Marriott International Inc Fundamental Analysis

Marriott International Inc is widely recognized for its strong competitive advantage, which stems from its well-established brand, network effect, and high switching costs for third-party owners. These factors combine to create a wide economic moat for the company.

Marriott's brand advantage is evident in its successful expansion into new hotel brands. Over time, the company has steadily grown its brand portfolio. In 2000, Marriott had 10 brands and 2,100 hotels. By 2015, the number had increased to 19 brands and 4,400 hotels. As of 2022, Marriott proudly boasts an impressive 30 brands with over 8,000 hotels. This growth has been achieved through both the acquisition of Starwood in 2016 and organic expansion.

The acquisition of Starwood by Marriott has greatly strengthened Marriott's brand and its ability to create switching cost advantages. By combining Starwood's luxury brands with Marriott's select-service upper-scale brands, Marriott now offers the widest range of brands in the industry.

Marriott's loyalty program is one of the most robust in the industry, further solidifying its brand presence. Marriott.com boasts an impressive membership base of over 182 million loyal customers. These members account for approximately 50% of all room nights booked, highlighting the significant contribution of the loyalty program to Marriott's success.

The loyalty program also creates a network effect for Marriott International Inc. A network effect occurs when the value and benefits of a product or service increase as more people use it. As more people join Marriott's loyalty program and experience its benefits and rewards, the program becomes more attractive to potential customers. This, in turn, encourages more people to join and remain loyal to the brand, creating a positive feedback loop.

Furthermore, Marriott's extensive brand presence and hotel portfolio contribute to the network effect. As Marriott expands its footprint and offers a wide range of hotels across various locations, customers are more likely to choose Marriott due to the convenience and familiarity of the brand. This network effect further strengthens Marriott's competitive advantage and customer loyalty.

Marriott's economic moat is further supported by the consistent demand from third-party owners and the long-term contracts for its managed properties. Marriott holds a dominant position in the management of properties in the hospitality industry. Property owners who choose to delegate management duties seek a reputable brand and an experienced team capable of handling tasks such as reservations, advertising, marketing, and labour management.

Property owners and Marriott enter into managed and franchised contracts that typically last for 20 years, with the possibility of renewal for an additional 50 years. If a contract is terminated, substantial investments are required to renovate and rebrand the property according to new specifications, leading to disruptions in the owner's business operations. Additionally, the owner is responsible for paying termination fees. Due to Marriott's strong brand and expertise in management, this creates significant switching costs for the owners.

Marriott's focus on franchised and managed properties, rather than owned properties, also brings several advantages such as higher profit margins and lower capital requirements. This strategic approach results in Marriott achieving higher relative returns on invested capital, operating margins, and earnings before interest growth compared to its key competitor, Hyatt, which has a larger portfolio of owned properties.

Marriott International Inc's strong brand, extensive portfolio, and loyalty program help create a wide economic moat. The loyalty program also fosters a network effect, attracting and retaining customers. Marriott's dominance in property management, with long-term contracts and high termination costs, establishes significant switching costs for owners. With these competitive advantages, Marriott is a formidable wide economic moat company in the industry.

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