citizenM CEO: Why We Sold to Marriott (And What's Next) - Lennert de Jong

Josiah: Why did citizenM sell to Marriott? Today in this episode, we get the answer to that question directly from citizenM CEO, Lennert de Jong, in a conversation hosted by our innovation correspondent, Matthias Huettebraeuker. You're not only going to hear what was behind this deal, but what's ahead for citizenM and Marriott. There's so much here to learn about trends in hospitality in the hotel industry today. So let's get into it.

[intro music]

Matthias: Disruptive, irreverent, efficient, fun, hugely successful Dutch brand that everybody loves. He was running Commercial Strategy for many years, was Chief Commercial Officer, and after a short educational leave to the world of payment, he has rejoined citizenM and has been appointed CEO lately. Lennert de Jong, welcome to the show.

Lennert: Thank you, Matthias. Happy to be here with you, old industry friend.

Matthias: Old industry friends, exactly. Full disclosure, we worked together on a couple of projects a couple of years ago within the citizenM context. So, as you said, we know each other quite well. Let's start maybe with the inevitable question these days. citizenM, as I said, you are hugely successful. You guys wrote the book on optimizing construction and optimizing operations. You've reinvented service design on the tech side, on the human side of things. You've been very successful at the distribution game. Everybody tries to copy what they see in a citizenM. Maybe not many people understand the bit that they don't see in a citizenM, which attributes a lot to the success, but maybe more on that later. You've been growing at a healthy pace. You took basically the US like the Muppets took Manhattan. So when I was asked to predict your next step, and probably that's because I'm old enough to know the AOL Time Warner deal, I was actually thinking you would buy Marriott at some point. Now they bought you, so what went wrong? Give us a little, without going into too much detail, give us a little insight into the nature of the deal, the structure of the deal, why you decided to join that collaboration or alliance and why now?

Lennert: Yeah, I mean, there's a lot of questions packed into this one. Obviously, a company with 36 assets buying a gigantic platform, but Marriott, of course, has become this. It's unthinkable, but for us, it was a very logical next step in the evolution of citizenM. And we've always heard our founders say, a brand's like a baby when it gets born. And at some point, you try to get it to the adult stage in a safe way. And I would say I've described the first 20 years of citizenM actually as the life of a baby going to a toddler with an occasional tantrum and then early teenage years. And now we're sending our daughter off to college. That's basically what we're doing. And why are we doing it? It's pretty simple as well. There's a couple of aspects. So there's the aspects of growth. We've always had requests from people from all over the world to get our secret sauce and to do a citizenM somewhere. And we've always been a real estate company. We will continue to be a real estate company. We will continue to operate those hotels. The Marriott platform is going to give us and give citizenM as a brand opportunity to go to places where we as a real estate owner did not want to go to. So that's step number one. The acceleration of the growth was always going to be a logical one. We could only build five hotels a year in certain cities with a really dedicated focus. The second part that we're at the same time solving is becoming part of this distribution platform, which is incredibly powerful. I know that the whole industry is obsessed about channel share, like who feeds you what guests. If you own the real estate, you're not really obsessed with the channel share, you're obsessed with your top line revenue, your distribution costs and therefore your net revenues. And if you can get that through booking.com, then that's perfectly fine. If you can't get it through booking.com, you need to find it somewhere else. Yeah, a long time we've been fighting as an industry, an uphill battle with the online travel agencies, with intermediation, driving price down, driving up the cost of distribution. And we'd been looking for another pool in which we were allowed to fish. And if you think about citizenM, Matthias from the early days, having done these projects. Our quest has always been, we are not something for everyone. We are everything for someone and that someone are mobile citizens, frequent travelers. And those frequent travelers, especially in the US, they are dedicated to their platforms, especially the Bonvoy platform with close to 250 million people being part of it now. And we could joke about it from Europe, like, well, they have multiple frequent stay programs and isn't really getting that loyalty, but we've done the investigation, the numbers speak for itself. And we really believe our real estate portfolio will do even better now that we are still going to be part of the booking.com platform and Expedia platform, and we will have our local corporate connections, but now we can also cater to 250 million Bonvoy guests.

Matthias: As you talked about the child analogy at the beginning, so we can actually do away with the rumor that Ratan and people have grown tired of it. It's actually much more about growing up than about getting tired. So it's an acceleration step. It's not a sellout. It's a move to the future. I find one thing interesting that you just said. You said you're still a real estate company and if people look at the deal, the first thing you might think about is, oh, they made like a shitload of money from selling the brand and you only sold the brand. So yes, you may have made a shitload of money from selling the brand, but you kept like, I don't know, two or three shitloads of money because you still own and operate the assets. In some shape or form, you're still owner-operator. Is that true? Will that change or stay the owner-operator paradigm and also I can imagine if you're sitting on all the assets that you still own and you give them to Marriott in terms of asset valuation and everything, you're pretty much dependent on the brand still performing as pristinely as it did. So I can imagine that not only did they vet you, but there was quite a bit of vetting going on from you to decide for Marriott and not one of the other giants. So what made you choose specifically Marriott and not, say, Accor or one of the other ones with great loyalty programs and market power and everything? Why Marriott?

Lennert: Yeah, so let's start with the first comment you made. Yeah, that's correct. We will continue to be an owner-operator, and we got some money for the brand, and it's one of the largest deals that Marriott has done, actually the largest deal since Starwood. So from that perspective, it is a lot of money, but it only represents like 10% of the value of our company, because 90% is still the real estate and in the operation of it. We will continue to do that. There will be a transition period, of course, and an integration period where certain things are going to be taken over by Marriott. And for quite some time, we are going to be the biggest owner and operator of citizenM hotels. And so that is really that partnership. So we're not just sending our daughter off to college and putting her on the train, we'll spend the first year almost together. And that's what we are currently spending a lot of time on transferring knowledge. I mean, we started this with a small group of people and I was actually employee number two after the office manager, but we started with a small group of people. We transitioned all this knowledge to all these folks that are now working for citizenM hotels is around 1500 people in total, including the hotels. And yeah, so we really believe we can also transition a lot of this knowledge to Marriott and we'll be there. We'll be there the first couple of openings. And we are still opening hotels. We're still opening Dublin later this year. We're still opening Olympia. We're building a hotel in London, Soho that we will be opening together. So we have quite some time that we spend together to make sure that not only they bought the secret sauce, but they're also really capable of protecting it going forward. And as you know, we've had pretty strict brand standards, design standards. And now together with Marriott, working on things like operational standards and how do you recruit people? What kind of people? This ambassador model, the central service model. Yeah, so we're spending a lot of time on that. And the last question you asked, like why Marriott? I would say it's, if you think about us, we are half European, half American in terms of our real estate. We just on a compression analysis on the compression you generate with the Bonvoy program versus other programs is far superior. We did not need Marriott to tell us how to run a brand. We were not shopping for a brand. That's what you do if you have a building and you want to put a brand on there. And then you get some help, like how did the bathrooms look? How did the hotel rooms look? We are the brand, we're transferring that. So for us, it was really about who has the best rollout capabilities, who has the best track record in actually acquiring brands and make them successful. Where's the white space for our brand? How did they look at the brand? And then, yeah, maybe most important of all, what is going to be our EBITDA impact being on the loyalty platform. And for us, Marriott ticked all those boxes.

Matthias: You talked about the standards, but I think citizenM is not just about, I mean, it's in ways, it's of course your standard as brand. You have like one room type across the world. Even your lobbies as fun and effortless and freewheeling, they might seem they do follow a formula, a quite smart one. And I can imagine talking to Marriott, if you go beyond the numbers, there's probably, and if you read interviews from Capuano and stuff, there seems to be a great alignment on a high level about the future of tech and a lot of things. And you've probably been talking to Levine, who's a smart guy about tech and stuff. But if you've learned one thing about big brands and if you listen to Capuano, but also to Beza and people, those are not stupid people. They're extremely smart people. Yet, what trickles down these huge organizations to property level often is much slower and much more traditional and much more reserved. And if I look at citizenM over the last years and also looking at you as a leader, I think a huge aspect beyond brand and standardization has been that irreverence and agility, maybe, long before that became a term, in moving forward, in prototyping, in going all in, in taking bets. I mean, informed bets, but still bets. And probably being owner-operator helped also to be quicker. And I think all this agility and all this boldness and being quick and being fast and almost like a tech company talking about MVPs and stuff, that's something that's not really heard of in hospitality. How can you keep this up in a context that seems to have a structure that's by design the opposite? How does it work? How can you keep being yourself in that respect?

Lennert: Well, I think, Matthias, to start with, maybe other acquisitions in the past by Marriott or by Hilton or Accor, they haven't gone uninterrupted. So things might have changed to a brand. So either it's been downgraded, upgraded, it has been changed over new ownership. I'm not so concerned about that for a citizenM because if you think about the core citizenM concept, nobody's really cracked. And that's also what Marriott has recognized. And that makes it strong. And that's also why we didn't sell our brand to 20 hotels. We sold it at 36 hotels, we have another three coming along. So it's really cemented the way that citizenM works, the way that it feels, the ambassador model, the technology in the hotels, it's been cemented. And that's also now really been recognized and you see Marriott talk about it, rather than coming in and say, you're going to get ABC technology in the hotels. There are certain technologies where we care less about it, and there are certain areas where we do really care about it. Because again, we have this reverse pyramid, the guest is at the top, our ambassadors, the front line is right below that, and we want to keep that intact, and they want to keep that intact, and we are aligned with that. They didn't spend the biggest amount of money ever since Starwood to water it down and we tested them on that. And we asked them questions like, how are you going to deal with XYZ? If you're going to listen to guest feedback, you might put the kettle in the room in the UK. How are you looking at that? And then we could really see almost the same fierce response as our founder, Rattan would have on that said, no, the kettle is not part of the citizenM room experience. We have 24 seven fresh and great tea downstairs. And got the same response from them. And so I feel that everyone learns, but at the same time, and I don't want to be negative about some of these other brands that were acquired in the past, what was really special. And I know in the way that citizenM always talked about it in the industry as being the disruptor. We really disrupt stuff. I mean, we just made a great experience by choosing to do things different. And a lot of other hotels are not choosing that different experience. So it's easy to water down a standard hotel because it's just the color of the wall that is maybe different. But if you ask at the International Hotel Investment Forum to an audience, you put six room pictures on the screen and ask them to say what brand it is, there are difficulties recognizing the rooms beyond the other brand. And if you put the citizenM room, the citizenM experience, it's so distinct, we worked on it so hard, that that will be a tough one to change. And yeah, let's face it, I mean, some of these changes that will be happening, I think are less relevant. I mean, Marriott will be building a citizenM website. And some people will say, oh, the website is really part of the experience. Is it? Is it? I mean, if you go to the site and with all respect, it's a great website. It produces a lot of reservations for us, but it is a logo. You can find hotels on it. You can search for availability and get pricing. You make a reservation, you can pay and you get a confirmation. That's what 99% of the traffic does on citizenm.com. And so these are the things that will absolutely change. And thank God it all changed. I mean, Marriott spending a billion euro on technology every year. So I'm happy to be part of some of the changes, but the in hotel experience, what you really feel as a guest, first of all, we delivered ourselves. So we can make sure that this can stay consistent. And we also have a quite a big interest that for any new hotel that is also going to feel like a citizenM and yeah, we've done HMAs. Our hotels in Asia. Kuala Lumpur, we did over COVID. We didn't visit before it opened and it feels like a citizenM. Somebody else did it. Our architect helped with it. But if you visit it without being really part of our owner-operator model, it feels like a citizenM. And that is something that we envision as well for this rollout. And if you ask the founder of AC hotels, Antonio Catalán, like how did Marriott do with AC hotels? And that was an anecdote that he was at the opening party of the first hotel Marriott did in New Orleans. And his comments were, he actually did a better job than I would have done. So yeah, we're looking forward to that.