NEW YORK -- Just two weeks after Host Marriott announced a wider quarterly loss than expected pushing back a full-fledged lodging industry recovery until 2004, sister company Marriott International revealed that Avendra, a supply company controlled by Marriott, posted a $5 million profit in 2002.
The figure was disclosed in a letter Marriott sent to the company’s managed hotels on behalf of its separate owners, reported the New York Times. Reportedly, Avendra bought goods and services worth almost $2 billion last year for more than 4,000 hotels, golf and country clubs and airport concession operations, including $850 million for Marriott run properties.
The controversial relationship between Avendra and Marriott has drawn a great deal of negative attention since last spring, when four hotel owners filed suit against Marriott International, accusing it of a wide range of allegations from breach of fiduciary duty to violation of the RICO Act.
Through contracts Marriott has with 700 hotels, Marriott uses Avendra to buy supplies, but is not required to disclose the actual prices that Avendra negotiates with the vendors.
Filing suit were CTF Holdings with respect to a 20-hotel portfolio; In Town Limited Partnerships with respect to the Charleston Marriott Town Center Hotel; the Flately Family Trust, with respect to the Boston Marriott Quincy Hotel; and Strategic Capital with respect to The Ritz Carlton Laguna Niguel, Marriott’s Rancho Las Palmas and the Renaissance Beverly Hills. The companies allege Marriott took rebates (the suit claims these are kickbacks) from vendors and did not disclose or account for such amounts as required by the management agreements.
In the past, Marriott has called the assertions “false,” claiming they were just a means for owners to renegotiate their management agreements. Avendra and Marriott maintain that they are allowed under specific contracts with certain hotels to keep types of rebates.
In Marriott’s letter mailed last week, it notes in 2002 Avendra kept $15 million in rebates from its purchases for Marriott-managed hotels. The figure represents about 2.1% of the volume of goods it bought for Marriott, according to the New York Times. Avendra also reportedly returned $12.6 million in rebates to hotels managed by Marriott, including $1.6 million generated through Marriott’s P-card credit card program, which expedites payment flow and rebates through vendors and Marriott. The letter also said that Avendra had given hotels an additional $900,000 in rebates last June.
Marriott disclosed that it had increased its ownership stake in Avendra, to slightly more than 50% from 49%, and reportedly did not pay for the additional stake, according to the New York Times.
In addition, Marriott’s letter stated that it had kept $1.5 million in late-arriving rebates last year related to purchasing by Marriott-franchised properties through Marketplace by Marriott, Marriott’s old internal purchasing arm that was dismantled with the development of Avendra. Last October, Marriott returned an additional $6 million to hotel owners in late-arriving rebates from that operation’s closing.
This past February, Marriott promised hotel owners that profits earned through Avendra would eventually be used to compensate for any fees the hotels might owe Marriott for doing business through Avendra, but that the offsets will become available only after Marriott recovered its investment of around $5 million in Avendra – it has not done so yet, according to the New York Times.
Hotel Interactive® contacted both Marriot and Avendra, but they were unavailable for comment