Atlantic City Casino Several years ago the management of a large hotel chain, Hotel Corporation of American (HCA) purchased a casino in Las Vegas. Pleased with the results HCA constructed another casino in Atlantic City shortly after casino gaming was legalized in that city. At the time the proposal in this case arose (see below) there were 9 other casinos operating and 2 additional casinos under construction. The casino is an independent operating unit within the hotel chain. For example, all financial and accounting services are provided in- house. The casino has been profitable since the day it opened. However, the level of profits has not been satisfactory. Corporate management is well aware that HCA would have been better off if the huge sums involved in the construction of the casino had been Invested in certificates of deposit. The Proposal Management of the Atlantic City Casino has employed several consulting services to study the market and the casino's position in the market. Consumer surveys have shown that the casino is viewed as an average casino, with no distinguishing characteristics. Coupled with its location (several blocks from where most of the casinos are located) this perception of blandness seems to explain the casino's relatively small walk-in trade (most visitors to Atlantic City visit more than one casino; people staying at one casino who visit a second are considered walk-ins at the second casino). A proposal has been made to expand the casino and hotel (state law prescribes a fixed number of hotel rooms per square feet of casino space). As part of this expansion, the proposal includes the construction of a theme entertainment center. The center would be separate from, but attached to, the casino. The showpiece of the center would be a large Ferris wheel designed to look like a giant wheel of fortune. It would be visible from a large portion of the boardwalk. Additionally, the area would include a unique water slide, bumper cars, a space capsule ride and a fun house. Throughout the area would be a number of small souvenir and snack shops, push carts, tent shows and midway-type games to provide an old-fashioned style carnival atmosphere. An admission fee would be charged to enter the theme center and most of the rides and entertainment would be included in the admission fee. Management expects to be able to use free admission tickets to the center as a promotional item. There would be easy access from the center to the casino floor. It is anticipated that a large number of the visitors to the center would also visit the casino. 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 Atlantic City Casino Casino $220,163 Rooms $14,862 Food and Beverage $36,833 Net Incone $23,921 Competitors 254,753 17,604 36,457 40,979 224,077 14,836 34,493 10,834 237,700 15,787 35,168 47,146 150,602 9,097 10,700 1,574 210,040 13,070 35,265 64,765 251,675 17,665 33,067 17,904 147,037 10,191 35,020 (9,075) 121,501 13,469 21,063 2,246 123,947 12,157 22,643 (1,176) "In operation in for only 6.5 months In operation in for only 6.5 months 121,581 13,469 21,863 123,947 12,157 22,643 2,246 (1,176) TABLE B Selected Statistics Casino Space Number of Property (equare feet) Atlantic City Casino 50,850 521 Number of Restaurants Competitors 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 B 7 50,516 500 5. 8 34,408 504 E 60.000 612 Saved 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. 2. Should HCA make the investment in the theme entertainment center? Why? 3. HCA is considering a balanced scorecard for the Atlantic City Casino. For each of the four areas within the balanced scorecard, list 8 34,408 60,000 504 612 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. 2. Should HCA make the investment in the theme entertainment center? Why? 3. HCA is considering a balanced scorecard for the Atlantic City Casino. For each of the four areas within the balanced scorecard, list two or three examples of measurable critical success factors which should be included