When Richard Marriott arrived at his duplex suite at the Chicago Marriott Downtown a couple of weeks ago, his feet hurt.
He had spent much of the day before hiking 13 miles through Yosemite National Park to help decide how much Marriott Corp. should bid for the food concession rights in the park.
He came to Chicago for the annual meeting and trade show of the giant National Restaurant Association, of which he was due to be named chairman.
Before going to the association`s board meeting, he asked a hotel employee for the location of a nearby sporting goods store where he could buy some comfortable boots to substitute for his business shoes.
At the NRA meeting, Marriott, 53, vice chairman of the $8.3 billion Marriott Corp. exhorted the association`s leaders to step up their fight against legislation seen as onerous or costly to its 18,000 member companies. After his departure, Marriott`s brother J. Willard ”Bill” Marriott Jr., 60, chairman and chief executive of the company, flew into town to help publicize one of the hospitality giant`s newest productions, the first downtown addition to its moderately priced line of Courtyard by Marriott hotels.
The occasions for the two visits present a snapshot of the current course of the company, which is fighting to escape crushing debt while trying to maintain a leading position in the hotel industry, strengthen its hold in contract food services and other businesses, and phase out its increasingly strained free-standing restaurants.
The birth of the new Courtyard by Marriott at State and Hubbard Streets represents an example of Darwinian survival in a hostile environment that cut short other Marriott projects conceived at the same time.
A Courtyard was to have been built in London as part of the Canary Wharf project of real estate giant Olympia & York Developments Ltd. Olympia placed that project in bankruptcy last week because sinking real estate values left it adrift in a sea of unpayable debt.
”We canceled that project in late 1990,” said Bill Marriott. ”By that time, we were putting the brakes on. And it was questionable whether Canary Wharf would be a viable hotel market. There would have been many offices, but a lot of people don`t want to stay among just office buildings. They want shopping and other amenities.”
The company`s presence in England will be enhanced in another way, though. It has completed a master franchise agreement with Scott`s Hotels Ltd. that will add 18 hotels under Marriott brand names.
In Chicago, a second downtown Courtyard was to have been developed for the company at the southeast corner of Hubbard and Orleans Streets by a subsidiary of Chicago-based Marquette Properties.
That project was suspended almost two years ago because of the combination of unfavorable economics and the company`s concern about adding two hotels at once in a city where room supply was clearly outstripping growth in demand.
Still, Marriott is ”looking at” a proposal by an area franchisee to acquire the shuttered Whitehall Hotel a few blocks north and turn it into a Fairfield Inn, a limited-service hotel brand owned by Marriott.
The new Courtyard at State and Hubbard is intended eventually to be sold to investors when the market for such transactions improves. As usual, Marriott will take a long-term contract to manage it.
”Chicago`s downtown is very overbuilt,” said Bill Marriott. ”The completion of the McCormick Place expansion should increase demand, and the institution of casino gaming would help a lot.”
The Marriott brothers find themselves coping with markets vastly different from those their father, J. Willard Marriott, and mother, Alice Sheets Marriott, faced in 1927 when the couple opened a nine-seat root beer stand in Arlington, Va., called the Hot Shoppe.
What the company does it usually does well, say competitors and industry observers.
”In terms of their management and operating skills, they are very capable and know what they are doing,” said Eugene Pekow, whose family has been a part-owner of the Midland Hotel and of the Midland Building in which has been located since the 1930s.
Marriott`s problem, says Pekow, ”relates to a shift in management philosophy away from owning and operating hotels for their own benefit to becoming promoters and developers of hotels which they intended to sell off to others.”
”For a while, their program was quite successful,” he said. ”They would develop a property and get it up, find people to buy it and then run it for them under management contracts and gather in the first dollars that came in right off the top.”
Changing tides in economics and government swept the plan off course, however.
”The changes in the tax laws and in the economic climate should have told them to stop,” said Pekow. ”If not in 1986 with the changes in the tax laws, then by 1988 for sure. But they were still getting fees, and they thought the goose was going to keep laying the golden eggs.”
Some of Marriott`s hotel limited partnerships were sold to ”doctors and dentists,” an industry expression that Pekow says connotes ”people who are generally unsophisticated in the real estate market who are looking for great returns.”
When the bottom fell out, Marriott was left with ”a lot of properties they couldn`t sell,” says Pekow. ”The cash from `the next fool`-the next buyer-wasn`t coming in. They sure did come to an abrupt halt for a while.”
Marriott, meanwhile, had incurred huge debts as a result of its development program, having indulged in leveraging activities that Pekow says are different from those employed by long-term owners such as himself.
”Any time we would borrow money, it would be for an upgrading and physical improvement of our own property,” said Pekow. ”There is a different attitude when you are going to buy something that you are going to live with. It goes beyond the approach of a developer who is going to be living in Bermuda by the time somebody finds out that something the developer sold off and got rid of is not the best.”
Problems aside, Marriott Corp. is highly respected in the industry, says Richard Bayard, general manager of Swissotel Chicago.
”It`s a very good company. They have strong and effective return-guest incentives,” he said.
How does the nearby Chicago Marriott Downtown compare with the Swissotel? ”They cater to the conventions and are good at it. We cater to the individual business traveler. You wouldn`t go to the Marriott looking for a culinary delight, but it offers a good consistent product.”
Today, Alice Sheets Marriott and her sons and their families control 25.8 percent of the corporation`s common stock.
Both sons worked in Hot Shoppes Restaurants as teenagers and later moved up as the company became increasingly diversified.
Bill Marriott became general manager of the company`s first hotel, the Twin Bridges Motor Hotel in Arlington, in 1957 after a stint in the Navy. He became chief executive in 1972 and was elected chairman in 1985 after his father`s death.
Richard Marriott joined the company full-time in 1965 as manager of a Hot Shoppes Restaurant, and over the years oversaw the restaurant division. He has worked increasingly in other areas as the company has phased out of that sector.
The company sold its Roy Rogers restaurant division in 1990. Its Bob`s Big Boy restaurants, which once numbered more than 1,000, are now down to 100, mostly in the Washington, D.C., area.
In addition to owning, operating or franchising 443 hotels and resorts, Marriott manages food service under contract for 2,800 clients, including businesses, hospitals and educational institutions; provides housekeeping, plant operations and security and laundry services; operates 28 conference centers; and provides on-site child- care centers for employers.
It operates the dining facilities at the Shedd Aquarium, the Museum of Science and Industry, the Naperville School district, Highland Park and Mt. Sinai Hospitals and Wheaton College. It provides dining facilities and child care at Northern Trust Bank; and cleaning services at Northwestern Memorial Hospital and Rush-Presbyterian St. Luke`s Medical Center, in addition to more than 100 corporate dining accounts in the Chicago area.
It operates the Seaside Restaurant in First National Plaza and the Post Place Cafe at 225 W. Wacker Drive. It operates travel plazas on the Illinois Tollway at the Abe Lincoln Oasis in South Holland and at the O`Hare Oasis in Schiller Park.
Senior living centers are regarded as a promising area in which Marriott has established a solid foothold. It has four such centers in Virgina, Arizona and Florida.
White Lodging Services Inc. based in Merrillville, Ind., operates hotels under franchises from Radisson, Comfort Inn and Ramada, but ”our primary focus today” is in acquiring and converting additional properties to Marriott`s Residence Inns, Courtyards by Marriott or Fairfield Inns, said Deno Yiankes, vice president of development.
White Lodging, an affiliate of Whiteco Industries, is converting a formerly independent hotel near the Notre Dame University campus to a Residence Inn. Whiteco took over a Ramada in Indianapolis and converted it to a Courtyard. In Ann Arbor, Mich., Whiteco converted a Days Inn to a Fairfield Inn and a Ramada to a Courtyard.
”We rank Marriott A-plus as a franchiser,” said Yiankes. ”We pay them for the use of their name and their reservation system. Marriott products consistently outperform their competition in the various hotel segments, both in market share and yield. They are A-plus to deal with, first class in our being able to speak to them and being able to get feedback.”
Whiteco, like Marriott, sees some glitter in the muddy economic climate.
”Now we can buy (hotels) literally at 40 to 50 percent of replacement cost. We concentrate on properties held by institutions, where the insurance company or bank has had to foreclose and write the project down,” said Yiankes.
”Our strategy is to provide equity to help with the conversion-usually from $200,000 to $1.2 million-to comply with Marriott`s standards and ours. The institution will usually provide the financing for the purchase of the property. We started in the Midwest, and now we`re looking nationwide.”
Marriott`s stock performance, which had been falling behind that of such large competitors as Hilton Hotels Corp. and Promus Cos., began making a comeback in the first quarter of this year.
”Marriott has a nearly unmatched reputation in all of its brands, in hotels, in food service, and in Host International (which operates tollway plazas),” says Margo Vignola, an analyst for Salomon Brothers Inc. ”The problem is that the industry is still rife with excess capacity, which has hindered their ability to sell properties, and the carrying cost of the $1.5 billion worth of properties is high.
”As a result, they have encountered a tough time in realizing bottom-line improvement in earnings. That`s one of the reasons that we are neutral on the stock. But in the long term, Marriott will revive, and when the industry truly turns around and some of the excess capacity is less of a problem, the company will be profitable once again.”
Meanwhile, Bill Marriott is cutting debt by shutting off capital spending and selling off properties, including two Marriott Suites leases in the northern suburbs that Marriott recently sold to ITT Sheraton.
”We were overleveraged and overhoteled,” he said. ”Sheraton wanted to get into that segment. We did it to generate cash.”
By the end of the year, he expects to have lowered the debt to $2.6 billion from $3.6 billion at the end of 1990.
Meanwhile, Bill Marriott depends on the strong hotel brand name to ward off some of the devastation in the motel market until demand for rooms can catch up.
”The most important thing is that everybody has stopped building,” he said.
The company`s diversification should continue to act as a buffer, meanwhile.
Last year, for instance, bad winter weather and the Persian Gulf war may have hurt hotel business in some areas, but they helped the company`s sales at airport concessions.
”There were delays because of increased security measures in the airports,” said Bill Marriott. ”When you have delays, people sit and drink and eat. If we could get the airport at Chicago, which so many flights pass through, shut down for several days a month, we would be very successful.”
