Saturday, July 02, 2022

Marketing to the masses


Galaxy Entertainment added to its range of non-gaming attractions in June, opening Macau’s first Apple Store, as operators seek to appeal to a broader market to replace the shrunken VIP sector.

Macau now gets around 45 percent of its revenue from the mass sector, up from the low point of 26 percent in 2Q11. Although the mass sector has significantly higher margins than the VIP at 25 percent to 55 percent compared with 10 percent, for most, that shift is still not yet showing through in the bottom line.

Operators face the challenge of product differentiation, as well as competing with other entertainment options and the growing number of casinos opening in other Asian destinations.

In China, for example, the opening of Shanghai Disneyland is expected to have a negative impact on the frequency of visits to Macau, with the two sharing very similar spending per capita amongst visitors.

The issue is not just Macau-specific; Genting’s Resorts World Singapore recently opened its new Curate restaurant, with different Michelin-starred chefs from around the world taking charge of the kitchen every few weeks, serving up limited edition menus. The launch is part of a wider move to bolster falling profits (particularly from the gaming arm of its business) with new non-gaming revenue streams; non-gaming revenues were down marginally last year to $650 million from $653 million in 2014.

Accepted and understood

As new multi-billion dollar properties continue to roll out in Macau over the next few years, with Wynn Resorts scheduled to open its new property on Cotai in August, driving volumes and filling those rooms will be a challenge.

“It’s questionable whether the VIP segment will ever recover in light of the corruption crackdown in China,” says Alex Bumazhny, an analyst at Fitch Ratings. “Casino operators will have to rely on attracting affluent middle class leisure oriented visitors to utilize the new room capacity. The hope is that the mass market players will become more leisure oriented visitors and partake in the new amenities. What’s more, the penetration rate of Chinese visiting Macau remains low relative to US casino visitation rates, which suggests there is considerable upside in the mass market.

“The mass segment tends to be made up of affluent people mostly from the Guangdong province and Hong Kong,” Bumazhny continues. “Macau remains largely a day-trip gambling market with about half of visitors coming just for a day. As the market shifts towards a more diverse leisure destination, the average length of stay should start to increase. While affluent Chinese gamblers appreciate luxury treatment, they remain more gambling-centric with supporting attractions and amenities playing a secondary role.” 

Of the non-gambling amenities, retail seems to be the most vibrant segment with Las Vegas Sands on track to generate $400 million in retail revenues this year. But with mass players still very much focused on gambling, the challenge for operators is to create and market additional leisure and entertainment amenities that appeal to them. For example, Studio City has an observation wheel, while the new Wynn Palace will have a performance lake and the Parisian a replica Eiffel Tower.

When it comes to marketing, however, operators have yet to crack the code. Studio City is believed to be struggling to properly tap into the psyche of mass players while others continue to add to their non-gaming options, giving their marketers more to work with.

MGM MACAU says it continues to invest in diversification and that drives visitors who are here to do and see things beyond gaming. 

“Recently at MGM MACAU we launched a campaign called Fun for Everyone”, says John Shigley, chief operating officer of gaming at MGM China. “The program includes a collection of sculptures called Edgar Degas – Figures in Motionexhibited at MGM Art Space, complimented by colourful, large butterflies hovering above the Grande Praça, as well as themed gourmet dinners, special tea sets, and treats at our signature restaurants and cafes. We also host annual staple events including the MGM International Lion Dance Championship, and the Oktoberfest, which are both cultural and fun experiences for our guests.”

Loyalty matters

Some operators have tweaked their loyalty schemes in order to make them more appealing to mass market players, and to drive those customers to their non-gaming facilities. For many the focus is on retail, and tying the sector into the broader rewards scheme. Other options include reducing room rates, table minimums, and being more aggressive in the incentives offered. For example, the MGM Golden Lion Club offers various levels of membership, with points earned on the casino floor redeemable against spend in restaurants and spas, valet parking to iPads and helicopter transfers.

“We market to mass players by focusing on premier customer service from all areas of the company, relationship-building and by offering loyalty programs, convenience through mobile apps and special promotions in order to target different customer tiers,” says Shigley.

However, the issue will be how to achieve the higher and longer visitation rates. As the infrastructure surrounding Macau improves – the planned bridge to Hong Kong and the rail link to Zhuhai airport –, it should make the region more accessible in the future. But while operators are doing a good job of adapting to the shift, there is still work to do in order to safeguard their long-term sustainability in the sector, particularly for Melco Crown’s Studio City.

“It’s too early to tell if Studio City is working,” says Bumazhny. “Studio City is on pace to generate about $100 million per year, which is enough to keep the doors open but is a very low return on the $3 billion investment and it is questionable if the property can service its debts without support from its sponsors. Longer-term, as the planning infrastructure in and around Macau opens and Macau grows as a more diversified gambling destination, the profits could grow more in line with original expectations.”

Going very much against the grain, Studio City is believed to be opening VIP rooms later this quarter which suggests the operator is looking to extract what it can from the VIP sector, despite it being very much diminished. Whether this turns out to be a smart strategy remains to be seen, but the general consensus is that operators should be very much focused on the mass market now and moving forwards.

“All sectors of the business should be profitable to a varying degree and thus VIP/junket is still a viable component of the overall business mode,” says Shigley. “But over time, the market has come to realize the benefits inherent to the mass market, that it is primarily a cash business with a higher EBITDA outcome.”

 

 



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