Marriott Corporation

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Marriott Corporation

Marriott Drive
Washington, D.C. 20058
U.S.A.
(301) 380-9000

Public Company
Incorporated: 1929 as Hot Shoppes Inc.
Employees: 229,900
Sales: $7.54 billion
Stock Exchanges: New York Midwest Pacific Philadelphia Tokyo

Marriott is a giant corporation that operates 4,000 hotel rooms and each year develops more than $1 billion of real estate. Marriott has been a public company since 1953, but it has always been led by a Marriott—first the founder, J. Willard Marriott, and since 1964, his son J.W. Marriott Jr. Although the company is concerned primarily with lodging, it began just before the Depression as a food business, and food and drink continue to be a mainstay of the operation, contributing 70% of the company’s revenues.

J. Willard (Bill) and Alice S. Marriott were newlyweds, recently transplanted from Utah, when they opened an A & W root beer stand in Washington, D.C., in May 1927. The Marriotts quickly noticed that soft drinks sold well during Washington’s long, hot summer, but that business needed a boost during the cooler months. Tacos and tamales, the first Mexican food in the area, were added to their winter menu. The Marriotts called their restaurant The Hot Shoppe, and offered medium-priced food in a family environment. In 1928, the Marriotts opened their third restaurant, which offered curbside service. Business was strong and in 1929 the restaurant was incorporated as Hot Shoppes, Inc.

As Hot Shoppes evolved into a chain of restaurants, the Marriotts maintained close family supervision of all facets of the business; for many years Alice served as company bookkeeper while Bill ran the business with “benevolent and paternalistic labor relations and a flair for promotion” as Forbes reported in 1971.

Hot Shoppes remained popular in the Washington area through the Depression. In 1937, Marriott branched out from the restaurant business for the first time, pioneering in-flight catering with boxed lunches for Eastern, American, and Capital Airlines flights from Washington’s old Hoover Airport.

In 1939, Marriott’s food service–management business won an account at the U.S. Treasury building. In 1940 Marriott opened five new restaurants. In 1955 Marriott entered the hospital food service market at the Children’s Hospital in Washington, and in 1957, another business segment made its debut when Marriott’s first hotel, the Twin Bridges Marriott Motor Hotel, opened in Arlington, Virginia. Over the next few years, the company continued to open hotels as well as Hot Shoppes restaurants.

In 1964 Marriott handed the presidency to his son, Bill Marriott Jr. At the time, the company owned 45 Hot Shoppes and four hotels, as well as its its other businesses, and that year the company’s name was changed to Marriott-Hot Shoppes, Inc. Bill Marriott Jr. wanted to accelerate the pace of growth. The new president first concentrated on the lodging segment of the business. Over the next six years, Marriott almost quadrupled in size, surpassing Howard Johnson and Hilton Hotels in both revenues and profits. The company grew both by acquisition and by starting up new businesses. Marriott became international when it acquired an airline catering kitchen in Caracas, Venezuela, in 1966. In 1967 the 22-unit Big Boy restaurant chain was acquired, and in 1968 the company started a fast-food chain, Roy Rogers. Also in 1967, shareholders approved a corporate name change to Marriott Corporation; and in 1968 the company’s stock was first listed on the New York Stock Exchange.

By 1971 Marriott was “the most highly diversified company in the away-from-home market,” Bill Marriott Jr. told Forbes. Marriott brought in new management techniques to help the company grow in an organized and controlled manner. He divided the company into three basic groups: food operations, in-flight services to airlines, and hotels and specialty restaurants. Each group was headed by a president who reported directly to Marriott. With the three groups further divided into 16 divisions, the company was never dependent on one segment for profits. Another management change came in the planning-and-research area, which became the most intense one in the industry.

Along with tight family control and cost control, Bill Marriott Jr., who succeeded his father as CEO in 1972, also agreed with his father that labor unions helped neither the worker nor the company. Marriott works hard to keep unions out of all phases of the corporation because its executives believe that the company is much more flexible without union rules and that they can offer better benefits to their employees. Backing this belief is a generous profit-sharing plan and a system of incentive bonuses.

During the 1970s, casinos became a popular investment in the leisure market, but Marriott avoided that segment of the business and concentrated on hotels. Marriott’s hotels generally catered to upscale travelers and concentrated on businessmen willing to pay extra for quality. Marriott hotels continued to rise in both cities and suburbs. Because of their business orientation, most facilities had meeting rooms and banquet facilities. Convention hotels were built in growing convention cities such as Boston, New York, and Anaheim, California. As airline travel grew, Marriott also began to locate new hotels near airports. Over the decade, Marriott spent more than $3 billion on hotels, increasing its hotel rooms by an average of 17% a year.

Marriott planned carefully and came out ahead in the shaky economic atmosphere of the late 1970s and early 1980s. The company bought back a third of its stock, and in 1982 purchased the Gino’s restaurant chain as well as Host International, an airport-terminal food, beverage, and merchandising company, making Marriott the largest operator in that business. During this time Marriott also kept building hotels, even as others pulled back.

By the early 1980s, Bill Marriott realized that the hotel division would not be able to maintain its growth rate by operating only in the upscale market. Finding that customers were least satisfied with middle-priced hotels, Marriott sent researchers out to discover exactly what customers were willing to give up in exchange for less expensive rates.

In 1983, after three years of research and planning, Courtyard by Marriott emerged. The first opened that year near Atlanta, Georgia. The 150-room, two-story Courtyards do not offer bellmen, room service, or large meeting and banquet facilities, but do offer the high-quality rooms the chain is known for. Costs were also kept down by building the hotels in groups of 10 to 12 and hiring one management team for each cluster.

Marriott’s research team also indicated that several other segments of the residence market could be popular. One of these was timesharing, which Marriott decided to enter by placing timesharing units near its resorts. The venture began with the purchase of American Resorts Group in 1984. By 1989 the company owned four timesharing resorts in Hilton Head, South Carolina, and Orlando, Florida, and was in the process of developing several more.

Bill Marriott also realized that the company could grow faster if Marriott did not own most of its hotels. The company then tended to build hotels for later sale, but retained control through management contracts. Marriott believes that this system provides more rapid profit growth and limits risk while allowing more uniform service than franchising.

During the mid-1980s Marriott made several changes. In November 1985 the company bought the Howard Johnson Company. At the time of the purchase, it sold the Howard Johnson hotels to Prime Motor Inns but kept 350 restaurants and 68 turnpike units. Marriott’s services group grew in 1985 with the purchase of Gladieux Corporation, and then Service Systems. The 1986 acquisition of Saga Corporation, a diversified food-service management company, made Marriott the largest food-service management company in the country.

A major disappointment in the restaurant segment occurred in 1987, when the company made an unsuccessful bid for Denny’s, a chain of 1,200 restaurants. Had the bid succeeded, it would have made Marriott the largest operator of family restaurants in the country. Later that year Marriott sold franchise rights for the Big Boy system to Elias Brothers Restaurants.

To complement the Courtyards, Marriott decided to enter the luxury all-suite market, targeting extended-stay travelers. The new units, called Marriott Suites, were planned for suburbs and medium-sized cities. The first one opened in Atlanta, Georgia, in March 1987. Later in the year the company purchased the Residence Inn Company, an all-suites hotel chain. At the other end of the spectrum, the first Fairfield Inn economy lodges were tested in the same year after three years of development.

In 1988 the company began to test market a new restaurant, called Allie’s after Alice Marriott. First, 13 former Big Boys were converted to Allie’s. After a successful test in San Diego, California, the company planned to roll out the restaurant nationwide by opening more than 600 units, both new and converted, by 1993. These family-style restaurants concentrate on all-you-can-eat food bars with items like Mexican food and barbeque.

Also in 1988, the 100th Courtyard opened, in Chicago; 12 Fairfield Inns were in operation and 24 more Marriott Suites were added, for a total of 130. With Marriott Hotels and Resorts, Courtyard By Marriott, Fairfield Inn, and Residence Inns by Marriott, the company’s business included more than 470 hotels by the end of 1988. In the crowded, competitive lodging market, Marriott’s occupancy rates are about 12% over the industry average.

A relatively new market segment for Marriott is its “life-care community” residences, which incorporate retirement living with long-term nursing care when needed. After almost six years of research, Marriott felt ready to enter this market, long dominated by nonprofit organizations, in 1988. By the end of 1988 Marriott operated nine facilities—eight under contracts gained in the acquisition of Basic American Retirement Communities. During 1989, the company announced plans to build 150 “senior living communities” by the mid-1990s.

In 1990 Marriott undertook a major restructuring, which included the sale of the company’s airline catering division for $570 million and planned to sell its restaurant business and to buy back ten million shares of stock. The company’s three core businesses became lodging; food and services management; and food, beverage, and merchandise operations at airports and on turnpikes. The company also hoped to continue to expand its senior services business. Marriott is the largest lodging operator in the United States and the second-largest caterer, after McDonald’s.