, the Condado resort was locally accepted.

"AIG did a marvelous job as owner and redeveloper of delivering a very competitive product," Ward said. "As a business enterprise, the San Juan Marriott Resort is our most successful property on the island, as well as one of the most profitable hotels in Puerto Rico. This hotel is a testimony to the power of the Marriott brand."

Kelley attributes the success of the San Juan Marriott Resort to its great location, impeccable service, and high quality standards.

"Marriott continuously reinvests to keep its hotels up to standards," Kelley said. "We redo guest rooms, on average, every five years."

An agreement in Marriott’s contracts with the hotel owners is to take a percentage of the property’s gross revenue and put it in a capital account and reinvest it. In late 1999, Marriott invested $1.6 million to renovate the San Juan Marriott Resort.

"Marriott is a brand and if we can’t sell the quality that customers expect, then we shouldn’t be in business," said Kelley, whose biggest role is making sure that Marriott quality standards are observed.

Marriott’s development efforts

Marriott has largely focused its international market development efforts on full-service, international standards, high-quality Marriott, Renaissance, and Ritz-Carlton properties–with all efforts aimed at the same guest profile as the guests staying at those particular hotel brands in the States.

"The idea of our development efforts is that a good portion of our traditional client base in the U.S. travels internationally to the Caribbean and Latin America for both business and pleasure," Ward said.

Marriott has a dominant position in the quality segment of the hotel industry and it expects to cater to its loyal guests when they travel abroad. Marriott has achieved its goal of 2,000 hotels worldwide by the year 2000.

The company’s aggressive expansion is part of a five-year global growth strategy to add 150,000 hotel rooms across all brands.

Ritz-Carlton is Marriott International’s most luxurious brand. Under the Marriott brand, the J.W. Marriott is the more upscale version, followed by the standard Marriott full-service hotel. Comparable to the latter is the Renaissance, which is positioned in the same tier, but is an altogether separate brand.

In the next two years, Marriott will have 20 J.W. Marriott brand hotels in the world. You may find or may soon find a J.W. brand in Lima, Peru; Quito, Ecuador, Ecuador; Mexico City, and Fajardo, P.R.

"The J.W. hotel wasn’t intended to be a separate, full-blown brand," Ward said. "In developing new products, it became apparent that it was economically justifiable to upgrade the Marriott brand."

The new J.W. Marriott hotel planned for the Dos Mares project in Fajardo will be the company’s first resort within that brand.

"It costs more to build a J.W. Marriott," Ward said. "Not every market will lend itself to a J.W. brand and it’s not our intention to go to every market and push it."

Marriott is confident that in many markets, a Marriott or Renaissance brand hotel is absolutely appropriate.

"There are only a very few markets that could support a Ritz-Carlton hotel in Latin America and the Caribbean," Ward said.

At the moment, there are Ritz-Carlton hotels in St. Thomas, USVI; Jamaica; Puerto Rico; Cancun, Mexico; and one almost ready to open in the Cayman Islands and another under construction at Los Cabos, Mexico. There is no Ritz-Carlton brand in Central or South America.

"It’s not because we haven’t been trying," said Ward, referring to the Ritz brand in Central and South America. "We’re continuing to look and we have some Ritz-Carlton hotels under negotiations. We’re hopeful that there will be a Ritz-Carlton in South America."

To manage or not to manage, that is the question

Depending on the hotel brand, Marriott is more interested in managing properties rather than franchising.

"We don’t franchise Ritz-Carlton hotels," Ward said. "And we rarely franchise the Marriott brand internationally."

Marriott is more flexible and willing to franchise Renaissance, Courtyard, and Ramada brands. However, the new 331-room San Juan Courtyard will not be franchised. The only existing Marriott hotel that is franchised in San Juan is the Ramada.

Frequent guest program with over 14 million members

For the fourth consecutive year, the readers of Business Travel magazine have named Marriott Rewards the "Best Hotel Rewards Program in the World." The publication asked its readers to review a variety of hotel frequency programs and Marriott Rewards ranked No. 1.

Marriott Rewards, which was introduced in May 1997, is recognized as the largest frequent guest program with more than 14 million members and 2,000 hotels in 55 countries. Marriott Rewards points never expire.

"Marriott Rewards is the most powerful brand loyalty generator of any hotel company in the world," Ward said. "We have 14 million members, that’s close to 10% of the entire adult population base in the U.S. mainland. That is an unbelievable number of people who, at one time or another, think first of Marriott and its various brands."

Marriott Rewards gives the company the ability to market directly to over 14 million customers.

"We send offers and promotions with our customer’s quarterly or monthly rewards statements," Ward said. "That is direct rifle-shot advertising."

Marriott believes the trick of the trade is knowing who uses your product, then making sure your product gives him or her what they want in order for them to feel the hotel offers good value.

An informal marketing deal

"Puerto Rico’s government considers tourism as a primary or key industry, that’s why they have their own promotional campaigns for the destination," Ward said. "And we anticipate that they will continue to provide funds to promote Puerto Rico, as they should, and as we continue to grow in the marketplace."

Ward says he expects strong but informal cooperation between the government’s promotional agencies and Marriott. "It’s in everybody’s interest."

Marriott’s future plans

Marriott predicts a very challenging future for the hotel.

"I look at the future as a three-legged stool," Ward said. "We have three distinct growth elements that we are pursuing."

Those elements are: to continue to grow the Marriott and Ritz-Carlton brands, either for leisure or business, in selected major markets; to develop the Renaissance brand in markets where Marriott hotels already exist, and finally, to go into new markets and develop products such as Marriott Executive Apartments, catering to local or regional customers.

"These opportunities are going to surface randomly and we need to know what’s going on in every market to take advantage of them," Ward said.

Marriott scores strong gains but expects slower growth

Marriott reported strong gains in fourth-quarter (4Q) 2000 earnings, but cautioned that it expects growth to slow in the first and second quarters of 2001 along with the U.S. economy.

The company reported 4Q 2000 earnings of $149 million, or 59 cents per share, on sales of $3.2 billion, compared with earnings of $90 million, or 34 cents a share, on sales of $2.8 billion for the same quarter the previous year.

Revenue per available room (RevPar) for 4Q 2000 rose 7.2% from a year earlier. The rise in the third quarter of 2000 was 8.5%, and the rise for the full year was 6.7%.

Marriott’s RevPar growth in 2000 outpaced that of the U.S. industry as a whole, which recorded a 5.5% gain from 1999, according to Smith Travel Research, which tracks occupancy and room rates in the hotel industry.

Marriott expects RevPar growth for its stateside hotel rooms to be more moderate this year in light of a slowing U.S. economy, but it still expects growth of between 3% and 4% over 2000 levels.

Most admired company

Marriott has been named one of Fortune magazine’s most admired companies in the lodging industry.

Last year, Fortune also recognized Marriott as one of the "100 Best Companies to Work For," and named the company one of "America’s 50 Best Companies for Minorities."

According to remarks by Marriott CEO J.W. Marriott, human capital is the company’s competitive strength.

"Finding and keeping employees has never been easy," CEO Marriott said. "Some may view the labor shortage as a passing problem, but I am convinced the challenge of recruitment and retention of the best talent will be here for another 10 to 15 years."

For more than 70 years, Marriott has lived by a simple motto: If we take care of our associates [employees], they’ll take care of our guests.

"That isn’t just a sentiment, it’s a strategy," Marriott said in his remarks. "We know, empirically as well as anecdotally, that retaining and strategically managing our human capital drives economic value for our company."

Marriott says the hotels’ care for their employees is a bottom-line issue; promote from within; and build the brand.

Marriott believes the hotels’ turnover rate is one of the lowest in the hospitality industry and it’s because they offer employees a total value proposition.

The guiding principles that have helped Marriott are: get it right the first time; money is a big thing, but it’s not the only thing; and retaining a good employee requires hiring the right person. The company also says that money is just one component of value. And companies have to start offering the whole package: good price and a good product, in other words, competitive compensation and a great workplace.

This Caribbean Business article appears courtesy of Casiano Communications.
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