Do you drink co*ke products? If you have, you ever tried to buy any of them while staying at one of Marriott’s 30 different hotel brands, you are out of luck. The hotel behemoth carries Pepsi products only. And there is a fascinating story behind the decision to feature Pepsi.
The details behind the Marriott decision involves a costly miscalculation by one player, a rewarding decision by another, and intense and enduring loyalty on the part of the hotel chain. To understand fully what occurred, we have to go back almost 30 years.
In 1991, Marriott was losing money, barely able to meet its payroll. It was struggling with a massive debt of $3.5 billion. Executives at Marriott were desperately seeking funding and approached the Coca-Cola company for a loan.
At that point in time, Marriott had a 20- year relationship with Coca-Cola. In view of the relationship, the hotel firm asked for a loan of $50 million to $100 million at a below-market interest rate. Although Marriott was one its largest accounts, Coca-Cola refused the loan and was quoted as saying, “they were asking us to become a banker.” In 1991, Marriott had 639 hotels and 2,300 food-service accounts.
PepsiCo agreed to lend Marriott between $40 million and $50 million. Coca- Cola criticized the loan as “absolutely not standard procedure.” But Coca-Cola — like other soft-drink companies — routinely provided discounts, known as marketing allowances, to their best customers in the form of cash advances. And, according to one beverage consulting firm, there was not much difference between a cash advance and a loan.
PepsiCo’s decision proved to be extremely lucrative in the ensuring years as Marriott offered Pepsi products only. In 2018, PepsiCo and Marriott signed a multi-year extension agreement in which PepsiCo continues the beverage provider for Marriott. Now, PepsiCo serves 6,700 Marriott properties in 130 countries that encompass 30 different hotel brands. The agreement also allows PepsiCo to provide its food brands, such as Quaker Oats and Frito-Lay snacks, on Marriott properties. Marriott has more than 600 million guests worldwide each year.
It is not possible to know all the circ*mstances surrounding Marriott and Coca- Cola some 28 years ago. In hindsight, Coca-Cola missed a great opportunity. Not only did Marriott work its way out its financial distress; it prospered mightily, expanding its properties more than tenfold.
Sometimes large corporations like Coca- Cola tend to take their best customers for granted.
Wayne Curtis, former superintendent of Alabama banks, is a retired Troy University business school dean. Email him at wccurtis39@gmail.com.
