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On Monday, Marriott International and Sonder Holdings Inc. entered into a long-term strategic licensing agreement to create the new Sonder by Marriott Bonvoy collection.
Marriott will add Sonder’s existing portfolio of more than 9,000 rooms to its system by year-end, which will then be bookable through Marriott.com and the Marriott Bonvoy app. The hotel company will also add approximately 1,500 Sonder rooms to its pipeline.
While the partnership could benefit both companies, Sonder shareholders in particular could see some relief given the company’s ongoing legal and operational challenges that have dampened shareholder value. Hotel Dive took a deep dive into what the agreement means for both companies and how strategic partnerships like this one drive growth in the hotel industry.
Stakeholder value for special
Sonder entered into the strategic licensing agreement with Marriott in part to “enable Sonder to deliver value to all stakeholders,” said Janice Sears, lead independent director of Sonder’s board, in a press release Monday. The value-add opportunities offered by the partnership include increased revenue and operational efficiencies.
Through the partnership, Sonder hotels participate in the Marriott Bonvoy loyalty program, which compares favorably with other major hotel companies with over 200 million members.
The special hotels can be booked through Marriott Bonvoy channels and have access to Marriott’s global sales organization. They will be marketed like any other Marriott brand. This is intended to increase demand for special hotels and ultimately increase RevPAR, the company said.
An “improved channel mix and preferred channel pricing” created by the partnership will also result in cost savings, Sonder explained in the press release. And the company expects the partnership to enhance its value proposition for property owners.
Creating stakeholder value is particularly important for Sonder as the company grapples with both legal and operational challenges that have affected its investors and other stakeholders in recent months.
In March, Sonder postponed the release of its fourth-quarter and full-year 2023 financial results after identifying “accounting errors” in its 2022 and 2023 reports. At the time, the company said it would need to correct the above financial statements, which would likely increase its overall net loss and loss per share in the affected periods.
Following the postponement, Sonder’s stock price fell $2.10 per share, or 38.2 percent, to close at $3.40 per share on March 18, according to Los Angeles-based law firm Portnoy.
A class action lawsuit was subsequently filed against Sonder on behalf of its investors, alleging that the company made false and/or misleading statements that resulted in financial losses, the company said in a June press release.
As of Monday, the company had still not posted results for the fourth quarter of 2023 or subsequent quarters of 2024 on its website. And early Tuesday, the company reported that it had received a “notice of deficiency” from Nasdaq on August 15 for not posting results for the second quarter of 2024.
Meanwhile, Sonder has struggled with operational problems over the past year and has had to agree to abandon or reduce rent at about 105 of its properties to “mitigate losses.” And in February, the company laid off about 17% of its workforce to cut costs, according to a filing with the U.S. Securities and Exchange Commission.
Sonder declined Hotel Dive’s request for comment.
More rooms for Marriott
Marriott expects the strategic licensing agreement with Sonder to increase its revenue and net room growth in 2024.
Under the agreement, Marriott will receive a royalty based on a percentage of Sonder’s gross room revenue, the company said in a press release Monday.
In the same press release, Marriott increased its full-year net room growth forecast. The hotel company now expects full-year 2024 net room growth of 6% to 6.5%, up from a previous forecast of 5.5% to 6%.
However, the integration of the special rooms will not only help Marriott expand its portfolio. According to a press release, it will also diversify the company’s real estate holdings.
Sonder’s portfolio includes apartment-style accommodations and small boutique hotels in 37 predominantly urban markets in 10 countries in North America, Europe and the Middle East, a Marriott spokesperson told Hotel Dive.
Because of their location in these “key markets,” the specialty hotels appeal to Marriott’s “key demographics,” including younger travelers such as Generation Z and Millennials, the spokesman said.
“Marriott has long believed in offering the right product at the right price for every travel purpose and every generation of travelers,” said Tim Grisius, global officer of M&A, business development and real estate at Marriott. “With the planned addition of Sonder by Marriott Bonvoy, we can offer guests looking for urban, apartment-style accommodations even more options in the Marriott Bonvoy portfolio.”
In the U.S. urban markets in particular, increased traveler demand is expected through 2025, according to JLL. And Deloitte reported in April that demographic changes are likely to impact the way hotel companies operate. The company predicts that by 2030, nearly 90% of travel will be by the younger generation.
Partnership boost
This is not the first time that Marriott has taken steps to diversify its portfolio and reach new audiences through a strategic partnership.
In July 2023, Marriott also entered into a long-term strategic licensing agreement with MGM Resorts International and created the MGM Collection with Marriott Bonvoy. Marriott migrated approximately 31,000 rooms at MGM hotels in Las Vegas to its reservation system, strengthening its position in the leading U.S. leisure market.
So far, the partnership has proven beneficial for both companies. Earlier this month, MGM Chief Financial Officer Jonathan Halkyard said during a conference call that MGM booked 410,000 room nights through the partnership during the year, which “exceeded expectations.” Marriott CEO Anthony Capuano, meanwhile, said during a conference call in July that the partnership was “going really great.”
Across the industry, brand partnerships and acquisitions have become a popular method to quickly increase portfolio size and loyalty program membership.
