Marriott’s thought leaders forecast the future of luxury, labor, $34 bagels

Macroeconomics may be top of mind for hotel investors today, but the undercurrents sweeping through the travel market, hotel operations and brand management will be the real agents of change for hotels in 2024 and beyond, according to Tony Capuano, president and CEO, Marriott International, and Octavia Marginean-Tahiroglu, general manager, The St. Regis New York.

They mapped out their view of what the hospitality business environment will look like in 2024 and beyond in their “Meet the Future” conversation in January at the Americas Lodging Investment Summit (ALIS) in Los Angeles. Moderated by Jeff Higley, president, The BHN Group, this discussion highlighted the perspectives of a major brand CEO and a notable up-and-comer from the company.

Capuano and Marginean-Tahiroglu zeroed in on successful ways to play in a new business climate.

Leverage luxury’s new business mix

Transient business traditionally made up 80% to 85% of The St. Regis New York’s market mix. Today, that number looks more like 20%. Even when the overall economic environment stabilizes, the trends toward remote work, loyalty point redemption and increased leisure or at least bleisure travel make it doubtful that luxury hotels will see a market reset.

This shift invited an operational and fiscal review that recalibrated opportunities to better align services to guest expectations and streamline costs, according to Marginean-Tahiroglu. “Paying $34 for a bagel with cream cheese and salmon was no big deal when you could expense it. Now, when you come to the hotel to redeem loyalty points or for a leisure trip and you’re paying for meals out of pocket, $34 for a bagel with cream cheese and salmon looks like a lot of money,” she said.

Not only did that $34 bagel seem “frivolous” in the new reality, it also signaled missed marketing and sales opportunities. “Luxury hotels have to be more considerate about updating their food and beverage and service menus to build customer loyalty and meet guest expectations,” Marginean-Tahiroglu said.

So, instead of the $34 bagel, new menus reflect guests’ commitment to their health and wellbeing—giving them one more reason to raise their on-property spend.

Increased group business and growth in loyalty-program-driven stays pointed to a new upside in technology-enabled activations that monetize the entire public space. “We can create afternoon tea rituals and celebrations that are Instagrammable,” she added. “Digitalization is part of the future for hotels. We’ve increased our followers and been able to capture new generations that are very much into technology. We can market to them with images that show how we can execute for a special occasion or create something specifically for a family. That builds business and loyalty.”

That, in turn, provided better P&L guidance. “There are two ways to drive profitability,” said Capuano. “You can attempt to cost-cut your way to profitability or you can grow the top line. When you look at the trends we've seen, and the pricing power we've experienced, it would be foolhardy simply to pursue the former. There is a tremendous appetite for luxury travel and luxury experiences. Guests at 5-star hotels are willing to pay a premium and, in some cases, historically high rates for those experiences. But you have to deliver on the services the guest wants.”

What those services are is also changing. “Each generation may have some macro trends regarding their preferences and expectations,” Capuano said. “But it’s much more about customization. Technology allows us to advance and innovate on that front. It creates the capacity for our associates to better engage with customers and better understand their purpose of trip and individual preferences. Then we can tailor that guest’s stay to their expectations and direct them to on-property experiences that reflect their wants and needs.”

Look for deal-makers with the long view

Higher interest rates and inflationary worries won’t stop the deal engine, but they will require investors to be more patient in Capuano’s view.

“If you look at all the big global brands, the volume of transactions, and growth trajectory of their pipelines, it would suggest that the asset investment community has the same confidence in the long-term resilience of travel that our guests have,” he said. “They believe in travel even though they have been heavily impacted by the pandemic. They are quite mindful of the economic headwinds that we face. They have been and continue to be challenged by supply chain issues. They are frustrated at the relative constriction in the debt markets, particularly for new construction. They are lamenting upward trends in construction costs. With that said, I think the vast majority still believe in the long-term power of travel and tourism. And I think you'll continue to see strong growth of the industry globally.

Think globally to solve the labor shortag

Yes, hotels face overarching staffing issues, but the biggest challenge for luxury hotels such as The St. Regis lies in middle management. “It takes a lot of time to mentor, coach and inspire associates working in these positions. And it’s especially difficult to teach resilience,” Marginean-Tahiroglu said.

Higher pay and more flexible work hours are becoming table stakes for hiring and retaining staff. So is the commitment to development of the team—one that benefitted Marginean-Tahiroglu in her climb from an entry level job at the hotel that she took soon after arriving from Romania to general manager of one of New York’s most visible 5-star hotels.

Capuano also would like to see adoption of the apprenticeship programs common in Europe. “A four-year degree can be a gating requirement,” he said. “I was at the Ritz-Carlton Berlin not long ago. We had 12 apprentices working in the culinary department who have a deep passion for culinary arts but don't necessarily want or need to pursue a four-year degree in their view. As an industry, we've got to adopt some of those tried and true staffing approaches that build passion and build expertise in particularly areas like culinary arts.”

Raise the bar for DEI

Both give the hotel industry good marks for diversity, equity and inclusion (DEI). At The St. Regis employees speak “over 100 languages and dialects and represent almost every corner of the planet,” Marginean-Tahiroglu said. “We’re very proud of making our associates feel that they belong in this industry regardless of their preferences or how they identify themselves. That’s our legacy but it’s also part of our future.”

One area that still needs work is in the C-suite. “The reality is that 65% of senior leadership in the business world is male. That needs to change,” she added. “So does the idea that many women I’ve met felt obliged to make a choice between career and family or their personal life. Quite a high percentage made the decision not to have a family in order to succeed in their career. It is our responsibility to shift that conversation at The St. Regis.”