Will Marriott’s Buyout Of Starwood Hotels Create A Monopoly In Africa?

By Dana Sanchez Published: January 26, 2016, 12:26 pm
Marriott's Buyout Of Starwood HotelsSheraton Soma Bay Resort, Red Sea, Egypt. Photo: ezeetechnosys.com

Marriott, already the largest hotel chain in Africa, is merging with competitor Starwood Hotels and Resorts in a $12.2 billion deal that will make the U.S.-based corporation the largest hotel chain in the world, according to reports in Investopedia and HotelNewsNow.

Also based in the U.S., Starwood has a dominant footprint internationally, especially in luxury lodging, and the acquisition will increase Marriott’s upper-upscale accommodations.

It’s part of a trend for consolidation across the global hotel industry, and these global mergers are likely to impact on African hospitality significantly, HotelPartnersAfrica reported in November.

“This domination by the new merger company will lessen over time, as other companies start to understand the appeal of the African market,” said David Harper, head of property services for Hotel Partners Africa. “New operating companies are coming into the market all the time, and the options for developers are expanding to new levels on a monthly basis.”

With more than 80 percent of its revenue historically coming from inside the U.S., Marriott has been vulnerable to U.S. economic downturns, Investopedia reported. To be profitable and compete with alternate lodgings such as Airbnb, Marriott adopted a growth strategy to expand internationally.

In January 2014, Marriott acquired South Africa’s Protea Hospitality Group. Marriott manages 45 percent of Protea properties, franchises 39 percent of them and leases 16 percent. The deal is seen as profitable for both sides. Buying Protea’s 116 hotels and 10,000-plus rooms in seven countries makes Marriott the largest hotel chain in Africa, Investopedia reports.

Before the Starwood bid, Marriott spent more than $15 billion on 200 luxury and upper-upscale projects around the world. This will increase Marriott’s luxury accommodations in from 11 percent to 25 percent, Investopedia reports.

The Starwood buyout will mean Marriott has 5,500 properties, 30 brands and more than 1.1 million rooms. Starwood Preferred Guest, the company’s successful rewards program with 21 million members, will eventually merge with Marriott’s rewards program, which has 54 million members.

The buyout is expected to be complete in mid-2016.

“The combined company would represent approximately 10 percent of the total hotel supply in the world—a hefty amount to be sure, but certainly not a monopoly,” said Jeff Higley, editorial director of HotelNewsNow.

Before Marriott bought Protea Hotels, it had no presence at all in sub-Saharan Africa, according to an interview with retiring Marriott CEO Carl Berquist in CFO.com.

Starwood Hotels and Resorts began reducing its investments in owned properties in 2006 — a strategy described as “asset-light.” Converting to a majority franchised model lightened the company’s load and earned it more than $7 billion in cash. Ultimately, Starwood grew its earnings from franchise fees from 17 percent to 65 percent between 2000 and 2014, according to Investopedia. The strategy seemed effective but revenue dropped and growth slowed. Analysts say questionable real estate decisions resulted in 4.4-percent revenue drop in fiscal 2014 for Starwood.

In spite of Starwood’s stalled growth, the company’s dominance internationally, especially in upper-upscale lodgings, made it an ideal fit for a Marriott acquisition.

Over the next five years, Marriott International brands including Protea plan to expand from 10 African countries to 18, developing an additional 38 properties, Marriott said in a press release in September.

Expected to open by February 2018, the 150-room Johannesburg Marriott Hotel Melrose Arch and 200-unit Marriott Executive Apartments Johannesburg Melrose Arch will be the first Marriott-branded properties under development in South Africa.

Africa is important to Marriott International’s growth strategy because of its rapid economic growth, growing middle class and youth population, as well as the expansion of international flights onto the continent,” said Alex Kyriakidis, president and managing director for Marriott International Middle East and Africa. “With over 850 million people in sub-Saharan Africa, there are enormous opportunities there.”

Most of Marriott’s customers in Africa are people who already live in Africa, said Marriott CEO Arne Sorenson in an August 2014 USAToday interview.

“Mostly it is local travel,” Sorenson said. “With 80 hotels in South Africa, our biggest source of business is South African travel.”

Marriott brands include JW Marriott, Bulgari Hotels & Resorts, Ritz-Carlton, EDITION, Autograph Collection, Moxy, Courtyard, Fairfield Inn & Suites, SpringHill Suites and Residence Inn,Investopedia reports. Sheraton is Starwood’s most recognized brand.

With more than 80 percent of its revenue historically coming from the U.S., Marriott has been vulnerable to U.S. economic downturns. To be profitable and compete with alternate lodgings such as Airbnb, Marriott adopted a growth strategy to expand its reach abroad.

Marriott has hotels in South Africa, Namibia, Egypt, Zambia, Tanzania, Nigeria, Algeria, Uganda, Ethiopia and Ghana.

Starwood lists existing and upcoming hotels in Algeria, Djibouti, Egypt, Ethiopia, Guinea, Kenya, Libya, Mali, Mauritania, Mauritius, Morocco, Nigeria, Rwanda, Senegal, Seychelles, South Africa, South Sudan, Tanzania, Tunisia, and Uganda.

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