More opportunity for increased revenue

Providing customers with experiences that exceed their expectations significantly improves the operator’s ability to attract and retain customers.

These experiences can be created in a casino resort environment in spa, retail, nightlife and entertainment in both destination and regional gaming markets. Customers who provide feedback tend to be inclined to offer both positive and constructive feedback that focuses much on their non-gaming experiences.

Incorporating non-gaming amenities as a complement to the gaming experience provides customers a more complete and hospitality-driven visit. These concepts are not new. Carefully planned and well-executed non-gaming amenities provide operators with significant opportunities to increase revenue, profit, and ultimately, customer loyalty.

The greatest examples of this approach are evident in Las Vegas. Today, the largest resorts on the Las Vegas Strip generate less than 40 percent of their revenue from gaming. Outside of Las Vegas, casinos, resort casinos and integrated resorts in multiple jurisdictions have realized the tremendous potential of their non-gaming amenities.

Some operators have changed their perspectives and offer additional and unique non-gaming amenities at their properties. As a result, many of these operators have realized an uptick in revenue and profit. An integrated resort that includes gaming is the purest form of 21-plus entertainment. It has all of the necessary ingredients for fun. We should think twice before we give the ingredients to that successful recipe away solely as a “comp” for a “high roller.”

 

Spas: Essential, Nice To Have or Run As Fast

As You Can?

The short answer is, it depends. As a practical matter, we believe spas add value to hotels when certain criteria are met. In a regional market, we recommend a minimum of 250 guest rooms, average occupancy of at least 85 percent, and a market opportunity to attract customers in the 30-45 age group in addition to the 45-and-up age group.

By way of example, a 250-room hotel that achieves an average occupancy of 85 percent with an average of 1.75 guests per room could generate between $600,000 and $800,000 in total annual spa revenue. A competently self-operated spa should generate a profit margin in the 15 percent-25 percent range. (It is interesting to note that one of the fastest growing consumer segments in the spa industry is men.)

Regional operators may want to consider acquiring a franchise spa operation, which provides the operator with a good ownership model and the ability to have a proven brand become part of the hotel’s amenity offerings. Elements Massage is a fresh-looking brand offering a relatively simple business model for spa operators and a predictable and quality experience for the guest.

Training is provided for areas like marketing, finance, operations, and client and talent acquisition: all comprised of time-tested and proven methodologies. Serasana, an alternative spa franchise operation, offers massage, yoga, tea service and acupuncture treatments. Serasana boasts a broad customer demographic that is recession-resistant, online and mobile scheduling applications, and established social media platforms. Owning a franchise spa operation may be an affordable and quick-to-market approach.

In destination markets such as Las Vegas, Atlantic City, Macau and Singapore, spa operations are more complex and require significant planning efforts and substantive capital investment. A well-designed and properly positioned spa can help create a halo effect for the entire property. Certain casino hotels include the word “spa” in the name of the hotel property to help position it as a resort hotel.

In 2017, Hyatt Hotels acquired two established wellness companies in two separate transactions, Miraval Group and Exhale, to be a part of the Hyatt family of brands. Miraval and Exhale have distinctive approaches to spa and overall wellness services and experiences. World of Hyatt, the Hyatt loyalty program, currently provides its members the opportunity to earn and redeem benefits on a limited basis. There is some speculation that a loyalty program for Exhale may be adopted in the future.

Planning, developing and operating a full-service spa requires a great deal of research, preparation and planning. Specific tasks include competitive market research, including site visits to “sample” the services provided and experience the ease of making a spa appointment, architectural and design elements, the comfort and practicality of wet areas, and water features and other unique aspects of the spa.

Consulting services may include comprehensive feasibility studies, pro-forma financial projections, space planning and facility programming, and concept and interior design studies. The selection of technology solutions must also be evaluated, and selections must be made based on compatibility with existing hotel systems and availability of a mobile application.

 

Entertainment: Show Business Is Two Words—Show and Business

Anecdotally, it is understood that entertainment has a positive impact on gaming revenue. It remains a popular non-gaming amenity that is generally easy to fill (assuming the right act or show is booked) and to which players seem to respond well. However, it is often difficult to quantify this benefit, as building theaters is a very expensive proposition.

Generally, outside of Las Vegas, the entertainment department is always a loss leader. In order to capitalize on the entertainment opportunity, five key items must be addressed: the type of acts being booked, time of day and day of week the act plays, the incremental gain from concession and retail sales, the increase in revenue generated by the hotel department, and the incremental gaming revenue garnered.

  • Entertainment offered. In preparing a schedule of entertainment, the operation needs to have a goal for each event. This could be to attract new customers, increase play from the Asian demand segment, provide a reward and incentive to return to loyal customers, or to book an act whose incremental ticket and concession sales will more than cover the cost of the entertainment (this is rarely the reason).

Based on the purpose of the event, the appropriate act can then be determined. If your casino is in Arizona or California, perhaps attracting Enrique Iglesias or Mi Gente could help your casino attract and grow the Latino demand segment. An operation based near the Bay Area or Portland may want to book Joey Yung or Meng Ting Wei to grow the Asian demand segment.

When working on the contract with the talent, consideration needs to be given to the length of the show. While we want the customer to enjoy the experience, we don’t want them to enjoy it for so long that we aren’t able to allow them time to go enjoy their favorite entertainment activity: gaming. A 1 hour, 45 minute show is a good length. Avoiding bands such as Phish or Widespread Panic is a good idea, as they can jam on stage for three-plus hours. (However, if you do book these groups, please reserve us a seat.)

In other words, a show should never be chosen based on the preference of the entertainment director or other senior executive; rather, it should be selected to best realize the goals of the event.

  • Time and day of event. If your casino is already at capacity on the weekends, an 8 p.m. show on Saturday night may have a deleterious effect on gaming revenues, as your customers may choose to go elsewhere on the Saturday night since they don’t want to have to fight to find a parking space, get a seat at their favorite restaurant, or deal with congestion on the casino floor immediately preceding or following the show.

Alternatively, if the show can be operated on a break-even basis when beverage sales and other non-gaming revenues are considered, the impact of a high-energy show can spill over onto the casino floor with positive results. Running a show on a Thursday night may attract a segment who previously would not have visited the casino, will be less likely to increase traffic to levels that will turn away the core gaming customer, and, with the right act, will increase the energy level throughout the facility, thereby enhancing every customer’s experience.

Other considerations for the timing of a show should be focused on the demographic targeted for the event. If a popular Chinese artist is chosen, the casino may find that the best time for the event is a Saturday at 2 a.m. “A main point of appeal to the Asians, who make off-peak show hours work, in particular to the premium players, is that many are managers, self-employed, or own their businesses. They are not pinned to a structured work schedule,” says Walter Soo, corporate director of player development at Great Canadian Gaming Corporation.

  • Incremental gain from concession and retail sales. The profit from concession and retail sales can be staggering. Most of your concert/show-goers will purchase at least one beverage, and many will buy a shirt, hat, hoodie or CD (too bad there is no place to play these anymore). Prices that can be charged for drinks at a show can rival those found on the Las Vegas Strip. As such, the casino should be sure to retain the rights to oversee this concession. While the retail will likely be handled by the act, it is reasonable to accept a percentage of the sales or charge a fixed fee as a rental.
  • Incremental gain in rooms revenue. Although casino hotels rarely have difficulty in filling rooms on the weekend, the right act can result in a significant bump in the rate achieved from the retail rooms on a weekend period. For those acts occurring during the midweek, entertainment can act as a source to ensure that the hotel sells out at a premium rate.
  • Incremental gain in casino revenue. Finally, and arguably the most important factor, is the incremental benefit a show can contribute to the gaming side. Often, this can be difficult to quantify, because the benefit is somewhat qualitative as the customer chooses to remain a loyal member of your club for benefits such as free shows. However, often by comparing coin-in and table drop to prior comparable periods, the casino can quantitatively illustrate the bump experienced from a show.

When doing these comparisons, special consideration must be given to not only include holidays and other peak periods (e.g., a million-dollar giveaway promotion) when coin-in would have been expected to be abnormally high anyway.

By considering and evaluating each of the items above and taking into account the true incremental gross operating income from each department, a casino resort can fully understand the benefit of entertainment and start to develop strategies to further enhance, or begin to see, profit from this perceived rogue entity.

 

Retail: Then and Now

In the early days, casino hotel operators on the Las Vegas Strip probably did not fully envision what retail would look like on the Strip in 2017. However, they clearly had a vision for what made sense for retaining their customers. They knew what stores to have: a gift shop, a women’s clothing store, a men’s clothing store, a jewelry store and a liquor store.

These stores were implemented before bar codes became commercially viable in 1974 when the National Cash Register Company launched its first scanner. (Ironically, the first product with a bar code scanned was a 10-pack of Wrigley’s Juicy Fruit chewing gum, a product that very few casino operators actually sold in those days as they knew it would shorten the life of their casino carpets.) That was then.

Today, the retail environment in Las Vegas is unlike any other in the Western Hemisphere. The retail offerings feature ambitious and spectacularly designed environments, and world-class retail and dining brands with multiple locations across all price points, including Louis Vuitton, Gucci, Dolce & Gabbana, Tom Ford, Prada, Fendi, Tiffany & Co., Celine, Saint Laurent, Richard Mille, Harry Winston, Giorgio Armani and Apple, among others. Some of the largest and most prestigious mall operators have a significant presence in Las Vegas, including Simon Property Group and General Growth Properties.

Annual sales have periodically exceeded $1,000 per square foot. The Las Vegas Strip is also home to numerous street-facing retail stores and restaurants. These operations not only generate significant revenue for the retailers and mall operators, they generate significant traffic for other non-gaming amenities and the casinos.

In regional gaming markets, retail strategies can be more difficult to develop. A 2017 CoStar, Jones Lang LaSalle report identifies key challenges, including properties that are falling behind in design, upkeep and tenant mix or are located in areas where demographics have shifted unfavorably for retailers and are now competing with newer or better retail real estate product elsewhere. The high frequency of visitation by the same customers experienced in regional gaming operations, while very desirable for the casino operation, can further challenge the retail operation if inventory turnover does not allow for fresh product.

Updated versions of the gift shop, women’s and men’s stores, liquor and jewelry stores may still fit the bill. However, we suspect you still won’t offer chewing gum.

 

Nightlife: Not Right For Everyone

Las Vegas has clearly demonstrated the value of nightclub operations and the levels of profit that can flow through to the bottom line from these operations. The level of capital investment in nightclubs in Las Vegas is approaching $1 billion.

WME, a leading talent agency, currently represents over 150 DJs, slightly more than the number of country artists on its roster. The amount that individuals are willing to pay for bottle service is staggering, and the premium that the bars charge for drinks is borderline offensive.

Unfortunately, this business strategy rarely translates in jurisdictions outside of Las Vegas. Las Vegas has over 130,000 hotel rooms with a highly concentrated number of tourists who are in the city with the primary intent of enjoying adult entertainment (gaming, fine dining, entertainment, nightclubs and other activities).

For most casinos outside of Las Vegas, their locations are generally not near the hub of entertainment, can often be found in more remote and/or less attractive regions, and generate the majority of their revenue from the core American gaming demand segment: patrons over the age of 50.

When these casinos do attempt nightclubs, they often attract a segment that does not synergize well with their core customer. As such, unless your casino is located in a prime location in an urban area (e.g., Jack Casino in Cleveland) or has a density of hotel rooms and tourists to feed the operation (e.g., Premier at Borgata in Atlantic City), it is likely better to not include a nightclub as part of your strategy to increase non-gaming revenue and profit.

 

Resort Fees, Parking and Other: It Adds Up

Resort fees are now commonplace charges that provide meaningful revenue and profit streams. The keys to a successful resort fee program include providing services of real, not just perceived, value, and a high level of transparency.

Examples include in-room daily internet access for two devices (offer a high-speed alternative for an additional daily fee), property-wide internet access, local in-room phone charges, fitness center access, and airline boarding pass printing. Not surprisingly, properties with more and lavish amenities typically have higher room rates and typically charge higher resort fees.

Charging customers for parking is on the rise in Las Vegas, most notably on the Las Vegas Strip. While rates vary from property to property, these fees represent new revenue and profit opportunities. Some properties offer loyalty card programs that provide customers the opportunity to avoid payment of parking fees once they have attained a certain status level in the program.

Most Atlantic City casinos charge customers a parking fee, in part to offset fees that the properties pay to the state of New Jersey. Most Downtown Las Vegas properties have charged for parking for decades, with many offering rebates to customers based on their spend. Locals-oriented casinos in Las Vegas and regional markets throughout North America rarely charge for parking. The customer is simply not used to paying for parking—anywhere. Similar to building nightclubs, most regional casinos should not charge for parking. However, in that rare situation, this could be a found source of profit.

ATM fees present an opportunity for increasing other income. Like many business practices, individual operators have different views on the merits of charging ATM fees that are higher than banks charge to customers. Surveys of ATM fees charged in a given market are not difficult to obtain, and should be part a property’s routine pricing surveys. Furthermore, considering the volume of ATM transactions, the casino should provide the ATMs and benefit from the fees, or at a minimum share in the fees charged to the provider if a casino chooses to outsource this service.

Author: Bob Boughner and Steve Gallaway

Bob Boughner is a senior partner at Global Market Advisors and formerly a senior executive with Boyd Gaming. Steve Gallaway is managing partner of Global Market Advisors. GMA is the leading provider of consulting services to the gaming and hospitality industries.