Hotel Magnate Bill Marriott Sees Making Room For Innovation As Key

Bill Marriott is still very active at 85, as the executive chairman and chairman of the board of Marriott International (MAR), the world's largest hotel company. He stepped down as CEO in 2012, after four decades in that position.

"I've visited 70 hotels so far in 2017 and I'll get to more than 100 by the end of the year," Marriott told IBD from his vacation home on Lake Winnipesaukee, N.H., near those of his children and their kids. That's his relaxed schedule: As CEO, twice that would receive his perfectionist inspections. He's been all over the world, yet he says, "I love every minute of it right here on the lake."

Travel is important because it "provides an understanding of how other people live," he added. "My wife and I went with my parents to China in 1979 and there were Mao suits and bicycles everywhere, with everything under tight control. We've watched China emerge to become the second largest economy in the world and it's now a major focus of our expansion and marketing.

"People come to America from all over the world with questions and they almost always go away with a better feeling about our country and the great opportunities it provides."

He was born John Willard Marriott Jr. in 1932 in Washington, D.C., where his father and mother, Alice, had opened an A&W Root Beer franchise five years before. They soon added food service and renamed it The Hot Shoppe, where Bill did every kind of job during high school.

Marriott graduated from the University of Utah with a degree in finance in 1954. The next year, he married Donna Garff and served as a supply officer on an aircraft carrier to fulfill his ROTC commitment.

When he returned in 1956, The Hot Shoppes were expanding and the family was about to open its first hotel in Arlington, Va. It had an ideal location near the airport, but no one understood how to run it, so Bill volunteered. They opened another nearby in 1959, when company sales reached $46 million, and Bill kept pushing to add hotels, while his father resisted taking on more debt.

"We were just smart enough to know we had something fresh to offer and just naive enough to go at it with the wide-eyed enthusiasm and energy of a bunch of kids who knew nothing about the business," he wrote in his memoir, "Without Reservations: How a Family Root Beer Stand Grew Into a Global Hotel Company."

Bill was named president in 1964, when sales hit $84 million and they had 9,600 employees and four hotels. Five years later, the publicly held and renamed Marriott Corp. had 11 hotels — including the first foreign one in Acapulco, Mexico — with sales totaling $257 million. It began franchising in 1970 and Bill was made CEO two years later.

Over the next decade, the company diversified into cruise ships, theme parks and travel agencies, with $1.5 billion in sales in 1979. Given the size and scope the company had reached, he then put in place a strategic planning unit that helped them focus on hotels and improved the management of change.

Managing Innovation

In 1983, the company had grown to include 131 hotels in 79 cities, before opening the first two Courtyard by Marriott hotels, which Marriott says he considers one of the most important innovations he's overseen. (Forbes magazine ranks the company No. 1 for innovation in the industry.)

"We were the first big chain to go down-market, with a moderate-priced offering with nice rooms — with no frills and fewer staff. And everybody told us we were crazy," he said. "Today, we have over 1,000 Courtyard hotels."

Two years later, his father died and Bill was elected chairman of the board.

"He took his father's legacy and led it into a modern era by focusing on innovations that the industry has tried to copy, defining the direction of the business and the guest experience of hospitality," said Arne Sorenson, president and CEO at the Bethesda, Md., headquarters, where two of Marriott's children are executives (another left to invest in startups).

In 1987, the company acquired the Residence Inn chain and opened its first Fairfield Inn, an economy-priced, limited-service line. Two years later, the company went through major restructuring, as debt reached $3.3 billion, selling off its airline-catering and restaurant divisions.

In 1993, he implemented the most important innovation of his career, splitting the company into Marriott International, which he would run as an asset-light management firm, and Host Marriott, run by his brother, Richard, which would own real estate and operate concessions. (The concessions business was acquired by Italy-based Autogrill in 1999.)

"We didn't invent the management contract, but we created the company that was able to exit from real estate ownership, while our competitors stayed in it," he said. "We expect to use the cash from selling the final couple of dozen properties obtained from the Starwood acquisition over the next few years, to grow the business and enhance shareholder value through dividends and share repurchases."

Marriott's operating margins are around an enviable 50%. For managed hotels, the company is reimbursed for all staffing costs and provides marketing, reservations, and the loyalty platform (Marriott Rewards, Ritz-Carlton Rewards, and Starwood Preferred Guest) at cost, in return for management fees on total revenues. Franchisees generally pay a royalty on room revenue only, a marketing fee, and the cost for reservations and the loyalty program. (They either operate the hotels themselves or contract that to others).

Loyal Customers And Workers

"We were the first hotel to develop a frequent-guest stay program in 1984, and everyone said we were crazy — again," said Marriott. "The president of Hyatt said, 'I'll bury you in advertising.' Today, our loyalty programs have 100 million members and we are adding 1 million a month."

One of the keys to Bill Marriott's success has been to follow his father's advice: "Take care of the associate and the associate will take care of the guest, so the guest will return again and again." There is a generous benefit program and no limit to advancement, so high retention results in more highly skilled personnel who provide better service (with 675,000 currently wearing the Marriott name tag). Half the general managers came from the hourly ranks, says Marriott, and on average they've been managers for 25 years. (According to Hilton Hotels (HLT), its managers average 15 years in that role). Part of the company's hiring philosophy has been to screen for those with a friendly personality and dependability, since technical skills can be trained. (Marriott International regularly makes Fortune's list of "100 Best Companies to Work For.")

"Mr. Marriott is more than my boss," said Sorenson. "He's a mentor and a friend."

Last year, the company acquired Starwood Hotel & Resorts Worldwide for $13.6 billion, bringing total properties today to over 6,100 in 124 countries and territories. To Marriott's other top brands, including Ritz-Carlton and Renaissance, Starwood added such high-end names as W Hotels, Westin, Sheraton, Le Meridien, and St. Regis. Marriott International now has 1.2 million rooms, with 430,000 in the development pipeline, and last year reported revenues of $17.1 billion and net income of $780 million (including Starwood numbers from Sept. 23, 2016).

Since the 1993 split that created Marriott International, the adjusted stock price has risen from $5 to a recent $100, a 1,900% increase, and it regularly makes Fortune's Most Admired Companies list.