The free wolf slot machines are easy enough to appreciate, in that they have a direct affect on maintaining market positioning and improving profitability, whereas, the third is somewhat problematical in that it has more of an indirect affect that requires an understanding of the market dynamics and greater investment risk. All aspects that are herewith further discussed.
Maintenance & Replacement
Maintenance & Replacement provisions should be a regular function of the casino’s annual budget, which represents a fixed reserve based on the projected replacement costs of furniture, fixture, equipment, building, systems and landscaping. Too often however we see annual wish lists that bear no relationship to the actual wear & tear of these items. It is therefore important to actually schedule the replacement cycle, allocating funds that do not necessarily have to actually be incurred in the year of accrual. During a start-up period it may not seem necessary to spend any money on replacement of brand new assets, however by accruing amounts to be reserved for their eventual recycling will avoid having to scurry for the funds when they are most needed.
One area of special consideration is slot machines, whose replacement cycle has been shortening of late, as newer games & technologies are developing at a much higher rate, and as the competition dictates.
Investment in cost savings programs & systems are, by their very nature and if adequately researched a less risky use of profit allocation funding then almost any other investment. These items can often take the form of new energy saving systems, labor saving products, more efficient purchasing intermediation, and interest reductions.
These items have their caveats, one of which is to thoroughly analyze their touted savings against your own particular application, as often times the product claims are exaggerated. Lease buy-outs and long term debt prepayments can sometimes be advantageous, especially when the obligations were entered into during the development stage when equity funds may have been limited. In these cases it is important to look at this strategy’s net effect on the bottom line, in comparison with alternative uses of the monies for revenue enhancing/growth investments.
One recent trend is the growing popularity of cash-less slot systems, which not only provide labor savings for fills, counts and hand-pays, but also serve as an aid to patrons who do not like to lug around those cumbersome coin buckets, while also encouraging multiple game usage.
Revenue Enhancing & Growth
Leveraging is the key catalyst of any revenue enhancing/growth related investment. It includes the following:
o Patronage Base
o Available Funds
o Marketing Clout
o Management Experience
The principal is to leverage the use of the available asset towards achieving higher revenues & profitability. Typical examples include increasing average patronage base spending and widening the effective trading radius, by offering additional products/services, such as retail stores, entertainment alternatives, recreational/leisure amenities, overnight accommodations, more restaurant choices, and of course, expanded gaming.
Anticipation of potential growth and expansion should be fully integrated into the project’s initial master planning so as it assure cohesive integration of the possible elements in a phased-in program, while also allowing for the least amount of operational interruption. Unfortunately, it’s not always possible to anticipate market changes, so expansion alternatives must be carefully considered.
The Big Picture
Before embarking on any type of expansion and/or enhancement program we strongly recommend first stepping back and assessing the property’s present positioning relative to the market and competitive environment. As we have observed in numerous gaming jurisdictions around the country, often casino ventures that have been operating “fat and happy” for a few years, find themselves in a zero-growth period. Sometimes this is due to competition stemming from either/both new local area casinos or regional venues that have the affect of reducing patronage from peripheral area markets. Additionally, the current customer base may become bored with their experience and are seeking greener pastures. The historical growth of the Las Vegas strip is testament to the success of continually “reinventing” oneself.
Our approach to these market studies is initially focused on determining the degree to which the current facility is penetrating the potential market and in relationship to any competitive market shares. Typically, this represents an analysis of the current patronage base in terms of information gleaned from the player tracking data base, and mailing lists, coupled with day-part, daily, weekly, monthly and seasonal revenue trends.
This data is then interfaced with an assessment of the overall market potential to indicate the extent to which certain market segments are utilizing the facility and the needs it is fulfilling. More importantly however, is that this type of analysis will indicate those market segments that are not utilizing the facility more fully, and why.
As our proprietary studies have indicated, casino markets are segmented by various characteristics of occasioned-use that also include typical spending & visitation patterns. The traditional methods of market measurements, including gravity models, usually only weigh the demographic characteristics of a given population, based on revenues achieved in similar markets. However, an occasion segmentation market analysis reveals more detailed information as to the reasons precipitating a casino visit, how they relate to the benefits being sought, and the degree to which the occasion determines average spending and visitation frequency. This type of data mining is far more helpful than gravity modeling, in that it can help determine the type of facilities and positioning strategies necessary to attract each market segment, by measuring their relative contribution to the aggregate potential. The process has been successfully employed in the restaurant business and other leisure time service industries, especially amid a widening supply/demand marketplace.
Perhaps even more importantly, looking at the market from an occasioned-use perspective, reveals the extent and characteristics of the underling competition, that, in many cases not only include other casinos, but also alternative entertainment and leisure time activities, such as restaurants, clubs, theaters, and the like.
Another important aspect of occasion segmentation is in measuring overall market characteristics by day-parts, which is revenue density by time of day, day per week, weekly, monthly, and seasonally. This is especially important data when casino venues are seeking to lessen any higher than normal fluctuations that may be occurring between a slow Monday morning and a packed Saturday night; or that experience severe seasonal variations.
By segmenting markets by their demand patterns, a better understanding can be gained of which amenities may help bolster the weak demand periods, and those that may only add to the already maximized peaks.
Many expansion programs often make the mistake of configuring additional amenities such as high-end restaurants and lodging elements based on the peak demand periods. As a result, the net effect of costs & expenses for these investments can negate any contribution they may make to increased gaming revenues. Rather, “fill-in” markets are the most efficient means to increase overall revenues, as they utilize existing capacities. Las Vegas has achieved great success in creating strong mid-week activity through promotion of its extensive conference/convention facilities.