Team n final case deck


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  • While competitors simply accommodate this new market segment, Marriott can drive the demand of inbound Chinese travelers by packaging hotel options in gateway cities that give them a uniquely American experience
  • For appendix: More data to back this up (incomes, travel patterns, etc)
  • With business travel on the rebound, Marriott can drive the demand of travelling businesspeople by creating a business class hotel stay specifically designed to meet their needs
  • With the casino industry’s high profit margins, Marriott can realize rapid gains by reallocating future project funding to the purchasing and furnishing of 5 casino boats and by using its existing casino model to make them operational quickly
  • Riskso   Licensing/Regulations – already have casinos, previous knowledge speeds up process§  Time Frame§  Costo   Damages – Hotels alreadyhavemost of theseriskstoo, covered by insuranceprobably§  Regular Maintenance§  Wrecks§  Natural Disasterso   Gas§  Price – With the total extra profit, no way gas fluctuationsexceedsthatincrease (gas costswereincluded in the industry profit)§  EPA·         Fees – With total extra profit, EPA regulations and feeswon’texceed base case increase (included in industryprofitstoo)o   Insurance§  Premiums – evenif 3x higher for a boat, stillsave $, wearen’tpayingpremiums on 18 delayed hotels  
  • Team n final case deck

    1. 1. Exceeding Earnings Expectations in 2 Years CSF Final Case Competition Thursday, April 12, 2012 Prateek Peres-da-Silva Elizabeth Buoyer Taylor Currier Matt Cooper Jack Dai
    2. 2. Executive Summary Key Question How can Marriott exceed consensus earnings expectations in 2 years? Hypothesis Marriott should cater to niche markets with increasing propensities to spend in order to realize an 18.3% increase in profit Approach Drive Chinese Travel Demand Create Business Class Package Expand Casinos in the US
    3. 3. Drive Demand of Inbound Chinese Travelers
    4. 4. The rapid increase in Chinese visitors to the US presents a massive new segmentation opportunity for Marriott 4 Inbound Chinese Visitors 3,500 Driving Causes Total Visitors (K) 3,000 2,500 • Ease on US Visa regulations of Chinese residents • 14.1% increase in Chinese disposable incomes 274% 2,000 1,500 1,000 500 2012 Sources: Mintel Oxygen, US Dept. of Commerce, 2013 2014 Chinese Travelers 2015 2016 Business Class Casinos
    5. 5. While competitors focus on in-house accommodations, Marriott can gain market share by catering to Chinese travelers’ preferences 5 Characteristics of Chinese Travelers Mandarinspeaking staff Travel in large groups Chinese symbols Stay in the US longer Chinese cuisine Look for budget hotels Vacation package Sources: Mintel Oxygen, CNNTravel Chinese Travelers Business Class Casinos
    6. 6. By packaging hotel stays in gateway cities, Marriott can drive demand of Chinese travelers seeking to maximize travel experience 6 75 % of inbound Chinese travelers prefer 53 tour packages % of total travel expenses by Chinese 9 travelers are hotel costs % of inbound Chinese travelers prefer economy or mid-priced hotels San Francisco Yosemite East Coast Sticker Price Hollywood California $2110 $2360 Group Rate $1600 $1770 *10 night tour Sources: Mintel Oxygen, Group Analysis, company sites Chinese Travelers Business Class Casinos Niagara Falls NYC Washington DC
    7. 7. Packaging hotel options comes at no cost to Marriott and yields net profit regardless of the market share captured 7 160 139.1 140 Profit ($M) 120 100 80 2013 55.6 60 40 27.8 20 0 Worst Case Base Case Best Case Chinese Travelers Business Class Casinos 2012
    8. 8. Cater to the Increasing Business Traveler Segment
    9. 9. Business travelers make up a growing market segment that Marriott is well-positioned to capture 9 Comparison of Business and Leisure Travelers 285 12% 277 270 255 % More Business Travelers than Leisure Business Travel Spending ($B) 3-Year Projection of Business Travel Spending 264 252 240 10% 10% 8% 6% 4% 2% 0% 2011 Sources: Mintel Oxygen, Global Business Travel Association 2012 2013 Chinese Travelers 8% Business Class Casinos 3%
    10. 10. While Marriott’s current business packages cater to large groups, the majority of businesspeople travel alone 10 Current Marriott Business Package Business Travelers that Travel Alone 83% Sources:, Chinese Travelers Business Class Casinos
    11. 11. The business class accommodation package satisfies all of the business travelers' needs 11 Personal Transportation • Flight itinerary part of booking process • Hotel will provide door-to-door service Priority check-in and check-out • Paperwork and keycards in the car to avoid waiting in line • The check-out process will be streamlined the same way Customized Accommodation • Premium cable and wireless • Office supplies available, including TV with HDMI cable Source: Mintel Oxygen Chinese Travelers Business Class Casinos
    12. 12. Assuming that at least 0.1% of U.S. business travelers utilize this service, Marriott will still earn a profit 12 35 29.8 30 Profits ($M) 25 20 18.0 2013 15 2012 10 5 6.3 0 Worst Case Base Case Chinese Travelers Best Case Business Class Casinos
    13. 13. Divest Future Project Funding to Purchase High Margin Casino Boats
    14. 14. The U.S. casino industry’s steady growth and high margins present an opportunity for Marriott 14 5-Year Projected U.S. Casino Revenue Profit Margin of Hotels vs. Casinos 20 Profit as % of Revenues Revenue ($B) 20 15 10 5 0 16% 16 12 8 4 1.6% 0 2011 2012 2013 2014 2015 Source: IBISWorld Chinese Travelers Hotels Business Class Casinos Casinos
    15. 15. By diverting funding from hotels to riverboat casinos, total profit will increase by 50% 15 Jan 2012 Feb 2012 Delay 18 projected new construction projects Divert funding to purchase and furnish 5 casino boats April 2012 Obtain licenses at key locations Dec 2012 Casino Boats are operational, generati ng profits Hotels Riverboat Casinos Capital Expenditure Total Profit 150 0 $3,079,125,000 $20,005,948 +$10.6M 132 5 $3,084,630,000 Chinese Travelers $30,605,234 Business Class Casinos
    16. 16. Investing in riverboat casinos instead of low-margin hotels can prove highly profitable for Marriott 16 Profit ($M) Change in Profit Due to Riverboat Casinos 50 45 40 35 30 25 20 15 10 5 0 43.6 30.6 Additional Profit 20.2 No Boats Worst Case Base Case Chinese Travelers Best Case Business Class Casinos
    17. 17. Marriott already has measures in place to mitigate the risks of expanding into riverboat casinos 17 Marriott already operates casinos Licensing and Regulations Gas Price Volatility Insurance Premium Higher for Boats Sources: EPA, Mintel Oxygen Chinese Travelers Position along experience curve will expedite process Already included in industry profit forecasts EPA fees won’t exceed forecasted gains Won’t be paying premiums on 18 delayed hotel projects Business Class Casinos
    18. 18. By pursuing our recommendations, Marriott can realize net profit gain of $84.2 Million 18 560 10.6 18 540 55.6 Net Profit ($m) 520 84.2 500 480 460 440 420 400 Analyst Projection Chinese Tourist Business Class Casino Boat Total
    19. 19. Executive Summary Key Question How can Marriott exceed consensus earnings expectations in 2 years? Hypothesis Marriott should cater to niche markets with increasing propensities to spend in order to realize an 18.3% increase in profit Approach Drive Chinese Travel Demand Create Business Class Package Expand Casinos in the US
    20. 20. Appendix
    21. 21. Navigation 21 Financials Chinese Tourists Business Class Package Riverboat Casinos
    22. 22. Worst Case Financials 22 Assuming 6% growth rate
    23. 23. Base Case Financials 23 Assuming 6% growth rate
    24. 24. Best Case Financials 24 Assuming 6% growth rate
    25. 25. Financials for California tour 25 Source: Company websites and Group Analysis
    26. 26. Financials for East Coast Tour 26 Source: Company websites and Group Analysis
    27. 27. Total Financial Impact 27 Source: Company websites and Group Analysis
    28. 28. The majority of business travelers will have the option to upgrade to the Business Class Package because they book their trips themselves 28 Trip Bookings Booked By Someone Else 39% Source: Mintel Oxygen Report Book Themselves 61%
    29. 29. The average length of stay in the US is increasing for Chinese visitors 29 Average Length of Stay 11.3 12 10 Days 8 7.4 6 4 2 0 2009 2012 Year Source: Mintel Oxygen
    30. 30. Business travelers prefer working in their rooms 30 Source: Mintel Oxygen
    31. 31. With business centers becoming obsolete, hotels can add convenience by keeping tech supplies on hand for travelers with mobile electronics 31 Source: Mintel Oxygen
    32. 32. Business travelers prefer streamlined check-in process 32 Source: Mintel Oxygen
    33. 33. Technology and automation is increasingly important to business travelers 33 Source: Mintel Oxygen
    34. 34. Financials for Business Class Package 34
    35. 35. Breakeven Analysis on Car Acquisitions 35
    36. 36. Locations of Riverboat Casinos Locations of Riverboat Casinos • San Francisco, CA • Santa Monica, CA • St. Louis, MO • Chicago, IL • New Orleans, LA
    37. 37. Many negative views of riverboat casinos are myths according to the Louisiana Casino Organization 37 MYTH #1: Gaming creates nothing. It merely takes money that would otherwise be used by Louisiana residents for other purposes. FACT: Riverboat casinos have become a major economic force that benefits all residents of the state, and it generates millions of dollars of new money for Louisiana in several ways: Approximately 53% of all gaming revenue comes from out-of-state, most from Texas. As a result, on average, over $18.2 million per month is received by the state and local governments in gaming taxes. Local merchants such as service stations, restaurants and retail stores benefit from the increased traffic of out-of-state visitors. Each year, riverboat casinos pay over $368 million in salaries to some 15,000 employees. The industry has invested more than $1.7 billion in facility construction, and is employs hundreds of Louisiana construction workers to build new luxury hotels and entertainment centers. Riverboat casinos purchase over 70% of all goods and services from Louisiana vendors including computers, printing and floral arrangements. MYTH #2: The introduction of riverboat gaming into a community causes an increase in crime. FACT: There is no correlation between crime rates and riverboat casinos. In fact, studies have shown that the increased police protection afforded by the tax revenue generated by riverboat casinos often decreases crime. MYTH #3: Society as a whole suffers when gambling is introduced. FACT: Casino employment has meant a better life for more than 15,000 employees and their families, who earn an average salary of $25,001 plus full health benefits. MYTH #4: Access to riverboat gaming increases gambling addiction and leads to a high rate of bankruptcy. FACT: The vast majority of Americans gamble responsibly with little or no adverse consequences according to a new study by the National Gaming Impact Study Commission (NGISC) released in June 1999. MYTH #5: Riverboat gaming is controlled by organized crime. FACT: Gaming companies may be the most tightly controlled and regulated of any industry. Nearly all are publicly traded companies owned by stockholders, much like IBM, General Motors and Kraft. Therefore, these companies are not only bound by state and federal gaming laws, they are also regulated by the Securities Exchange Commission. There have been no accounting scandals at gaming companies such as the ones associated with Enron, WorldCom and Global Crossing. FACT: The U.S. Treasury Department recently released a study entitled A Study of the Interaction of Gambling and Bankruptcy. This study has found no connection between gambling and bankruptcy. The study makes the following conclusions:Using state-level data, we find no connection between state bankruptcy rates and either the extent of or introduction of casino gambling. This result is supported by county-level analysis that shows no statistically significant casino effect (proximity to a casino) with regard to county bankruptcy rates. An empirical analysis of bankruptcy data suggest(s) that gambling has no measurable effect on statewide bankruptcy rates in Nevada, New Jersey or Mississippi. While most available studies have pointed to a connection between gambling and bankruptcy, none has proven that gambling causes bankruptcy. These findings support the research findings of the National Gambling Impact Study Commission (NGISC). Source: Louisiana Casino Organization
    38. 38. Casino Financials and Assumptions 38 Source: Louisiana Casino Organization