Marriott missed profit estimates for the third quarter and lowered its full-year earnings guidance. So they went into their third quarter earnings call this morning prepared to show investors that they were going to do something about it: cost-cutting, specifically $80 to $90 million in “general and administrative cost savings” beginning in 2025, noting also that this would be translating into cost savings to owners and franchisees.
This can grow to $100 million. Now, they haven’t detailed where the savings will come from and the category of ‘general and administrative’ or ‘G&A” sounds innocuous enough – like they might all be at the corporate level and won’t affect the customer – but not so fast. Here’s CEO Anthony Capuano,
We’re looking at efficiencies and savings that we think will have clear benefits to the owners. We’re looking at every facet of our engagement with them. And we expect to have some tangible saving opportunities identified for them in the very near future.
The changes Marriott will be making involves every facet of what Marriott requires of owners. In the past Capuano has talked about driving hotel owner savings expressly in terms of giving less to the customer like spending less money on breakfast for guests and not putting alarm clocks in rooms.
When he’s spoken about the Bonvoy program being less generous than Starwood Preferred Guest used to be, he simply said but we have more rooms (“we hope that breadth of choice, whether it be brands or geography, is a bit of a mitigating factor”). Also, a new property management and loyalty platform rolls out next year.
Marriott reported that the Bonvoy program had over 219 million members at the end of September. This is not active members, and remember that people aren’t mostly joining for the points or elite benefits. Marriott ‘pays’ members with a ~ 2% discount on room rate for joining the program, so people join in order to book a room. The more hotels and rooms they have, the more people join the program, which lets them keep marketing to past customers.
They highlighted that they now have co-brand credit cards to sell in 11 countries, and that Bonvoy members can redeem for a Starbucks coffee. So there’s that.
And they’re shifting growth at the lower-scale, though the success of their most premium properties continues to drive their revenue growth (since each room night in a luxury property is worth more fees to them than in a low-end one). 30% of rooms growth in the third quarter came from conversions. Capuano also highlighted growth in low-end rooms (City Express), “we had people banging on the door saying would you please announce the name so we can start signing deals.”
Capuano once said, “When I die, they’ll put the net-rooms growth number on my tombstone.” Marriott will seemingly take a fee from any hotel, of any quality, diluting their brands in the process.
- When chains don’t own their hotels, all they have of any value is the brand.
- Diluting the brand – taking fees from hotels that don’t deliver a consistent experience or meet guest expectations – means taking revenue now, leaving guests feeling shortchanged and disappointed – and not coming back.
- Customers no longer trust the brand, and don’t remain brand-loyal. Hotel chains lose their value.
It’s the Bonvoy program and brand reputation that allows the hotel chain to deliver customers to owners. Owners call Bonvoy members “leads.” The reason they pay Marriott is for access to customers, but that only works when customers understand and trust the Marriott value proposition. So diluting the brand to goose current performance means sacrificing future profitability.
They’re making changes so that owners don’t have to spend as much, but they’ve reassured investors that this won’t come out of their end at corporate. That means coming out of the guest experience. And they’re cutting costs across their own operation, too. I don’t see Marriott getting better for guests in 2025.
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