Within 24 hours of the press breaking the news about the Starwood buyout by Marriott, SPG (Starwood Preferred Guest) members (me included) received an email captioned "Important SPG Announcement". I thought, being a member, I would get one from Marriott Rewards too, but did not. Maybe as the buyer, it expected it's members to know that there is no change except a lot more options in the near future.
I like the Ritz and JWs, but St.Regis and W are really the ones close to my heart. I thought it was good of Starwood to have shared the news, and the benefits that the members will accrue, by staying loyal to this new hospitality Hercules that now controls 1.1 million rooms in 5500 hotels across some 30 brands spanning 100 countries. Correctly stated somewhere, the number of members (loyalty program) in the combined entity may not change much as most of the 54 million Marriott members (me included) may also be part of the 21 million SPG members list. But as a member, am I really delighted with this Goliath?
I have always found the Marriott program a miser when it comes to rewarding members. SPG at one stage (until a couple of years back) was ahead in the game, and my number one choice. Lately, I have not used it much, as it has slipped in its generosity too in terms of stay points, rates and redemption offered. My first choice today is Accor. It offers a discount based on tier to its members. I also like the fact that Sofitel offers the second room being booked under the same name at a 50% discount for use by family. I wish all hotel brands would follow that guideline for rooms that restrict occupancy to a maximum of 3 persons.
If the news of Paris attacks had kept the entire world in a debate mode, the buy out news on the 16th must have put the global hospitality fraternity in a state of contemplation on the several what - how - who - when - where will questions. I am sure the management of both these companies would have thought it through. But, as always, those least concerned are always the most inquisitive. I read up all the news I could. What interested me though was the fact that the buyout cost Marriott US$ 12 billion to create the world's largest hotel chain; whereas the former No. 2 (now No. 3) - Hilton was acquired by Blackstone for US$ 27 billion. Hilton is half the size of Marriott-Starwood combo in terms of rooms controlled. Maybe this comparison does not meet the apple to apple standard - based on assets owned versus managed; but in this day and age of going asset light,does the number of hotels owned really matter? What really does matter is the marketing and management infrastructure along with the loyal customer base and free cash flows for brand, product and market development. This deal scores on all fronts. If there is a negative, then it would be the merger of cultures. Going by history, merging brands is nothing new to both companies and I am quite sure that the integration would be pretty smooth too.
Would the hospitality world see more consolidation? Is it the brick and mortar response to go into a lean mean mode versus the light weight high valuation Unicorns disrupting the tranquillity of this segment? Or is this a sign of overcrowding in correction mode? All interesting thoughts to keep us strategists busy till end of year.
More interesting from the India perspective was the fact that 3 Chinese companies were in the fray for buying out Starwood. There are quite a few Indian homegrown brands looking for an exit, and maybe the owners should book a seat to the neighbouring Country asap and speak with the prospective buyers. Acquiring Indian hotel brands would not cost those companies much more than the rounding off error on their balance sheets. In the next few years, China may become India's largest tourist partner, and this suggestion would well work as a win win for all concerned.
With some 13,500 rooms across 13 brands present in India, the combined entity edges out Taj (13200 rooms) to grab the pole position in the Indian hotel circuit. Much of the inventory held by it is in the luxury and mid market space, and future growth too would probably stay in that band. Ahem! just to shake the podium a bit, as per Forbes, OYO rooms controls 14,000 room across 100+ Indian cities. But for most old school hoteliers in India, OYO does not count; just like AirBnB's inventory of 1.5 million units across 190 Countries in 30,000 Cities and Towns does not matter to big hotel brands.
But then again, with the "IndiaStory" dimming once more with the global slowdown, I wonder if OYO will be able to sustain its growth speed? With the Venture Capital money taps dripping now, based on failure by most investments to meet milestones; the street is already talking of "Unicorn" deaths, and OYO's name happens to be in that list. I can also see signs of potential capital squander (just like what happened in the dotcom and realty segments in 2000 and 2007 respectively) with funded companies using money to do allied businesses rather than focus on building core strength.
Talking about money power, ITC hotels is one that has tons of long money for deployment. It has had a long and happy stint with Starwood and a shorter (not so happy) association with Marriott. Now that the equation has changed, will it stay or exit the association? If it does exit then the room count may once again need to be computed to see who stays number one. Consolidation may actually be the way forward for the industry. If the industry agrees to that philosophy, then, will cash rich ITC look at buying out Indian hotel chains in the luxury or mid market segment? Possibly. Would chains like Leela and Lalit be open to mergers with each other or with ITC and/or Oberoi? Guess no chance. Taj's finances are not at its best to be an acquirer at the moment. It is on an asset sell off mode and on the path of following the sell and manage model. In the last 20 years, none of the Indian hotel chains have been successful in creating a remarkable presence overseas. To add some salt to the wound, the growth of the big 5 Indian brands in the native market too has been slower than that of the foreign brands and emerging home grown ones. Lethargy to change or just too comfortable or run out of steam? It's time for some serious think through within the industry before the players fall over each other. But why am I discussing this? For now, it's time to say CHEERS to this marriage of two greats. Looking forward to some bubbling times ahead.
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