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00:00So Marriott itself started in nineteen twenty seven and W. root beer stand on 14th Street. That was a big story that a non Marriott had become the CEO. I worked with Bill Marriott for all of the 22 years now twenty three years of the company. The mini bar has the same thing in its Pringles and totally wrong . We figure sooner or later the government will come out and say that's a balanced meal when I check out. They want my credit card again. Well they shouldn't need that unless there's something deeply suspicious about you that could be the case . Would you fix your tie please. Well people wouldn't recognize me if my tie was fixed. Stay with us. All right. I don't consider myself a journalist and nobody else would consider myself a journalist. I began to take on the life of being an interviewer even though I have a day job running a private equity firm. How do you define leadership. What is it that makes somebody tick . So Marriott itself started in 1927 when J. Willard Marriott at the age of 27 as I understand it started a root beer stand is that right. That's right. And W. root beer stand on 14th Street about a mile from here. OK. So when did Marriott actually get into the hotel business. The first hotel opened was in 1957. So 30 years after the company was founded. So that's open in the late 1950s. What propelled her enabled Marriott to become the largest hotel company in the world. What was their secret sauce. Well I would say there are two things . One is a cultural piece which is from the beginning when it was a restaurant company principally the founders talked about take care of our people and the people will take care of the customer and the customer will come back again and again and and in that is a real focus on sort of an authentic welcome. I think the second is we had a period when we were sort of a mini conglomerate. We were in time share and senior living in cruise ships and a number of other things. But increasingly the last 30 years or so what's been focus focus focus on the hotel business. Talk about your own background for a moment. You're the first non family member to be the CEO. How did that happen . Well you know one day at a time. Things evolve. Like you I'm a reformed lawyer so I came to Washington. I grew up where I grew up in the Midwest mostly. My my I was born in Tokyo Japan actually lived there till I was seven. What were you doing in Japan. My parents were Lutheran missionaries. They were there for 13 years. So Japan was very much there. That doesn't count the time he spent there as an Army sergeant. Forty five and 40 when you were growing up did you speak Japanese. Rumor has it . Yes. You left there and and went to Minnesota Minnesota where I grew up in St. Paul. And then I went to a small college in Decorah Iowa called Luther College which is where my father and both grandfathers went to school. So it's obviously a loose route through school. Pretty good deduction right. And your family ancestry is from Scandinavia Scandinavia mostly Norwegian . OK. A little bit of Dane and Swede just to make it interesting so what. Why did you not want to be a Lutheran minister yourself or a missionary. Well the language we use is I didn't get the call which is a sort of sacred call towards a profession. So you decided to go to law school what did your parents say when you said you were gonna be a lawyer. They were obnoxiously proud of me and my siblings for their entire lives and great supporters. After you graduated from law school you decided to go practice law where Latham and Watkins in Washington Latham and worked in Minnesota. How did you go from Minnesota to Washington D.C. What was the reason you decided move to Washington City you presumably hadn't really spent too maybe a little bit of adventurousness this to get thanks and get away from home. I had clerked in L.A. and New York clerked for a judge in New York Washington seemed like a great place to live . How did you go from Latham to Marriott. So I represented Marriott is the is the short answer. Marriott obviously must be happy with your job. So that was a big story the time that a non Marriott had become the CEO. Were you shocked that that actually happened. By that point in time it was no longer surprising. I think the I benefited from a few things I worked with Bill Marriott for all of the 22 years now. Twenty three years I've been at the company plus the years before when I was practicing law and so I've learned a lot from him. He got a sense of who I was got to know the family company obviously got to know who I was and so there was a an evolution over those over those years that made it not surprising event takes him back. Bill All right. Today is eighty eighty seven eighty seven years old and he is the chairman of the board still. And I guess his family is still the largest shareholder. That's right. So he's very much involved and still what you're doing . Yes. During your watch Marriott made a major acquisition the largest acquisition it's ever made. It bought Starwood for thirteen point seven billion dollars. You were competing with a Chinese company that time hand bang. Were you worried that you were overpaying. How did that bidding war go and how did you actually win at the end. Well it was it was a great process and as a company that had been pursuing strategic alternatives it had been for sale for most of 2015. And initially we thought it was too expensive. But the it got cheaper for us over the course of the year in early 16 Chinese surface and throw in a rival bid before the shareholders. Well that's when en banc comes in and that throws a whole new wrinkle in it made it cost us a little bit more but we still to my surprise came out on top . So did you go Marriott say look I don't like to spend thirteen point seven billion dollars for hotels we'll just build them that he'd say your job is on the line of us doesn't work out . No actually he was I was very touched by his first reaction actually is maybe his second reaction his first reaction I called him on the phone and I said I want to talk to you about buying Starwood but don't for many points of view yet because we need to take you through in the financial model and the strategic Hang Seng. And he held himself back for three or four days because I was worried that without grounding he would say why on earth would you take this risk. But then I got back . SIMON That was a phone call because I was on the road and got back into the office and he said he was thinking about the human side of this. First he said Ernie you know you don't have to do this. You're already working very hard. The company is going great. There's gonna be a lot more work if you buy Starwood and you shouldn't feel like this is something you have to do. And he was thinking about it first from just you know my health and and sort of the way I live my life. OK. So so far it's worked out pretty well. Yeah. Yeah it has worked it's worked great . We had we had some bumps last year a cyber hack and some other things which are not just like that. You had a cyber hack of a Starwood loyalty program was it Starwood reservation system reservations. Yes so what. Who called who did the hacking . Well we don't know and probably will never know the. We know that somebody was in this Starwood reservation system from when from before we bought Starwood. So how much will it cost you to fix this hack and your penalties associated with it. We don't know the answer to that either. It'll end up being a number of quarters of billions of dollars the penalties we don't know yet . Some people speculate that it was people in China who were interested in hacking and you have any comment on that. There's been public public speculation that it's China. We don't have the expertise to have a clue about them. But you hired somebody to figure it out are you trying to figure it out now. You know we could in theory I suppose but we're not we're not investigators. What is the most profitable part of the hotel . Well it would be in the guest room and in conference. So of course conference has guest rooms too. So there's sort of a tweener if you will but the guest room margins are great. You know obviously it depends a little bit on the precise rate in the market that you're in. There's the cost is really housekeeping and the capital costs of buying the materials in that room the conference business is good because banqueting is a fairly profitable. It's a predictable food and beverage business unlike the restaurant business which is a little harder to predict. People complain that sometimes you new hotels it's hard to figure out to turn the lights off. I complain sometimes how to turn but when I complain I'm not going to get the response you get when you complain right. Yeah well I bet you get the same response which is just do your best so let me ask you about hotels specifically the experience because I travel a lot. I'm on a road maybe two hundred and thirty days a year and I spend a lot of nights in hotels. My experience has been that everywhere I go every hotel the mini bar has the same thing in its Pringles and totally wrong. Now is the Pringles person the best salesperson in the world. Why is why are Pringles in every single mini bar. What's what's what is it with Pringles. We figure sooner or later the government will come out and say that's a balanced meal. So you want to be ahead of the government. But you know in truth Pringles are obviously the brand brand is known broadly . They're packaged Well you know they tend to be these cans about this bag of Pringles but people seem to like it and total around it's the same. These are two two bits of sort of ultimate quick comfort food when you're getting in late or you're getting in early you think. It seems that operate hotels like Marriott they say we lose money on the mini bars. But if you look at the prices on many bars they seem to be hard to lose money on. What how do you lose money on minibar. This is the shocking thing . We lose money on many bars and we lose money in room service and both are expensive. When you compare them to the cost of buying Pringles in a grocery store or the cost of buying breakfast at the cafe How do you lose money on room service if price are pretty high. Well it it varies a little bit by market of course in some markets in the world we still make money on room service . But if you look at the United States room service is higher end hotels which means it's in urban markets where labor is quite expensive. We're often required to have a separate line in the kitchen where that material is going to be done. It's gonna be delivered. You've got you know all the things that are associated with that service and it just it's an expensive proposition. And when people check into a hotel I check in hotels and I say Here's my credit card they want my I.D. these days OK. Then when I check out they want my credit card again why do they need my credit card after I checked in the day before and why do they need it again. Well they shouldn't need that unless there's something deeply suspicious about you that could be the case. Maybe it might. My advice would be don't check out just just sure the reason this is suppose I check in and say look I don't really like credit cards and all that . I'll pay you cash. Here's my I.D.. Well you take somebody who's money if they just say I only pay. I only have cash . Yeah I think we will know they'll they'll still get your I.D. and they'll they'll use their judgment try and figure out why you're paying cash but they might take a little bit extra cash in case there is damage to the game or some suppose I come in with cash. I say I want to pay cash. I only need the room for an hour today. What do they say. Well you know we got to pay the full rate or can I get to negotiate an hour rate. You do that. We don't. I don't know that we have any hotels that have rates by the hour. Really. I check out of a hotel sometimes and I do check out. They say Did you have anything in the minibar last night. Now I hate to stand there in front of people say I had some gummy bears I had some whatever else I just say no. Now I assume they'll figure it out later. There's another reason why we lose money on the minibar. OK. So why . Because everybody who has those Pringles. Nobody wants to admit it. Right. So do people actually admit I had a Pringles last night I have an inventory of all the things I had last night . Do people just say I had nothing and then you later go in the room and you charge them later. That's right. I mean that's that's the way this works. Somebody will go into the room later and take an inventory of the minibar and see what was there . Now in some you've probably noticed this some of the mini bar fridges are set up to be self reported. So you'll take you'll take a beer out. I know that I don't like that sometimes because if I go to pick up something and then all of a sudden and then I realized I really don't want that and I put it back down it's already charged. You'd better drink it. Yeah . Now when people check out of a room what percent of people leave it a mess. 100 100 percent 100 percent of the towels are on the floor. The food is spread everywhere. It's not good. We are very few of us are at our best or neediest when we're in a hotel room because we know we're not clean enough. So you know the hotels or the towns end up on the floor. The leftover dinner from the night before is sitting on the desk bed's never made of course. What percentage of people accidentally take the towels with them. I don't think it's a very high percentage. The robes would be even less likely although more tempting. Now when most of those robes are for sale but if you read the right one of those people take the robe and it's not they didn't say they were taking. Just charge them later. Yes. What percentage of people take all the cosmetics they lotions they that all this stuff. What percentage of people take that with them. Most of them most of all. I think the. And again we don't have I don't have hard data on this either but we're by. I bet we're buying 30 or 40 million pounds a year . And so we've got one point three million hotel rooms open today . So basically the pens are walking out every day and people are welcome to take them. I love sitting on an airplane and have somebody sit next to me and pull out there. Mary at pen to do their notes. It's perfect. You tell them who you are. It depends. The the. And soap. A new soap is often taken as well . And that's that's fine. But you'd save money if they didn't take this stuff. That's it's true. But are you really going to sit there and ask them that they took. And so now I have a theory. You may think it's not right that hotel companies know when you're in the bathroom because that's when someone knocks on the door. Is that the case. I mean I always notice when I'm using the bathroom people are knocking on the door and that the hotel people are coming for this or that. Is that true that they really know when you're in the bathroom. That's when they knock on the door. Is most certainly not true. Not true. OK . But sometimes they knock on the door and all they want to do is give you a piece of paper they can slip it under. I wonder why they don't do that. Yeah. The. I mean I think there's a there's a bit of a riddle here in the sense it's a tongue in cheek question. But the serious riddle that we have is sometimes we want to give you a service because it's with the way we've done it traditionally that you may not want. In an example of this which is happening across the system today is we have now for the first time the ability to give you your key on your phone so you can entirely bypass the front desk. And it's a bit of a riddle for us because you think about the luxury experience. We want to welcome you. I want to tell you how important you are to us but if you actually don't appreciate that if you want to. It's 11:00 at night. I just want to get to my room. Think we're better off saying Well if you want to do that we've got a vehicle to light it. What's the biggest complaint you get by people who stayed in hotels. I think that the most frustrating thing to travelers is noise people people. Now of course it varies a little bit by type of stay and the rest of it. But the thing that is most common is we want a good night's sleep. I'm glad to hear that because that's my biggest concern when I check in a hotel. Number one is I wanted to be quiet because I want to sleep or read or think . Number two hard mattress. So that my back isn't falling apart three figure out how to turn the TV on for how to turn how to turn the lights on and turn them off. People complain that sometimes these new hotels it's hard to figure out to turn the lights off. I complain sometimes you know how to turn when I complain I'm not going to get the response you get when you will complain right. Yeah well I bet you get the same response which is just do your best. The biggest challenge for Marriott today is what maintaining the right people around the globe as we grow . We're growing quickly we're opening that hotel every 15 hours for the next three years. We've got to make sure we bring in the people who can deliver the kind of authentic welcome we so let's talk about the hotel business itself and Marriott. So you are the biggest operator of hotels in the world and most rooms in the world. So is your main competitor Hilton or is it Air B and B or is it somebody else. Of course we've been competing against Hilton and many other hotel companies for the 70 years we've been in the hotel business and that competition is intense Air B and B is a pure competitor but in a different part of the market many of their customers are choosing to stay with them for one reason only and that's because it's cheap and we're not really in the bottom of the market where our business is never going to provide the cheapest day. But then you get Google you get other digital platforms that are partners of ours. We obviously get many of our customers coming to us through that search but they've also got data about all of us and there they are working on monetizing that data. How do we use what we know about David Rubenstein to deliver him to Marriott or to somebody else and make some money. And that makes them a not a competitor in the sense that they're offering hotel stay but a competitor in the sense that they want to be in the relationship we have to worry more about the data collectors Google or Facebook maybe having data on your customers more than they should. That's the hardest thing to predict that ten years from today or even five years today. Where do you think the hotel world will be in the sense of you check in. You don't have you don't need people at the registration desk is walk in . What would be different about hotels in five or 10 years from today. Well we'll have we'll have more of them. For one thing I mean I think we will continue to see that people value travel . I think we will continue to see a growing traveling class around the world not just Americans but in the developing world . And so it will I think continue to become a more more important theme to folks five years from now is not very long . I do think digital keys you know using your phone to open your room will be available everywhere. And I think we'll be broadly adopted but I don't think it will be exclusive. There'll be some number of customers who say no I don't really want to figure that out . I want to go to the front desk and get my key and we're going to have to make sure we satisfy all of those customer about facial recognition just walk in and facial recognition would be able to get you into your room or not. It could be. Yeah. We have done. We've got a couple of pilots on that. It'll be interesting to see I mean you've got the privacy questions here too that are not when you check into a hotel. Do you tell people in advance you're checking in so that Marriott they know you are. But do you use a pseudonym or do you check in with your real name. I don't. I check in with my real and do they know you're coming in advance. I think they do. Yeah. And then you get you get the presidential suite or something. They tend to take reasonably good care of me. And the biggest challenge for Marriott today is what. Well there are many challenges I guess I would say that maintaining that the right people around the globe as we grow we're growing quickly we're opening that hotel every 15 hours for the next three years . We've got to make sure we bring in the people who can deliver the kind of authentic welcome we have tight labor market the United States obviously. So practically we've got to use the tools to recruit and retain and motivate and that that is something we spend a lot of time on. Now in your business you'll presumably want tourists to come the United States I assume use your hotels. Has it been a problem with the administration. They have had some policies that have been made it may be more difficult for people coming. I'd say it's well the U.S. is losing share of global travel. CRYSTAL CLEAR WE'RE LOSING SHARE now put it in context for a second just to set the table. Ninety five percent of the hotel business in the United States is domestic travelers. Ninety five percent of hotel business people in the United States who are traveling in the United States nine states. But we are seeing global growth global employment's if you will increase by nearly 10 percent a year and the U.S. is only growing by 2 or 3 percent a year. So you can see that we're losing share in and a reason for that is the rest of the world sees the United States as less welcoming today than it did. Have you talked to President Trump about this. I have. And what does he say. He says he doesn't mean his words to be taken that way. It is about the stance he's taken on immigration and the wall. And he well we're talking about is not immigration we're talking about travel and tourism . I think the the to the extent he thinks about it it must be that somehow it relates to that other issue. Now you are up Scandinavian ancestry so you're very low key very even tempered. What makes you upset. What do you ever yell get mad at people throw things . What do you do. I don't tend to raise my voice. I don't tend to throw things suppressing the Scandinavians are described as stoic Of course. So when we get angry we get quieter and but that doesn't mean it's invisible either. And the things that frustrate me the most are not hearing the bad news that I should hear. So if somebody if somebody is holding back because they don't want to fess up that's that's the thing that gets me gets me going. So the thing that makes you the most excited about your job is what. Well it's getting around to see how people around the world like. Like you I'm on the road two hundred twenty five nights a year. Something like that. I was in Asia the week before last. Shanghai hunger Joe and Sue Joe . China Sunday I go to Cape Town in September and to be able to get to those places and see teams of people that are Marriott people. They feel like they're part of our team. So you know very different cultures. It's only extraordinary. If I had bought the stock of Marriott the day you took over. I would have made I would've more than tripled my money. So is it still a good buy. I think it's still a great buy as good as it was when you took over ise. I think we're just getting going really . Okay well thank you very much for a great time. Thank you . Regulation to be with the .

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The David Rubenstein Show: Marriott CEO Arne Sorenson

David Rubenstein sits down with Marriott International Inc. CEO and President Arne Sorenson for a broad conversation about how Sorenson became the first non-Marriott family member to be CEO, the challenges of leading a global hospitality company in the Trump era, and how he manages dual threats from Airbnb and Google. Sorenson also spills the beans on the "real" story about room service, the mini bar, and why he doesn't care if guests take the soap. The interview took place on April 10 in Washington. (Source: Bloomberg)

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