Marriott's Starwood buy will help it when the tide turns for hospitality industry

When two large competing brands merge, a global powerhouse is born. The global hospitality industry is witnessing the biggest merger in history with US-based Marriott International acquiring another US brand, Starwood Hotels & Resorts Worldwide, for $12.2 billion.

The combined entity will become the largest hotel chain in the world with over 5,500 managed or franchised hotels, and some 1.1 million rooms worldwide. It will also become the biggest hotel chain in India, surpassing top three hotel brands - Taj Hotels, Resorts & Palaces; ITC Hotels; and Carlson Rezidor Hotel Group.

The deal will make Marriott a formidable brand in the Indian market. It will be difficult for international and domestic hotel chains to compete with it for several reasons. Over the past three years, Marriott is growing aggressively in India. Since 2013, it has moved up from 6th position to 4th position (in terms of room inventory), overtaking Starwood and Hyatt Hotels Corporation.

Marriott has 29 operating hotels and some 45 in the pipeline. Its major brands include JW Marriott, Courtyard, The Ritz Carlton, Fairfield, Renaissance and flagship Marriott. Starwood, on the other hand, stands at 5th position in India with 47 operating properties and 37 under development.

The No. 1 in India currently, has 13,000 rooms, and Marriott and Starwood combined would have 15,000 rooms.

Even though Marriott entered India much later than Starwood, it has done better in terms of scaling up India operations. Marriott Resort & Spa came in 1999, while Starwood entered much earlier in 1973 when it tied up with the Oberoi Group to launch the Oberoi Sheraton in Mumbai.

Both Starwood and Marriott follow the managed model to grow in India, and their strong relationships with local developers stand them in good stead. Marriott is particularly choosy about its partners. When it comes to sticking to brand standards, Marriott is far ahead of other global chains. Developers are not allowed to compromise on brand standards and cut corners.

So, while a large number of developers want to associate with them, just 10-15 per cent pitches get converted into final contracts. Its high standards ensure that Marriott ends up attracting only stable partner-developers.

In the hospitality business, the return on investment cycle is typically longer - 7-10 years. To run a successful hotel chain in India, one of the key requirements is to work with a group of developers that has long-term vision and understands the hotel market dynamics. So far, Starwood and Marriott have been able to handle this aspect really well.

While the upswing in the Indian hospitality market is taking longer than anticipated, the deal ensures that Marriott stands to gain the most when things turn around.