Marriott hotel in Sao Paulo, Brazil. Photo: Marriott.com.
Forget about a struggling economy and other issues: Marriott International (MAR 1.86%) still plans to increase its number of locations in Brazil nearly threefold by 2018. A few years ago, Brazil was thought to be the next high-growth developing economy, as China was a few decades ago. However, now that Brazil's economy is contracting and the country is facing inflation issues, why is Marriott still planning this aggressive development effort in Brazil?
Marriott's surging development throughout Latin America
Marriott's first hotel in Latin America was in Mexico in 1990, and over the next 20 years Marriott added 50 hotels in the region. However, from there development exploded, and that number doubled in the next five years from 50 to 100. Now Marriott says it will add another 60 in the region over the next three years.
Those 60 hotels are spread throughout the Latin American region, but Brazil seems to be the country with the biggest increase. The company now has six locations in Brazil, with 11 more in the pipeline to open by 2018.
Isn't Marriott concerned about Brazil's struggling economy?
Brazil's economy is expected to contract about 3% over the next year, while inflation rises over 9%. Isn't Marriott concerned about these issues? I posed this question to Marriott VP of Development Guilherme Cesari. He told me that he believes these economic issues are short term, saying:
This pipeline today is a result of the efforts from four years ago, and there's no reason to slow it down. Although Brazil is struggling now, we believe the economy will recover and that the demand is still strong and has potential to grow in the long term. Marriott is focused on the long term.
Cesari noted that Brazil still has a strong domestic market, not only with international travelers, but also with many local business and other professionals traveling nationally and needing professional-level hotels. He also noted that Brazil has more than 15 cities with more than 1 million residents, which he calls gateway cities.
With a strong and growing middle class and domestic market, Cesari says there's a hole in the market for the kind of service Marriott offers -- consistent quality in the moderate tier. Marriott sees potential to be the moderate-tier hotel of choice in Brazil, not only for foreigners but also, and more importantly, for locals. To make sure it's the hotel of choice for the local consumer, Marriott is adapting its brand specifically to Brazil.
"Adapting the brand to the market"
Marriott operates 19 various brands around the world, ranging in levels of luxury and service. However, Marriott is only bringing brands it thinks will be the most successful to this market, as well as altering each brand to fit the local market appropriately. This is what Cesari told me:
We are picking brands that will be most successful in the region, bringing in about nine of the 19. Besides that, we are adapting the brand to the market. On all fronts we have a mind-set that is more adaptive to local markets working with local staff that understand those markets. In terms of brands we are adapting to what works in those markets, for example room size. We reviewed how to do the breakfast, how to size the rooms, et cetera.
That's also why Marriott owns some of these locations and why some are being built by local partners in a franchise type of agreement. Of the seven hotels already under construction in Brazil, Marriott owns only two. The others are under construction by local partners, which Cesari says helps to localize Marriott's offerings.
Brazil is just one small part of a large global expansion plan
Cesari's comments make it clear that Marriott is focused on the long-term potential of the Brazilian market, regardless of the current economic woes Brazil is facing, and that the company is working to adapt to be the moderate-tier hotel of choice for the local population, not just international travelers.
In addition, Brazil represents just one small part of a massive expansion push worldwide. As of the most recent quarterly earnings release, Marriott has more than 260,000 rooms in the pipeline worldwide that are in construction or waiting to start construction soon. While this expansion in Brazil is surprising given current economic conditions, it's just one of many regional bets that Marriott is making -- others include its development in other seemingly unique regions such as Africa. It's the long-term focus, diversified bets, and impressive expansion plans worldwide over the next few years that make Marriott look especially interesting now.
