Marriott Hotel Franchise Cost High and Payback Long (2023)
Written by: Shirley Coa
Last Updated by
Rocio Somoza: March 1, 2023
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The Marriott Hotel franchise establishes and operates under multiple brand names. They are “Marriott Hotel,” “Marriott Resort,” “Marriott Suites Hotel,” “JW Marriott Hotel,” “Marriot Marquis” or “Marriott Hotel & Conference Cent”. These are some of the hotels that customers first come to when they are traveling, either business or leisure travelers. The hotel’s size ranges from approximately 100 to 2,000 guestrooms. The hotels offer a variety of food and drink options, meeting rooms and ballrooms for meetings and social events, and dedicated recreational and fitness centers. Marriott Hotel franchise offers an unparalleled collection of brands ranging from longer stays to luxury.
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Who Owns Marriott Hotel Franchise?
The Marriott Hotel Franchise is currently owned by Marriott International, Inc. It is the largest hotel chain in the world by the number of available rooms. At year-end 2021, the company had 2,007 company-operated properties (568,864 rooms) and 5,880 franchised and licensed properties (900,437 rooms) worldwide.
Across multiple continents, Marriott International, Inc. has a total of 7,989 properties and over 1.5 million rooms!
FULL-SERVICE COMPANY BRAND HOTELS
| Company Brand | Lenght of Time Operated | Lenght of Time Franchised | Number of Franchised Outlets Operating in the U.S and Canada as of December 31, 2021 |
|---|---|---|---|
| Autograph Collection Hotels | 2010 – Present | 2009 – Present | 128 |
| Bvlgari Hotels and Resorts | 2004 – Present | 2020 – Present | 0 |
| Delta Hotels by Marriot | 2015 – Present | 2015 – Present | 57 |
| Desing Hotels | Not Applicable | 2019 – Present | 9 |
| Le Méridien Hotels | 2005 – Present | 2005 – Present | 23 |
Marriott Hotels JW Marriot Hotels | 1957 – Present 1984 – Present | 1968 – Present 2000 – Present | 229 14 |
Renaissance Hotels Renaissance ClubSport Hotels | 1997 – Present Not Applicable | 1997 – Present 2005 – Present | 58 2 |
| Ritz-Carlton Hotels | 1995 – Present | 2015 – Present | 1 |
| Sheraton Hotels | 1974 – Present | 1974 – Present | 151 |
| The Luxury Collection Hotels | 1998 – Present | 1998 – Present | 11 |
| Tribute Portfolio Hotels | Not Applicable | 2015 – Present | 40 |
| W Hotels | 1998 – Present | Presently not franchised in the U.S and Canada | 0 |
| Westin Hotels | 1998 – Present | 1998 – Present | 91 |
| AC Hotels by Marriott | 2011 – Present | 2011 – Present | 88 |
| Aloft Hotels | 2006 – Present | 2006 – Present | 146 |
| Courtyard by Marriott Hotels | 1983 – Present | 1990 – Present | 849 |
| Element Hotels | 2006 – Present | 2006 – Present | 71 |
| Fairfield by Marriott Hotels | 1987 – Present | 1989 – Present | 1,105 |
| Four Points by Sheraton Hotels | 1995 – Present | 1995 – Present | 159 |
| Moxy Hotels | Not Applicable | 2014 – Present | 26 |
| Residence Inn by Marriott Hotels | 1987 – Present | 1984 – Present | 769 |
| SpringHill Suites by Marriott Hotels | 1995 – Present | 1996 – Present | 486 |
| TownePlace Suites by Marriott Hotels | 1997 – Present | 1996 – Present | 469 |
The company opened its first hotel in 1957 and started to offer franchises for Marriott Hotels in 1968. Formerly called Marriott Corporation, Marriott International, Inc was formed in 1993 when Marriott Corporation split into two companies: Marriott International Inc. which franchises and manages properties and Marriott Corporation owns properties. Since then, Marriott International, Inc. expanded rapidly both in size and geography through multiple acquisitions.
Additionally, Marriott has its own customer loyalty program, Marriot Bonvey, through which members have access to their diverse brand portfolio, rich benefits, and travel experience. The program rewards members with free hotel stays and tours. This loyalty program generates substantial repeat business that might otherwise go to competing hotels. In 2020 and 2021, approximately 50% of the global rooms were booked by the program members.
Marriott International, Inc (MAR) was publicly traded on NASDAQ on November 1, 1993, at a price of $4.96. Currently, it is $152.64 as of May 24, 2022. With a market capitalization of $49.959 billion, the stock is relatively volatile with a beta of 1.57.
How Is the Marriott Hotel Franchise Positioned in the Hotel and Residential Industry?
The Travel, Hospitality, and Leisure industries intersect with multiple industries, such as Food & Beverage, Hotel, Recreation, and Tourism. As it is both a capital and labor-intensive industry, it relies on investments in fixed assets. This industry generates over $1.6 trillion in economic output, representing 2.8% of GDP.
The travel and hospitality industry has grown tremendously over the last few years as flights have become more affordable and people are willing to spend their money on vacations and travel. Under the COVID-19 pandemic, the industry can expect some changes in consumers’ demand, where people will tend to travel more within the borders than abroad. However, this pandemic proves that this is a resilient industry. With rising vaccination rates and the opening of the borders, the industry saw an immediate surge in demand.
Marriott Hotel competes in the travel industry against other hotel and resort properties, ranging from national and international hotel brands to independent, local, and regional hotel operators, as well as alternative lodging companies that rent residential inventory in a manner consistent with hotels.
What Is the Marriott Hotel Franchise Cost?
The total investment necessary to begin the operation of a newly-constructed 300-guest room Marriot Hotel, excluding the cost of real estate and related costs, insurance, and contingencies, ranges from $82,965,890 to $136,885,490 and from $126,336,890 to $206,616,490 for a newly-constructed 300-guest room JW Marriott Hotel. This includes an initial franchise fee of approximately $396,000 to $468,000 for a 300 guest room Marriott Hotel and $417,000 to $509,000 for a 300-guest room JW Marriott Hotel that must be paid to the franchisor or an affiliate.
Opening a hotel requires multiple payments that need to be paid beforehand. Franchisees must pay an application fee: if you are a new franchisee, you are expected to pay an application fee of $100,000 plus $400 per guestroom in excess of 250 rooms; if you are an existing franchisee, you are expected to pay the greater of $150,000 or $500 per guest room. There are also pre-opening fees, including $162,000 to $167,000 for computer hardware and software systems and $114,000 to $181,000 ($135,000 to $222,000 for JW Marriott hotels) for pre-opening training fees.
Once the operations begin, franchisees are expected to pay the company a royalty fee of 6% of gross room sales plus 3% of gross food and beverage sales. For a Marriott Hotel franchisee, you are expected to pay the program services contribution, which is an amount equal to 1.62% of gross room sales plus $50,000 per year plus $510 per guest room per year. An amount equal to 4.2% of qualifying revenue generated by customers earning loyalty points or miles is paid to the franchisor for the Marriott Bonvey program.
The average industry royalty fee is approximately 5.2%, while Marriott Hotel has a royalty fee of 6% of gross room sales. Although this industry average includes other travel-related companies, other than hotels, the percentage of Marriott is relatively high.
How Much Do Marriott Hotel Franchise Owners Make?
Marriott Hotel does not make any representations about a franchisee’s future financial performance or the past financial performance of company-owned or franchised outlets. However, if you are purchasing an existing Marriott Hotel franchise, the company may provide you with the actual records of that franchise.
However, we can estimate sales figures from the average revenue per available room (RevPAR) provided by the FDD. The estimated revenue for hotels can be based on a formula multiplying the chain’s revenue per available room (RevPAR) by the number of rooms and the number of days in the year.
2019, 2020, and 2021 STR Included Hotel Performance
| Calendar Period | ADR | OCC | RevPAR |
|---|---|---|---|
| 2019 | $164.96 | 70.6% | $116.48 |
| 2020 | $146.71 | 31.8% | $46.67 |
| 2021 | $157.42 | 47.1% | $74.19 |
| 1st Half-Year 2021 | $145.85 | 39.8% | $58.02 |
| nd Half-Year 2021 | $165.63 | 54.2% | $89.03 |
2019 Marriott Hotel
Estimated Sales: $116.48-300-365 = $12,754,560
We estimate the average Marriott franchise owner made $12.7M in sales a year.
| Initial Investment (Midpoint) | %Profit Margin of Average Franchise Sales | Estimated Profits | Time to Recoup Investment |
|---|---|---|---|
| $109,925,690 | 8% | $1,020,364 | 109 years |
| $109,925,690 | 12% | $1,530,547 | 73 years |
| $109,925,690 | 16% | $2,040,729 | 56 years |
2021 Marriott Hotel
Estimated Sales: $74.19-300-365 = $8,123,805
We estimate the average Marriott franchise owner makes $8.1M in sales a year.
| Initial Investment (Midpoint) | %Profit Margin of Average Franchise Sales | Estimated Profits | Time to Recoup Investment |
|---|---|---|---|
| $109,925,690 | 8% | $649,904 | 172 years |
| $109,925,690 | 12% | $974,856 | 114 years |
| $109,925,690 | 16% | $1,299,808 | 86 years |
The above estimated sales do not include the cost of financing, depreciation, and taxes. Based on the average sales calculated above, at an average of a 12% profit margin, it will take approximately 114 years to recoup your investment in 2021. We scaled up two years to reflect the time of training and preparation for opening. Usually, the time to recoup investments incorporates roughly a 2-year period to scale up the franchise.
In the pre-pandemic of 2019, it will take approximately 73 years to recoup your investment based on the average sales at an average of a 12% profit margin. Due to the COVID-19 pandemic, the estimated sales in 2021 were lower than that of the pre-pandemic, resulting in a long time to recoup the investment. However, both cases require a significantly longer time to reach breakeven and make a profit compared to other industries.
Is the Marriott Hotel Franchise Profit Worth the Cost?
Normally, the hospitality industry requires a large amount of initial investment in assets before starting to make profits. Marriott Hotel franchise is no exception. According to our estimation above, it requires approximately 114 years to reach breakeven. However, for an industry with a 12% growth rate, we are expecting the RevPAR to increase which results in higher estimated sales and the value of the hotel assets to grow. The time to recoup the investment will be shortened accordingly. For Marriott Hotel franchisees, you should be ready to leverage the use of the loan to finance your initial investment to start the business.
If you plan to sell a Marriott Hotel franchise, you should be prepared to enter at a substantial discount. According to LoopNet, one of the Marriott Hotel Franchises located in Tempe, Arizona, is on sale for $7.5 million with 150 rooms at $47,170 per room. This gives us $14.1 million for 300 rooms. Another Marriot Hotel Franchise in Lansing, Michigan is sold at $12 million with 128 rooms at $93,750 per room. This gives us $28.1 million for 300 rooms. Although the prices vary across hotels and locations, the resell prices are lower than the initial investment.
However, we believe that this is a prospective industry. As soon as the pandemic restrictions were loosened, the average daily room rate (ADR) increased from $146.71 to $157.42, the average occupancy rate (OCC) increased from 31.8% to 47.1%, and the RevPAR increased from $46.67 to $74.19. Additionally, Marriott Hotel has a large base of loyal customers through its loyalty program. Of the 217 STR Included Hotels, 89 hotels or 41.0% met or exceeded the average number of member room nights per hotel of 29,000; and 134 hotels or 61.8% met or exceeded the average loyalty program contribution to occupancy of 52.1%.
| Average Marriott Bonvoy Contribution to 2021 Room Nights and Occupancy (Excluding Member Redeemed Room Nights) | |
|---|---|
| Average Number of Member Room Nights per Hotel | 29,000 |
| Average Annual Loyalty Program Contribution to Occupancy | 52.1% |
How Many Marriott Hotel Units Have Opened and Closed?
The number of franchisees is increasing stably across three years. During the COVID-19 pandemic, Marriott Hotel opened 6 and 7 net new locations in 2020 and 2021, respectively. With single-unit terminations in all three years, the Marriott Hotel bears a low failure rate. Especially in 2020 of the pandemic, there was only one franchise terminated, resulting in the lowest failure rate in three years. The average failure rate of Marriott Hotel across three years is 0.8%, which is significantly lower than the average industry failure rate of 15.61%!
| Year | Outlets at Start of Year | Outlets Opened | Terminations | Non-Renewals | Reacquired by Franchisor | Ceased Operations – Other Reasons | Outlets at End of the Year | |
|---|---|---|---|---|---|---|---|---|
| Total | ||||||||
| 2019 | 225 | 8 | 3 | 0 | 0 | 0 | 230 | |
| 2020 | 230 | 7 | 1 | 0 | 0 | 0 | 236 | |
| 2021 | 236 | 9 | 2 | 0 | 0 | 0 | 243 |
Marriott Hotel Income Statement Takeaways
The net income of Marriott International, Inc in 2021 was $1,099 million. Due to the COVID-19 pandemic, Marriott International, Inc experienced significant losses with a net loss of $267 million in 2020. With increasing revenues and controlled expenses, Marriott International saw an approximately 511% increase in net income from 2020 to 2021. The increase in base management fees and franchise fees primarily reflected higher RevPAR due to the ongoing recovery in lodging demand from the impacts of COVID-19, higher co-brand credit card fees, unit growth, and higher residential branding fees. Although Marriott International, Inc operates around the world, the primary revenues come from the U.S. & Canada segments with $10,356 million and $2,254 million for the International segment, indicating a larger market size and more opportunities for franchisees.
Mariott Hotel Statement of Income
| Fiscal Year Ended | |||
|---|---|---|---|
| 2021 | 2020 | 2019 | |
| Revenues | |||
| Base Management Fees | 669 | 443 | 1,180 |
| Franchise Fees | 1,790 | 1,153 | 2,006 |
| Incentive Management Fees | 235 | 87 | 637 |
| Gross Fee Revenues | 2,694 | 1,683 | 3,823 |
| Contract Investment Amortization | (75) | (132) | (62) |
| Net Fee Revenues | 2,619 | 1,551 | 3,761 |
| Owned, Leased, and Other Revenue | 796 | 568 | 1,612 |
| Cost Reimbursement Revenue | 10,442 | 8,452 | 15,599 |
| 13,857 | 10,571 | 20,972 | |
| Operating Costs and Expenses | |||
| Owned, Leased, and Other-direct | 734 | 677 | 1,316 |
| Depreciation, Amortization, and Other | 220 | 346 | 341 |
| General, Administrative, and Other | 823 | 762 | 938 |
| Restructuring and Merger-related Charges | 8 | 267 | 138 |
| Reimbursed Expenses | 10,322 | 8,435 | 16,439 |
| 12,107 | 10,487 | 19,172 | |
| Operating Income | 1,750 | 84 | 1,800 |
| Gains and Other Income, Net | 10 | 9 | 154 |
| Loss on Extinguishment of Debt | (164) | – | – |
| Interest Expense | (420) | (445) | (394) |
| Interest Income | 28 | 27 | 26 |
| Equity in (Losses) Earnings | (24) | (141) | 13 |
| Income (Loss) Before Income Taxes | 1,180 | (466) | 1,599 |
| (Provision) Benefits for Income Taxes | (81) | 199 | (326) |
| Net Income (Loss) | 1,099 | (267) | 1,273 |
| Earnings (Loss) Per Share | |||
| Earnings (Loss) Per Share – Basic | 3.36 | (0.82) | 3.83 |
| Earnings (Loss) Per Share – Diluted | 3.34 | (0.82) | 3.80 |
| 2021 | 2020 | 2019 | |
| Net Income (Loss) | 1,099 | (267) | 1,273 |
| Other Comprehensive Income (Loss) | |||
| Foreign Currency Translation Adjustments | (212) | 229 | 35 |
| Derivative Instrument Adjustments and Other, Net of Tax | 5 | (3) | (5) |
| Total Other Comprehensive (Loss) Income, Net of Tax | (207) | 226 | 30 |
| Comprehensive Income (Loss) | 892 | (41) | 1,303 |
Marriott Hotel Cash Flows Statement Takeaways
Liquidity is one of the most important measurements of a company’s ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund business operations, operations, and expansion of franchised locations. According to the cash flows statement, Marriott International, Inc has a $527 million increase in cash and cash equivalents. At the end of the fiscal year, its total cash and cash equivalents amounted to approximately $1,421 million.
MARRIOTT INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS – Fiscal Years 2021, 2020, and 2019 ($ in millions
| 2021 | 2020 | 2019 | |
|---|---|---|---|
| Operating Activities | |||
| Net Income (Loss) | 1,099 | (267) | 1,273 |
| Adjustments to reconcile to cash provided by operating activities: | |||
| Depreciation, Amortization, and Other | 295 | 478 | 403 |
| Stock-based Compensation | 182 | 201 | 187 |
| Income Taxes | (281) | (478) | (200) |
| Liability for Guest Loyalty Program | (28) | 535 | 257 |
| Contract Acquisition Costs | (210) | (142) | (195) |
| Restructuring and Merger-Related Charges | (10) | 200 | 86 |
| Working Capital Changes | 110 | (28) | (273) |
| (Gain) Loss on Asset Dispositions | (3) | 3 | (147) |
| Loss on Extinguisment of Debt | 164 | – | – |
| Deferred Revenue Changes and Other | (141) | 1,137 | 294 |
| Net Cash Provided by Operating Activities | 1,177 | 1,639 | 1,685 |
| Investing Activities | |||
| Capital and Technology Expenditures | (183) | (135) | (653) |
| Dispositions | 12 | 260 | 395 |
| Loan Advances | (13) | (41) | (30) |
| Loan Collections | 40 | 8 | 51 |
| Other | (43) | (57) | (47) |
| Net Cash (Used In) Provided by Investing Activities | (187) | 35 | (284) |
| Financing Activities | |||
| Commercial Paper/Credit Facility, Net | 150 | (2,290) | 951 |
| Issuance of Long-Term Debt | 1,793 | 3,561 | 1,397 |
| Repayment of Long-Term Debt | (2,174) | (1,887) | (835) |
| Issuance of Class A Common Stock | 2 | – | 7 |
| Debt Extinguisment Costs | (155) | – | – |
| Dividends Paid | – | (156) | (612) |
| Purchase of Treasury Stock | – | (150) | (2,260) |
| Stock-Based Compensation Withholding Taxes | (90) | (103) | (148) |
| Other | 11 | (8) | (8) |
| Net Cash Used In Financing Activities | (463) | (1,033) | (1,508) |
| Increase (Decrease) In Cash, Cash Equivalents, and Restricted Cash | 527 | 641 | (107) |
| Cash, Cash Equivalents, and Restricted Cash, Beginning of Period | 894 | 253 | 360 |
| Cash, Cash Equivalents, and Restricted Cash, End of Period | 1,421 | 894 | 253 |
Conclusion
Unlike other franchise businesses, franchising with Marriott Hotel should be performed under careful consideration. Besides a large amount of money invested on assets at the beginning, the time period to recoup your investment could vary drastically. As a franchisee, you may have to leverage the use of loans. However, the Marriott Hotel franchise proves to be a stable business once the location starts to operate. The average failure rate is 0.8% across three years, especially under the impact of the pandemic.
The Hospitality industry is prospective, and it is an industry that will never go away. If you are a determined franchisee interested in the Hospitality industry, the Marriott Hotel franchise could be a challenging but worthwhile opportunity.
