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The Feasibility of a Marriott Entertainment Central

Marriott Entertainment Central will be established as an entertainment hub of Marriott Hotels where hotel guests, tourists and other people would have access to a movie theatre, game room, and food court all in one convenient location at affordable prices. The business’ physical structure will be located inside Marriot Hotels, at the same time, especially at affordable prices as of January 2008. Marriott Entertainment Central’s mission would be to provide high quality entertainment products and services at the best prices possible for tourists and hotel guests.

Its vision is to be recognized in the community as the movie theatre, game room and food court of their choice. Marriot Entertainment Central envisions promoting, through its staff, the highest level of well being to the community. Marriott Entertainment Central should be in line with Marriot Hotel’s marketing objectives, with strategies focused at: 1) Increasing the line of products and services offered and inform the target market about new features and benefits of the new products and services and its competitive advantage.

This action would be expected to generate a 7% increase in sales through continuous advertising via available media channels and targeting visitors to Marriott Hotels. 2) Influence the business’s objective to achieve 55% of the market share of the earnings of the entertainment market by advertising and by word-of-mouth. 3) Generate at least $40,000 in sales per month by purchasing additional products, increasing the variety of services offered for the different business units and in turn, setting a new trend against the competitors. Overview

Marriott is a worldwide operator and franchiser of hotels and related lodging facilities, Marriott International (Marriott) owns more than 2600 lodging properties in the US and operates in more than 69 countries. Its headquarters are in Washington D. C. In the United Kingdom, there is 75 Marriott hotels to choose from. A world renowned hotel chain, the company’s full-service lodging brands are Marriott Hotels & Resorts, Marriott Conference Centers, JW Marriott Hotels & Resorts, The Ritz-Carlton, Renaissance Hotels & Resorts and Bulgari Hotels & Resorts.

Marriott Hotels & Resorts (including J. W. Marriott Hotels & Resorts and Marriott Conference Centers) is the company’s global flagship brand, primarily serving business and leisure travelers and meeting groups at locations in downtown, urban and suburban areas, near airports and at resort locations. Marriott full-service hotels is a quality tier brand, with most hotels typically providing Internet access, swimming pools, gift shops, convention and banquet facilities, a variety of restaurants and lounges and concierge lounges.

Many Marriott resort hotels have additional recreational and entertainment facilities, such as tennis courts, golf courses, additional restaurants and lounges, and spa facilities. However, hotels are not the sole business of Marriott Corporation. The company’s operations are grouped into five business divisions: Full-Service Lodging, Select-Service Lodging, Extended-Stay Lodging, Timeshare and Synthetic Fuel. In the lodging business the company develops, operates and franchises hotels and corporate housing properties under 13 separate brands and Marriott timeshare properties under four separate brands.

The company operated or franchised 2632 lodging properties worldwide, with 482,186 rooms as of year ended December 2004. In addition, it provides 2504 furnished corporate housing rental units. Its synthetic fuel operation consists of interest in four coal-based synthetic fuel production facilities. Marriott can trace its origins way back in 1927, when J. Willard Marriott entered business with the opening of a nine-seat root beer stand in Washington D. C. Marriott later added hot food to the stand and changed its name to The Hot Shoppe.

In 1929, the company was officially incorporated in the state of Delaware as Hot Shoppes. The company entered the hotel business in 1957 with the Twin Bridges Marriott Motor Hotel in Arlington, Virginia. Growth continued in 1982 when Marriott acquired Host International and became the country’s largest operator of airport terminal food, beverage and merchandise facilities. At the end of that year, the company acquired Howard Johnson, selling hotels to Prime Motor Inns and keeping 350 restaurants and 68 turnpike units.

Marriott became the largest company in food service management in the US in 1986 after its acquisition of Saga, a diversified food service management company. Growth continued through April 1987, when Marriott completed the expansion of its Worldwide Reservation Center in Omaha, Nebraska. Also that year, the company bought Residence Inn, an all-suite hotel chain targeted towards extended stay travelers. That year, Marriott’s sales grew by 24% and its return on equity (ROE) stood at 22%. Sales and earnings per share had doubled over the previous four years, and the operating strategy was aimed at continuing this trend.

Marriott’s 1987 annual report stated that: We intend to remain a premier growth company. This means aggressively developing appropriate opportunities within our chosen lines of business-lodging, contract services, and related businesses. In each of these areas, our goal is to be the preferred employer, the preferred provider, and the most profitable company (Harvard Business School, 1998). Dan Cohrs, vice president of project finance at the Marriott Corporation, was preparing his annual recommendations for the hurdle rates at each of the firm’s three divisions.

Cohrs recognized that the divisional hurdle rates at Marriott would have a significant impact on the firm’s financial and operating strategies. As a rule of thumb, increasing the hurdle rate by 1% (for example, from 12% to 12. 12%a), decreased the present value of project inflows by 1%. Because costs remained roughly fixed, these changes in the value of inflows translated into changes in the net present value of projects. In addition, Marriott reflected on using the hurdle rates to determine incentive compensation.

Annual incentive compensation constituted a significant portion of total compensation, ranging from 30% to 50% of base pay. Criteria for bonus awards depended on specific job responsibilities but often included the earnings level, the ability of managers to meet budgets, and overall corporate performance. Partly, there was some interest in rooting the incentive compensation on a comparison of the divisional return on net assets and the market-based divisional hurdle rate (Harvard Business School, 1998). In a restructuring move, Marriott split its operations into two companies, Marriott International and Host Marriott, in 1993.

Host Marriott split itself again into two separate companies in 1996. Host Marriott continued to own hotels and real estate, and operated concessions at airports, on toll roads and at sports and entertainment attractions. In 1997, the company acquired the Renaissance Hotel Group. Further in 1998, Marriott International increased its ownership interest in Ritz-Carlton to approximately 98%. Marriott’s financial strategy focuses on four key elements, namely: • Manage rather than own hotel assets; • Invest in projects that increase shareholder value;

• Optimize the use of debt in the capital structure; and • Repurchase undervalued shares. Manage rather than own hotel assets. Marriott International is the third largest operator of hotels in the world, based on number of rooms. The company operates hotels in mid-scale, upscale, upper upscale and luxury segments. The company caters to both business and leisure travelers. With its vast portfolio of accommodation services, Marriott was able to achieve a 72% occupancy rate. Also, the company’s customer-loyalty program is the largest in the industry and ensures repeat traffic in its hotels.

Thus, to concentrate on fully integrating development assets, Marriot created development plans, designed projects, and evaluated potential profitability. When the company sold hotel assets to limited partners while retaining operating control as the general partner under a long-term management contract, Marriott succeeded in gaining profits by managing rather than owning. During 1987, three Marriott hotels and 70 Courtyard hotels were syndicated for $890 million. In total, the company operated about $7 billion worth of syndicated hotels. Invest in projects that increase shareholder value.

Today, Marriott focuses on investing in its brand, leaving real estate investing to third parties (e. g. , Host Marriott, Sunstone, Diamondrock, etc. ). This business strategy is a less capital-intensive model that generates higher average returns on assets than real estate-based models. Marriott’s manager-franchisor model also ensures a steady fee stream. Under the fee-based model that Marriott pursues, ensuring a steady stream of new additions to the number of branded rooms under management or franchise agreement is critical to the company’s earnings growth.

Typically, Marriott earns a base fee of 3% of gross revenue from managed hotels and a fee of roughly 5% of room revenue for franchised hotels. The company’s sound business model enables it to leverage its brand identity to achieve economies of scale, whose benefit the company passes on to its customers. Optimize the use of debt in the capital structure. Total debt, net of cash, declined 55 percent in 2004 to $555 million, the lowest level since 1998. As the leading lodging management and franchising company, the hotels and resorts in Marriott’s portfolio have a total value of approximately $70 billion.

However, as a manager and franchisor of these assets, Marriott’s return on its own invested capital was 14. 1 percent in 2004, which is believed as substantially higher than other major public U. S. lodging companies. Marriott determined the amount of debt in its capital structure by focusing on its ability to service its debt. Marriott used an interest coverage target instead of a target debt-to-equity ratio by using the discounted cash flow techniques to identify and evaluate potential investments. Repurchase undervalued shares.

Acquired 10. 8 million shares of its common stock in 1999, Marriot also received authorization in 2000 to repurchase 25 million, or 10 percent of its shares; already has acquired more than 5 million shares this year. Regularly, Marriott calculated a “warranted equity value” for its common shares and was committed to repurchasing its stock whenever its market price fell substantially below that value. The warranted equity value was calculated by discounting the firm’s equity cash flows by its equity cost of capital.

It was checked by comparing Marriott’s stock price with that of comparable companies using price/earnings ratios for each business and by valuing each business under alternative ownership structures, such as a leveraged buyout. Marriott had more confidence in its measure of warranted value than in the day-to-day market price of its stock. In 1987, Marriott repurchased 13. 6 million shares of its common stock for $429 million. Embarking on ambitious stock repurchase programs, Marriott established public demonstrations of self-confidence that can nudge others to consider investing in lodging.

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