How Marriott kept its customers close when third-party apps came to town

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Transcript

Alan Murray: Leadership Next is powered by the folks at Deloitte, who, like me, are exploring the changing rules of business leadership and how CEOs are navigating this change.

Welcome to Leadership Next, the podcast about the changing rules of business leadership. I’m Alan Murray.

Michal Lev-Ram: And I’m Michal Lev-Ram.

Murray: And, Michal, I want to start with a question for you. When you’re traveling, for business or for pleasure, how and where do you choose to stay?

Lev-Ram: I don’t have one kind of rule of thumb. I think I look at location. When I travel for pleasure, a lot of times I do Airbnb. For hotels, I like hotels with a little bit of personality, but it’s a little all over the place. I probably should have better rule for how I do this, because it’s time consuming.

Murray: I am a brand guy. One hundred percent loyal. Totally Marriott. I love their app. It makes it so easy to book. I stay at the AC Hotel near our office when I have a late night. I’ve got a timeshare in Park City for skiing. I like the Autograph Collection for hotels with personality. But what I really admire, Michal, and we will talk about this today, is how hard they have fought to avoid giving up control of their customers to the tech platforms, whether it’s Expedia or Kayak or Airbnb. I wish those of us in the legacy media business had done as well 25 years ago as they’re doing.

Lev-Ram: Yeah, seriously. Well, I’m guessing, given all of that and how loyal you are, you are probably a little bit starstruck talking to today’s guests.

Murray: Well, I don’t do starstruck, Michal, but I am an admirer of the company that he runs. Tony Capuano is the CEO of Marriott International.

Lev-Ram: Yeah, you know, I have to say, I have to admit here that I was just a little bit embarrassed, because I took this interview while I was in a hotel room, not a Marriott. 

Murray: You didn’t disclose?

Lev-Ram: I didn’t disclose. But it was actually a very nondescript hotel room and had zero personality so I was not super happy with it, but it did the job. You know. I did learn so many new things talking to Tony. I was also reminded of just the sheer size of the brand. It’s made up of over 8,000 properties across 139 different countries.

Murray: I think it’s that massive scale that has been their secret weapon. That’s why they bought Starwood. It enables them to control their customer. You know, not long before we sat down with Tony, Marriott announced an acquisition of City Express, another midsize hotel chain with 150 locations across Mexico, Latin America, and the Caribbean. 

Lev-Ram: And I have to bring up the Ritz-Carlton Yacht, which was brought up multiple times during the interview. But more on that later. Alan, when I see these massive moves that Marriott is making, I just have to wonder‚I think we’ve all been wondering for a few years—what is going on with the industry today? Is it back from the pandemic slump?

Murray: Well, Tony had some thoughts on that. And on some other big travel trends that he’s keeping an eye on. He seems to think it’s more of a shift in how people travel rather than a snap back to pre-pandemic habits.

Lev-Ram:  eah, I really found his thoughts on the state of travel to be super interesting. We talked about bleisure as well, which is not a word that I think he likes, but you know, it’s one we kind of have to use. We also talked to Tony about how their app is competing with those of big tech companies like Airbnb, which we brought up, and the sustainability initiatives in place across Marriott properties, which was also a very interesting conversation. So without further ado, here is our interview with Tony Capuano of Marriott International.

Murray: Welcome to Leadership Next, Tony, and I’ve got to tell you before we start, I am totally a Marriott guy. I book all my hotels on the Bonvoy app. I have a timeshare in Park City where I ski every year. So, Michal, I’m biased in this conversation. 

Anthony Capuano: Well, good.

Murray: This is my go-to hotel. But I wanted to ask you at the start, I’ve heard you say that Marriott International is more than just a hotel company. You’ve got a lot of hotels. What does it mean to be more than just a hotel company?

Capuano: Well, first of all, thanks for having me today. We do we think of ourselves much more as a travel company. Obviously our foundation is built on our core lodging business, which is about 8,300 hotels in 138 countries around the world. But that business continues to expand. Just before the pandemic, we got into the home-sharing business with the launch of Marriott Homes & Villas. We launched that business almost on a pilot basis with about 2,000 listings. That platform now offers over 100,000 listings. Last fall, we offered the launch of the first of several Ritz-Carlton Yachts, which is a luxury cruising experience. It’s just 149 cabins. So a very intimate, very luxurious experience at sea. We obviously run the industry’s largest branded residential business. Between open and pipeline projects, we’ve got about 225 projects around the world, disproportionately flagged with our luxury brands, like Ritz-Carlton, Edition, St. Regis. And we continue to innovate and look for other opportunities to solve travel needs for our 180 million Bonvoy members.

Lev-Ram: I want to talk a little bit more about the luxury piece, because I don’t think that’s something that you’ve always been associated with. So tell us more about that.

Capuano: Sure. So the company’s entry into luxury started with the opening of the JW Marriott here in Washington, D.C., which Bill Marriott built in many ways as a tribute to our founder and his father. In 1995, we made a significant leap forward when we made our investment in the acquisition of the Ritz-Carlton Hotel Company. And then over time, whether it be through M&A or organic development, we’ve built out an industry-leading portfolio of luxury brands. We have traditional luxury with brands like Ritz-Carlton and St. Regis. Luxury lifestyle with brands like Edition and W, and even Super Premium Luxury with our partnership with Bulgari, the Italian jeweler. In fact just last week, we opened our eighth Bulgari hotel in Tokyo, and in June, I’ll be in Rome for the opening of the ninth Bulgari hotel, in their home city of Rome.

Lev-Ram: The other aspect here is the the global nature of just how big you guys have gotten. And I know there was just a recent acquisition that’s helping you to expand in Latin America. Has this long been the strategy? Is this a market that’s particularly interesting to you? And you know, what are the other geographic locations that you’re closely looking at now?

Capuano: Before I was appointed CEO, I ran our global development organization for about a dozen years. And I would often be asked, what is the company’s development strategy? And in some ways, that was always the easiest question to answer. We want to make sure we have the right product everywhere our members travel, for every type of trip purpose. Scale matters. Alan talked a little bit about his Bonvoy membership. One of the things that strengthens that industry leading platform is the breadth of our global footprint. It is rare that one of our loyal members has to look outside the system to find accommodations, irrespective of where they’re traveling and irrespective of the nature of that travel. The City Express deal that you mentioned is important on several fronts. It solidifies our leadership from a distribution perspective in the Caribbean and Latin America, which is a really important set of inbound and outbound markets. It also represents the company’s entry into the midscale tier, which is a tier we’ve not competed in previously.

Murray: And kudos to you, Tony, for doing that. I mean, Michal and I belong to an industry, the media industry, that was completely disintermediated by tech platforms, right? Google, Facebook, and to some degree, Apple, Amazon, they took over the customer. And now the customer comes through them to get to us. Ten years ago, everyone thought the same thing would happen in your industry, it would be Expedia or other platforms who would who people would go to, and you’ve really gotten people to your app. What percentage of your bookings happen through the app or directly with you?

Capuano: The term we use is Bonvoy penetration. What percentage of our accommodated room nights come through the app, and it’s between 50 and 60%. It is a disproportionate share. 

And I’ll tell you an even more interesting statistic. Now it’s early so it’s a little more anecdotal than anything else, but I was shocked by this. I went and toured the first Ritz-Carlton Yacht when it was in port in Fort Lauderdale a few weeks ago, and of the folks that have either sailed on the vessel or have booked a future voyage, about 75% are Bonvoy members. And so the power of that program in exposing a new platform like Ritz-Carlton Yacht, and and helping them understand the nature of the offering, we think is a really powerful differentiator.

Lev-Ram: Wow.

Murray:  It’s so important. I mean, Michal is out there on the West Coast with all the tech companies. We all thought they were going to take over the world. You fight back and won. So what what enabled you to win over the tech platforms?

Capuano: Well, you know, they are our partners. So I don’t know that there are winners and losers. Each of us have objectives, and we interact with them on a daily basis. We think we can bring great value to them. And in particular, portions of our business, they are terrific generators of volume for us. The intermediaries, for instance, give us access to many travelers who don’t travel as frequently. And so it’s a valuable relationship, even though it’s a relatively modest portion of our business. But I think back to when we were doing the Starwood acquisition, Bill Marriott, as he often does, made a simple but incredibly wise observation. As you may know, as a young man, he was in the Navy, and he said in the Navy, occasionally, you’d be out at sea, and there’d be an enormous rogue wave. And he said, you can’t stop that wave, but what you can do is get in a bigger boat to try and navigate that wave. And I think as we saw folks trying to get more and more involved in the customer journey trying to claim ownership of the customer, we had a view that scale put us on a really solid footing to try and navigate that evolving environment where everybody wants to own the customer. And I think the Starwood acquisition, some other smaller regional M&A deals we’ve done. And even some of the organic platforms that we’ve developed over time, have all contributed to industry leading scale, which we think puts us in a really powerful position as we try to navigate this complex landscape we operate in.

Lev-Ram: So all this boat talk is really making me want to get on a Ritz-Carlton Yacht, for starters. But back to the the app for a second. Obviously, the more customers are getting to you through your app, I’m guessing the more data the more direct contact and interactions you’re able to have with them. So what’s the most valuable piece or you know, aspects of data that you’re collecting today? And how is that informing how you actually cater to these customers?

Capuano: You’re exactly right. The data that we’re able to collect is rich. All of it is useful from different perspectives. I would say to you, we are at our core in the hospitality business. We are in the business of serving our guests. So the more data we can collect on their specific preferences, where they like to travel, the types of rooms that they prefer to book, bedding preferences, pillow preferences, utilization of food and beverage outlets, spa, fitness classes. The more we can know about you as a guest, the better chance we have of exceeding your expectations, wherever you’re traveling with us anywhere in the world.

[Music starts]

Murray: Jason Girzadas, the CEO-elect of Deloitte US, is a sponsor of this podcast and joins me today. Welcome, Jason.   

Jason Girzadas: Thank you, Alan. It’s great to be here.

Murray: Jason, we live in an era of disruption, technology disruption, geopolitical disruption, workplace disruption, and it makes accurate predictions about what’s going to happen in the future more difficult than it has ever been. Yet the polls that we do together with you show that most business leaders largely remain optimistic. Why do you think that is?

Girzadas: I think optimism is a result of the fact that we’ve been through an incredibly tumultuous three years. And so I think business leaders realize that they’ve built resiliency into their organizations. The prospect of even more disruption isn’t as foreign of a concept, and I think there’s more confidence in their ability to adapt and to be agile. Secondarily, there’s been tremendous investment in technology and new capabilities that client organizations and executives broadly are optimistic about those creating more value and more opportunities. So, it’s a function of what we’ve been through, as well as the investments that have been made that give a sense of optimism despite some of the headwinds.

Murray: And what’s your advice to companies that are struggling with the potential disruption in the future?

Girzadas: Well, disruption is the new normal. I don’t think there’s any placid water on the horizon or calmness that we can predict. So it’s a function of getting accustomed to the discontinuities that are ahead of us. Whether it’s around technology, or geopolitical change, or workplace changes associated with the future of work, or the demands of the talent workforce, change is the new normal, and as a result, it is requiring executive teams to actually look holistically at those challenges, be facile with doing scenario planning and being on the lookout for where and how to capitalize on disruption—versus being concerned by it or seen as a barrier to their success.

Murray: Jason, thanks for your perspective. And thanks for sponsoring Leadership Next. 

Girzadas: Thank you. 

[Music ends]

Murray: Tony, you, you got this job in the wake of the pandemic. For me, one of the most moving moments of the pandemic was when I saw that Twitter video that your predecessor Arne Sorenson made. He was battling cancer at the time and showing it. But he made this moving message to all your employees saying, hey, our business just dropped more than 90%, our rooms are vacant. Unfortunately, we’re going to have to furlough a lot of you. Here’s why, and here’s what the implications are, and here’s what we’re going to do to try and take care of you. Where are we now? Like, are we back to pre-pandemic levels? Is it overall pre-pandemic levels, but different? Give us a little insight to all that data you have. What does travel look like today?

Capuano: Happy to, although I want to thank you for talking about our friend, Arne, Alan. It’s, I’m convinced that that video will be shown in business schools for the next 30 or 40 years. It was as as candid and authentic and transparent a bit of communication as I think I’ve ever seen a business leader make, and all of us talk about it often. It was a masterclass in leadership and communication, and he is terribly missed.

Murray: I 100% agree. I spend a lot of time talking to CEOs. They very seldom make me cry. And he did.

Capuano: So the business, the way I would characterize it, Alan, and if there were any questions across the world about the resilience of travel, those questions have been answered over the last two years. As you point out, and as Arne mentioned, in his associate-wide video, our business dropped more than 90%. We had real conversations within the company about our ability to survive. And many of those questions were obviously fueled by virtue of the fact that we had such modest visibility. We didn’t know what we were dealing with. We didn’t know whether it was going to be global. We didn’t know how long it might last. Fast forward almost exactly two years from those terrifying early days, Leeny Oberg, our CFO, and I did the fourth quarter earnings call a couple months ago. And for 2022, we reported all-time record fees all-time record, adjusted EBITDA, and all-time record EPS. And so to see that dramatic turn, to me, illustrated two things. It illustrated the resilience of travel, and it illustrated the wisdom of our asset-light business model. So, to your specific question on a global basis, rev par, or revenue per available room, which is the metric we use to evaluate topline performance of our portfolio, had recovered to pre-pandemic levels on a global basis in 2022. What’s particularly remarkable about that performance, we had a terribly challenging January, because of the Omicron variant, and China, which is our second largest market in the world, trailing just the U.S. was largely locked down for about 10-and-a-half months. So despite those two embedded challenges in 2022, we generated stronger financial performance than in any year of our 96-year history. So, travel is absolutely back.

Murray: Is China back now too?

Capuano: China is getting back. What we’ve seen as we watched the recovery around the world, as friction was removed from travel, as borders opened, as testing requirements were eliminated. As it became easier and easier to acquire visas where necessary. And as airlift came back, we would see spikes in in search activity, spikes in bookings and ultimately spikes in performance. Now China is trailing in terms of where it is related to those milestones, but quarter over quarter, month over month, as the friction is eliminated from inbound and outbound travel in China, we’re really encouraged by the pace of recovery.

Lev-Ram: So, and, I have to ask, I mean, travel is back, you’re saying, but what kind of travel is it? What are the new emerging trends that you’re seeing? And we cannot have this conversation without throwing in the word “bleisure.” Sorry. As we speak, I’m actually I’ve been on a bleisure trip this week. I was up here in Vancouver with my husband and my son over the weekend. They went home, I stayed for work. So, case in point.

Murray: Your whole life is a blur of bleisure. 

Lev-Ram: I don’t know about that.

Capuano: I like blended-trip purpose. It sounds more elegant, but, but it’s all the same thing. And it’s great news for our industry and for our company. I think prior to the pandemic, many of us found ourselves in that unenviable circumstance, where our family said, the kids have a long weekend from school, let’s go away for four days. And we looked at our calendar for Friday and Monday and said, have a great trip. It was just inconceivable that we could leave for four days. By necessity, we learned while suboptimized, you can work from almost anywhere. And more and more of our guests, more and more of our Bonvoy members, are taking advantage of that idea of blended-trip purpose. One of the most interesting things for me to watch, we look at recovery by day of the week. And the two days of the week that have recovered most quickly are Thursday and Sunday. And so what that tells you is more and more folks are doing exactly what you just described. They are saying, I’ve got a business trip Tuesday, Wednesday, Thursday. Rather than flying home Thursday, I’m going to spend the weekend with friends or family, or the following week, I have a Tuesday business trip, I’m going to go for the weekend leading up to my business travel or my group meeting and conference. So it’s a really compelling byproduct of the learnings of travelers through the pandemic. The only downside I see to it, it may make it a little harder for us to tell you with absolute precision what the mix in our hotels is by demand segment. Prior to the pandemic, I could have told you to two or three decimal points how many of our guests were business travelers, how many were group meeting attendees, how many were leisure travelers. That’s a little more difficult. Now, hopefully you stayed with us in Vancouver, but if you did, I guarantee no one asked you at the front desk how many of your nights are business travel and how many are leisure? Which is fine. I often get a question. You might recall in the early days of the pandemic, there were many experts who said business travel is forever impaired, it will never come back. I get that question often. And my answer is I don’t believe travel is impaired. In fact, I think travel will go and continue to grow to new heights. My ability to tell you whether one segment is fully recovered will be a little more difficult because of this blended trip purpose. But that’s only good news for the industry.

Murray: I have a design suggestion on that front, by the way.

Capuano: Okay.

Murray: The desks in most of the hotel rooms I end up in still face the wall. And to successfully pull off a Zoom call, you need a little light on your face. And so I find myself either trying to rearrange the furniture or coming up with some jury rigged structure.

Capuano: Well, Alan, we need to get you here to our beautiful new headquarters. We’ve got an amazing innovation lab. And one of the things we do in that lab is we build room configurations. And we bring our Bonvoy members through to move furniture around, to test distances between outlets and desks and all the sorts of things that can enhance your stay. So, let me know when you’re in Bethesda.

Murray: So, Tony, you were only the second person to be CEO of Marriott whose name is not Marriott. We already talked about Arne. But when I go to my ski resort in Park City, the founder and his son are still hanging on the wall. I wonder, first of all how you got there because that’s obviously a position of trust and what it’s like running a company that is so closely associated with one family.

Capuano: The Marriott family is remarkable. It is a in every sense of the world, a real global success story. To think about JW Marriott, Sr. and his wife, Ali. He was a sheepherder. They got in a Model T. They drove across the country and opened a nine-seat root beer stand here in Washington, D.C. And to grow from those humble beginnings to the world’s largest lodging company is remarkable, and that path of growth is filled with some of the most important innovations in the history of our industry. The company can with great pride can look at the the adoption of revenue management technology, moving that from the airlines to lodging, the pursuit of a multi-tiered brand strategy, the implementation of a loyalty program are all innovations that have shaped the industry that we have the Marriott family to thank. They are still deeply involved. Bill Marriott is our chairman emeritus. He just had his 91st birthday. It is a gift to me that I get to speak to him a couple times a week, and he is deeply engaged in the business. His youngest son, David, is our third ever chairman of the board, all of whom have been members of the family. He is a friend, he is a partner, as we try to help the company reach its full potential. And as I talk to our associates around the world, notwithstanding the size and scale of the company, I think they very much view it as a family business. And that is a tremendous competitive advantage.

Murray: Tony, I know these days, every time I go into a Marriott Hotel, I get messages about sustainability. You know, what to do with my towels, etc.? Why is that important to Marriott, and how big a difference can Marriott make in the climate battle?

Capuano: I’d say two reasons. Maybe I’ll start with my personal view. I am very much of the view that all of us are extraordinarily fortunate to be short-term tenants on this this beautiful planet, and we have a personal responsibility to care for the planet. Through a business lens, I would tell you that I often describe our business model as having four principal constituents: our associates, our guests, our owner community, and ultimately, our shareholders. Every one of those constituents is demanding that we set stretch goals around sustainability, and show demonstrated progress against those goals. And so both from a personal or moral perspective, but also from a business imperative perspective, it’s critical. There are a lot of areas we can help. We’ve made some commitments about reducing water usage. We’ve eliminated single-use guest amenity plastics, which will result in 500 million less plastic bottles a year ending up in landfills, we’re very focused on reducing food waste. That’s a personal passion of mine. It is stunning to me that given the amount of food insecurity in the world, 40% of food that is produced ends up in the trash. I was in India last week touring hotels, and had the pleasure to spend an hour with Prime Minister Modi. It is a huge focus in India, I hear the same things in other jurisdictions around the world. And it is an imperative for the travel sector to be a leader in sustainability.

Lev-Ram: I want to ask another question on the environmental and social responsibility side. My understanding is that you have trained associates to basically look out for unrecognized signs of human trafficking. Can you talk about how you got started on that journey? Why it’s important and, I mean, even how big of a problem it is, because I think a lot of people would be surprised, and just what you’re planning to do more in this area?

Capuano: I’m glad you asked. Human trafficking is, to state the obvious, it’s a scourge on humanity. It is horrific. And it is much more widespread geographically than most people realize. As I talk to our associates and our partners around the world, I think there is a misperception that it tends to be a bigger problem outside the U.S. That is most certainly the case. But it is a very significant issue here at home as well. Unfortunately, there are lots and lots of wonderful things that take place in hotels—anniversaries, birthdays, honeymoons, all sorts of things. One of the not so nice things that happens in hotels is human traffickers feel like they have some measure of anonymity. And so sometimes these terrible things are happening in hotels. We recognize that and thought we could be part of the solution. So we developed a training program. I’m proud to tell you that we have trained a million Marriott associates worldwide on what to look for. And if you see something that that seems inappropriate, how to proceed, when and how to involve your supervisor, when and how to involve the authorities. And we have some amazing stories, real life stories of trafficking victims being saved by the courageous actions of our associates. We thought it was such an important issue that it was not a competitive issue. It was an industry-wide issue. So we actually partnered with the American Hotel and Lodging Association, and made our training available to all of our competitors. And I’m just as happy to tell you that our competitors have trained about 800,000 of their employees. And so it’s an area where I think our industry can have a meaningful and measurable impact on a huge societal problem.

Murray: You talked about those million associates who you trained, which is a reminder just how many people you employ. It’s one of the reasons that for the past year we’ve lived through this unusual situation where high-profile tech companies have been laying people off. But then at the end, or the beginning of the month, when the unemployment numbers come out, the unemployment rate has gone down, and it’s usually because the hospitality industry has been hiring so many people. Where are we in the in the talent battle right now. Can you get the people you need to run all your hotels?

Capuano: So Alan, last year, we hired about 190,000 new associates, which is the most we’ve ever hired in a single year. In a pre-pandemic world here in the U.S., our biggest market, on an average run rate basis at any one time, there might have been, plus or minus, 6,000 job vacancies. That number more than doubled in the early days of the recovery. The last time I looked at the number, maybe a month ago, we had only about 5,000 vacancies. So the good news is, for our industry, we’re relatively back to full employment. But I would give you two caveats. Number one, in a pre-pandemic world, those vacancies were likely spread fairly evenly across the system. Right now, they’re probably a little more heavily concentrated in the markets that have recovered most quickly, the leisure destinations in particular. The other thing I would tell you is on the good news front, we’re seeing a very significant uptick in the volume of applications that we’re receiving. But we’re receiving a higher percentage of applications from energized, smiling, excited prospective associates who have zero previous experience in hospitality. So that’s creating both some challenges and some opportunities for us in terms of how we train and onboard and retain those newly hired associates.

Lev-Ram: So, Alan, can I end on a fun question? 

Murray: Go. 

Lev-Ram: Okay, Tony, I’m guessing you’ve got lifetime platinum elite status, whatever the highest ranking is. But do you have any idea off the top of your head how many nights stayed? 

Capuano: In my life? 

Lev-Ram: Yeah, lifetime.

Capuano: Oh, my goodness. Well, I would say over the course of my 28 years with the company, I’ve probably averaged 150 nights a year. 

Lev-Ram: Okay. 

Capuano: So, the short answer is a whole bunch. And I love every bit of it. In fact, somebody asked me the other day, if there was anything particularly frustrating about my job, and it’s the fact that I have to acknowledge, I will likely not get to visit the associates at all 8,300 of our hotels. The most fulfilling most energizing part of my role is to show up at one of our properties, and see the passion and resilience and enthusiasm of our associates. So I don’t know that I’ll make all 8,300, but it certainly won’t be for lack of trying.

Murray: I was just checking my app, Michal. I have 746 nights.

Lev-Ram: Wow. That’s impressive, Alan.

Murray: I’m going to keep working on that.

Capuano: Let me know when you hit 1,000.

Murray: I’ll send you a note. Thank you so much. Fascinating conversation. 

Capuano: My pleasure. Thank you so much for having me.

Lev-Ram: Thank you, Tony.

Murray: Leadership Next is edited and produced by Alexis Haut. Our theme is by Jason Snell. Our executive producer is Megan Arnold. Leadership Next is a product of Fortune Media. For even more Fortune content, use the promo code LN25. That’ll get you 25% off our annual subscription at Fortune.com/subscribe.  

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