Question

Although management is impressed by the plan and has already had detailed architectural plans prepared for the expansion, they are cautious. When the casino was first built, everyone was enthusiastic about the casino's potential, but the results have been disappointing. Management wants a thorough study made of the financial prospects for this expansion before committing funds to it.

Detailed financial data for every casino in Atlantic City are public information and are routinely exchanged. Thus, data such as that given in Tables A and B for the current year are readily available.

TABLE A Selected Annual Financial Data (000s omitted)

	Revenues
Property	Casino		Rooms		Food and Beverage		Net Income
Atlantic City Casino	$	220,183	$	14,862	$	36,833	$	23,921
Competitors
1		254,753		17,604		36,457		40,979
2		224,077		14,836		34,493		18,834
3		237,700		15,787		35,168		47,146
4		158,602		9,897		18,788		1,574
5		210,848		13,870		35,265		64,765
6		251,675		17,665		33,867		17,904
7		147,037		10,191		35,020		(9,075	)
8		121,581		13,469		21,863		2,246
9*		123,947		12,157		22,643		(1,176	)

* In operation in for only 6.5 months


TABLE B Selected Statistics

Property	Casino Space (square feet)		Number of Rooms		Number of Restaurants
Atlantic City Casino	50,850		521		7
Competitors
1	59,857		727		9
2	59,296		645		9
3	59,439		512		9
4	49,639		501		14
5	52,083		750		7
6	40,814		504		8
7	50,516		500		5
8	34,408		504		6
9	60,000		612		8

Background Information

Customer surveys indicated that a vast majority of the visitors to Atlantic City gambling casinos are middle-age adults who live within 150 miles of Atlantic City. Further, there are 2 distinct groups of visitors. Approximately 17 percent of the visitors are frequent visitors, averaging 24 visits per year and accounting for 67 percent of all visits. The remaining 83 percent of the clientele are infrequent visitors averaging 2 to 3 visits per year and accounting for 33 percent of total visits. The firm found that approximately 11 percent of the people living within a 150 mile radius visit Atlantic City annually. This compares with 14 percent of the people living in Las Vegas' primary marketing area who visit Las Vegas annually. Thus it appears that future market expansion is possible.

The firm also noted that there has been a change in the mix of mode of transportation for visitors. Initially 92 percent of all visitors arrived by private car, now 44 percent arrive by bus. This change is significant as there is a difference in spending patterns. Auto travelers tend to spend a couple of days in the city. Hence they eat more meals and need lodging. Bus travelers are usually day trippers who come only to gamble. They do not need lodging and generally only eat lunch, some snacks and beverages.

Required:

1. Complete a value chain analysis. Describe your understanding of the competitive position of the Atlantic City Casino. Identify areas for potential cost reduction and/or value added for customers.

Answer 1

Workings

Period of opearation			6.5 months
		Casino		Rooms		Food and Beverage			Net Income
	$	220,183	$	14,862	$	36,833		271,878	23,921	8.80%	Average
Competitors			12.69%		6.19%		17.48%
1		254,753	192247	17,604	13942	36,457	30,396	515,003	40,979	7.96%	7.12%
2		224,077		14,836		34,493		273,406	18,834	6.89%
3		237,700		15,787		35,168		288,655	47,146	16.33%
4		158,602		9,897		18,788		187,287	1,574	0.84%
5		210,848		13,870		35,265		259,983	64,765	24.91%
6		251,675		17,665		33,867		303,207	17,904	5.90%
7		147,037		10,191		35,020		192,248	-9075	-4.72%
8		121,581		13,469		21,863		156,913	2,246	1.43%
9*		123,947		12,157		22,643		158,747	-1176	-0.74%
	Casino Space (square feet)		Number of Rooms		Number of Restaurants
	50,850		521		7
Competitors		-1.84%		-12.09%		-14.29%
1	59,857	51784	727	584	9	8
2	59,296		645		9
3	59,439		512		9
4	49,639		501		14
5	52,083		750		7
6	40,814		504		8
7	50,516		500		5
8	34,408		504		6
9	60,000		612		8

	Value Chain Analysis
1	It has been noticed that Middle aged persons are visiting this Casino . We have to see that why younger people are not getting attracted to our Casino
2	While in Casino we are up by around 13% , in Rooms occupying 6% and in Food and Beverages by 18% but our Income is very low , it is only 8.8% , while other competitors are getting up to 24%
3	A Detailed Investigation of Competitor 3 and 5 to be closely monitored , as why they are able to generate good amount of Income. It seems that the we are operating at a very high cost.
	The Impact of 92% Car Travellers , converting into 44% Bus Travellers has gone bad impact over Room Sales and food also.
	We must also examine that why these people who stayed with us got converted into Bus Travellers. What is there which they disliked , whether it is Rooms , or Room Service or Food. Need to explore that.
	It seems that Atlantic has a good reputation as 11% people within 150 km radius , know us and it can be further explored
	14% people living in Las Vegas , who are primarily into Marketing ,show good potential as they can be prospective customers , if we have definite plans to attract them
	With respect to the Area , Rooms and No of Restaurants ,we play fair with the Average data so that seems to be comfortable and can be improved further
	We can see that the Casino is not at all in bad infrastructure and things can improve to make it a more profitable venture.

	Our Understanding the areas for improvement and cost reduction and value addition plans
1	First of all , we have to see that why only Middle Aged Customers coming . Why not youngsters coming. We need to invest on the Restructuring and give a new look to the Casino. It requires introduction of new concepts attracting youngsters and new attractions for them . We must introduce some Lottery , prize money for Introduction of your friends. Like scheme for more discounts or offers for a group of four or more and especially for young couples.
2	Advertisement for New look should be given in major newspapers with the New Year Offers, Christmas Offers and special Saturday / Sunday combo for stay persons. Special College parties or place for Collegians / School students must be created so that they could feel Independence from their daily routine.
3	We must investigate that why 92% cusmtomers of Car travellers have reduced. Are we not providing them good rooms or food . Need to attract them by providing special discounts for Saturday / Sunday with special show on Sunday afternoon so that they have to wait for the show and they stay back on Saturdays. It would result into higher Room Occupancy and higher consumption of Food and Beverages.Personallised service to Night hault customers can be given so that they feel like staying more and more. We can keep a Suggestion box and reward the best suggestion by a Customer by providing him free stay and food for a weekend.
4	Net Income is hadly 8 % , while the Casino, Rooms and Food and Beverages are not doing so bad. We must do Kitchen Audit and see whether any wastages are there or not . We have to see the Power and Fuel , Manpower , Inventory needs to be monitored , properly . The Costing needs to be reworked and updated with stringent norms.
5	Plans to attract the 14% prospective customers staying in Las Vegas should be made. Marketing people have a tendency to stay at good places and enjoy . Hence, we should make some plans for Marketing people
6	We need to address the 83% people , who are doing only 2-3 visits annually and should plan for some attraction for who have done only 1 visit , will be entitled for a scheme for Stay / Food , as per working. It will appeal such visitors to get attracted to them .
7	Hospitality needs to be worked out , entirely and should exceed the expectations.