Research Library

Casino Restaurant Pitfalls

It is a common sight. Tt is 8:00p.m. on a Thursday night and the casino is busy. Machine occupancy is at 60%; most of the table games are open but the restaurants are nearly empty. The buffet had a short line an hour earlier but the coffee shop is quiet and one of the waiters from the gourmet room is standing in front of the restaurant, rocking on his heels. His dining room is empty.

When this situation becomes evident to senior leadership and they ask for reasons why their restaurants are not busy, there is usually no shortage of finger pointing. The food and beverage director will complain that marketing does not give his restaurants enough advertising support. The casino manager will mention that his customers tell him that the restaurant prices are too high. Other managers who dine in the casino’s coffee shop will say that they see better quality and value at other restaurants in town and the service seems slow. More often than not, the solution is to discount the meals.

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The Problem with Host Programs

At first blush, casino host programs are an intriguing concept. Casino personnel are recruited to identify and develop new players, foster loyalty and offer premium gamers higher levels of service and recognition. Their collective actions are designed to endear players to a particular casino. However, adopting a concept and developing it into a successful program are two separate and distinct actions. It is far easier to commit to a host program than to design a successful program, implement it and measure its results.

Host programs were first developed in Nevada well before the era of sophisticated player tracking systems. New premium gaming customers would be identified by table game personnel
who would in turn inform a host. The host would introduce himself to tl1e new player and begin the task of developing a relationship with the customer. Hosts also conducted their player development activities in satellite offices in cities far removed from Las Vegas or Reno. They utilized an informal network of referrals to identify new potential customers and stay in contact with existing ones.

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Creating the Right Player Reinvestment Strategy

As ga1ming markets mature, and revenue growth slows, casinos struggle to find ways to remain competitive, grow market share and gaming revenue. Inevitably, casino operators are forced to increase the amount of marketing dollars that they spend in various forms of player reinvestment. As spending increases, marketing leadership is faced with answering such questions as “what is the casino’s player reinvestment rate” and “how much is the casino spending to reward and retain gaming customers?”

Unfortunately, these are not easy questions to answer. First, player reinvestment is an ill-defined term. Not all casinos define player reinvestment in the same way. Some use it as a catchall phrase to describe all marketing expenditures while others use the term only to describe comps issued through the property’s casino management system, bonus points redeemed for cash and redeemed mail offers. Others attempt to better define the term to describe all of those expenses that are expended to foster loyalty and encourage repeat visitation.

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The Marketing Dashboard

It is generally understood that the sum of all marketing and advertising expenditures is the second largest expense in U.S. casinos. However, despite their impact on a property’s profitability, it is difficult to easily identify all of the costs that make up marketing and advertising on a property’s profit and loss (P&L) statement and see their effects on both property revenue and cash flow performance.

Most casino P&Ls do an excellent job of detailing each operating department’s revenue and expenses. However, marketing and advertising expenses can be found on multiple pages of this report. For instance, system generated comps (those generated by the casino’s player rewards program) normally appear in the slot club department. In addition, comp expense can be found in slots, table games, hotels and on almost every revenue-generating department’s monthly operating statement. Thus, answering the simple question, “what is the ratio of comp expense to property revenue?” becomes a time consuming task.

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The Socio-Economic Impact Analysis as a Tool for Casino Development

Casino development is a long and complex process. After a suitable site is identified and is found to be in compliance with state compacts and feden1l regulations, a decision is made by tribal leadership to explore the feasibility of the project. Atthis point the tribe may engage the services of an architectural firm to develop an architectural program. Concurrently, a feasibility study is conducted primarily for the developer, in this case the tribe, and lenders who will finance the project in order to determine whether the project is financially feasible.

The feasibility study measures market demand and market supply. It determines the appropriate size and gaming capacity for the project and forecasts the project’s expected market share. Once this is determined, the feasibility study forecasts future revenue streams and expenses in order to determine the project’s cash flow and the project’s ability to meet debt service. If the project is deemed feasible, more detailed financial statements are prepared including balance sheets and pro forma income statements. The initial concept and capacity assumptions are then placed under greater scrutiny as is the project’s positioning and mix of amenities. The architectural programming is further refined to match the project’s size and positioning.

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Harnessing Demo Software to Improve Casino Marketing

In the casino industry, the process of querying and analyzing a market’s demographic composition has long been the function of consultants who conduct market feasibility studies or, in large multi-unit gaming companies, analysts who dedicate the majority of their time scrutinizing demographic data. T he vast majority of casino marketers conduct a cursory review of area demographics as part of their annual marketing plans. This is not to suggest that marketers do not recognize the value of analyzing regional demographics. Rather the cost of demographic software coupled with its limited applicability has restricted its application.

In recent years the costs of software that generate detailed demographic reports for any geography and demographic mapping software have dropped to the point where any casino can now justify their expense. More important, the contributions that these software products can make to a casino’s advertising and marketing efforts far outweigh their costs.

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Lessons from the Airline Industry

Students of hospitality schools are often advised, as they embark on their careers, to look at other industries for emerging trends, new technologies or promising business strategies and see how the y may be applied to their own businesses. This advice also holds true for students of the gaming industry. Technological advances such as wireless technologies or e-marketing were first developed by other industries and are only now being embraced by the gaming industry.

An important lesson can be learned by watching what is now occurring in the airline industry. Today, several of the so-called “legacy airlines” are either in Chapter 11 bankruptcy or on the brink of filing. This is not because there is a shortage of customers. The nation’s airlines have recovered from the drop in passenger volume caused by the events of 9/11 . Anyone who has traveled lately knows that the nation’s airports and planes are running at or near capacity.

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Customer Service Measurement Tools

Recently, anew casino opened a sizable expansion of its property, including a larger slot floor and new restaurants. Through a carefully planned opening marketing campaign, leadership announced the opening of its expansion to the regional community in print ads, broadcast media and direct mail.

A small group of wealthy retirees, comprised of three couples, were some of the recipients of this direct mail campaign. They had visited the old property and found the facility not to their standards. It’s cramped and the restaurant offerings were limited to a small snack bar. However, the new facility looked much more appealing and they decided to give the place another try. Also, the attractive “free slot play” offer was just the hook to get them to try the place again.

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Common Mistakes in Marketing Research

A locals’ oriented casino-hotel located in a resort community recently completed a major expansion to better serve tourists visiting the city. After extensive market research, the casino’s parent company had made the determination that the property was highly desired by tourists and that an expansion of its hotel and entertainment offerings was critical if it was to grow its revenue. After investing over $50 million, the new resort expansion opened. While locals were impressed with the new property and liked its richly appointed amenities, tourists did not show up in any great numbers. Revenues remained essentially flat and EBITDA plunged as operating expenses associated with these new amenities increased.

In the post-opening period a team of executives tried to understand what went wrong. They began a marketing forensics exercise in which they reviewed all the data that was used to bring the company to the decision to expand into the tourism segment. This is what they uncovered.

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Selecting the Appropriate Advertising Agency

There is a tendency among people who are recruited for leadership roles in gaming organizations to change things. The logic is that, by shaking things up, the organization’s business performance will improve. New marketing directors and property managers often target the casino’s advertising agency as one of those institutions that must be changed.

The motivations to change a casino’s advertising agency are varied. There is often a tendency to criticize current advertising as ineffective. There is also a desire by the new manager to bring in an agency that he/she had worked with in the past. Rather than first evaluate the capabilities of the existing agency and to provide new direction, the new marketing director or property manager will sometimes summarily dismiss the current agency as incompetent and bring in an agency that he/she knows can do the job .

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