team n final case deck
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![Page 1: Team n final case deck](https://reader033.vdocuments.net/reader033/viewer/2022061111/54555609af795974408b89c7/html5/thumbnails/1.jpg)
Exceeding Earnings Expectations in 2 Years
Prateek Peres-da-SilvaElizabeth Buoyer
Taylor CurrierMatt Cooper
Jack Dai
CSF Final Case CompetitionThursday, April 12, 2012
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Executive Summary
How can Marriott exceed consensus earnings expectations in 2 years?
Key Question
Marriott should cater to niche markets with increasing propensities to spend in order to realize an 18.3% increase in profit
Hypothesis
Approach
Drive Chinese Travel Demand
Create Business Class Package
Expand Casinos in the US
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Drive Demand of Inbound Chinese Travelers
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Chinese Travelers ♦ Business Class ♦ Casinos
4
2012 2013 2014 2015 2016 -
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
Inbound Chinese Visitors
Tota
l Vis
itors
(K)
The rapid increase in Chinese visitors to the US presents a massive new segmentation opportunity for Marriott
Driving Causes
• Ease on US Visa regulations of Chinese residents
• 14.1% increase in Chinese disposable incomes
274%
Sources: Mintel Oxygen, US Dept. of Commerce, AdvisorAnalyst.com
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Chinese Travelers ♦ Business Class ♦ Casinos
5
Mandarin-speaking staff
Chinese symbols
Chinese cuisine
Vacation package
Characteristics of Chinese Travelers
Travel in large groups
Stay in the US longer
Look for budget hotels
While competitors focus on in-house accommodations, Marriott can gain market share by catering to Chinese travelers’ preferences
Sources: Mintel Oxygen, CNNTravel
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Chinese Travelers ♦ Business Class ♦ Casinos
6
San Francisco
Yosemite
Hollywood
Niagara Falls
NYC
Washington DC
75539
% of inbound Chinese travelers prefer economy or mid-priced hotels
% of inbound Chinese travelers prefer tour packages
% of total travel expenses by Chinese travelers are hotel costs
California East Coast
Sticker Price $2110 $2360
Group Rate $1600 $1770
Sources: Mintel Oxygen, Group Analysis, company sites
*10 night tour
By packaging hotel stays in gateway cities, Marriott can drive demand of Chinese travelers seeking to maximize travel experience
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Chinese Travelers ♦ Business Class ♦ Casinos
7
Worst Case Base Case Best Case 0
20
40
60
80
100
120
140
160
20132012Pr
ofit (
$M)
27.8
55.6
139.1
Packaging hotel options comes at no cost to Marriott and yields net profit regardless of the market share captured
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Cater to the Increasing Business Traveler Segment
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Chinese Travelers ♦ Business Class ♦ Casinos
9
0%
2%
4%
6%
8%
10%
12%
10%
8%
3%
Comparison of Business and Leisure Travelers
% M
ore
Busi
ness
Tr
avel
ers
than
Lei
sure
2011 2012 2013240
255
270
285
252
264
277
3-Year Projection of Business Travel Spending
Busi
ness
Tra
vel S
pend
ing
($B)
Sources: Mintel Oxygen, Global Business Travel Association
Business travelers make up a growing market segment that Marriott is well-positioned to capture
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Chinese Travelers ♦ Business Class ♦ Casinos
10
While Marriott’s current business packages cater to large groups, the majority of businesspeople travel alone
83%
Business Travelers that Travel Alone
Sources: Thomson.com, Marriott.com
Current Marriott Business Package
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Chinese Travelers ♦ Business Class ♦ Casinos
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
The business class accommodation package satisfies all of the business travelers' needs
Source: Mintel Oxygen
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Chinese Travelers ♦ Business Class ♦ Casinos
12
Assuming that at least 0.1% of U.S. business travelers utilize this service, Marriott will still earn a profit
Worst Case Base Case Best Case0
5
10
15
20
25
30
35
20132012
Profi
ts ($
M)
6.3
18.0
29.8
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Divest Future Project Funding to Purchase High Margin Casino Boats
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Chinese Travelers ♦ Business Class ♦ Casinos
14
2011 2012 2013 2014 20150
5
10
15
20
5-Year Projected U.S. Casino Revenue
Reve
nue
($B)
Hotels Casinos0
4
8
12
16
20
1.6%
16%
Profit Margin of Hotels vs. Casinos
Profi
t as
% o
f Rev
enue
s
Source: IBISWorld
The U.S. casino industry’s steady growth and high margins present an opportunity for Marriott
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Chinese Travelers ♦ Business Class ♦ Casinos
15
Dec 2012Casino Boats are
operational, generating profits
Jan 2012 Delay 18 projected new construction
projects
Feb 2012 Divert funding to
purchase and furnish 5 casino boats
April 2012Obtain licenses at key
locations
Hotels Riverboat Casinos
Capital Expenditure Total Profit
150 0 $3,079,125,000 $20,005,948
132 5 $3,084,630,000 $30,605,234
By diverting funding from hotels to riverboat casinos, total profit will increase by 50%
+$10.6M
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Chinese Travelers ♦ Business Class ♦ Casinos
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Worst Case Base Case Best Case05
101520253035404550
Change in Profit Due to Riverboat Casinos
Additional ProfitNo Boats
Profi
t ($M
)
20.2
30.6
43.6
Investing in riverboat casinos instead of low-margin hotels can prove highly profitable for Marriott
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Chinese Travelers ♦ Business Class ♦ Casinos
17
Marriott already has measures in place to mitigate the risks of expanding into riverboat casinos
Licensing and Regulations
Gas Price Volatility
Insurance Premium Higher for Boats
Marriott already operates casinos
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
Sources: EPA, Mintel Oxygen
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18
Analyst Projec-tion
Chinese Tourist Business Class Casino Boat Total400
420
440
460
480
500
520
540
560
Net
Pro
fit ($
m)
55.6
10.618
84.2
By pursuing our recommendations, Marriott can realize net profit gain of $84.2 Million
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Executive Summary
How can Marriott exceed consensus earnings expectations in 2 years?
Key Question
Marriott should cater to niche markets with increasing propensities to spend in order to realize an 18.3% increase in profit
Hypothesis
Approach
Drive Chinese Travel Demand
Create Business Class Package
Expand Casinos in the US
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Appendix
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21
Navigation
Financials
Chinese Tourists
Business Class Package
Riverboat Casinos
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Worst Case Financials
Assuming 6% growth rate
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Base Case Financials
Assuming 6% growth rate
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Best Case Financials
Assuming 6% growth rate
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Financials for California tour
Source: Company websites and Group Analysis
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Financials for East Coast Tour
Source: Company websites and Group Analysis
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Total Financial Impact
Source: Company websites and Group Analysis
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The majority of business travelers will have the option to upgrade to the Business Class Package because they book their trips themselves
Source: Mintel Oxygen Report
Book Themselves
61%
Booked By Someone
Else39%
Trip Bookings
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29
2009 20120
2
4
6
8
10
12
7.4
11.3
Average Length of Stay
Year
Day
s
The average length of stay in the US is increasing for Chinese visitors
Source: Mintel Oxygen
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Business travelers prefer working in their rooms
Source: Mintel Oxygen
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With business centers becoming obsolete, hotels can add convenience by keeping tech supplies on hand for travelers
with mobile electronics
Source: Mintel Oxygen
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Business travelers prefer streamlined check-in process
Source: Mintel Oxygen
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Technology and automation is increasingly important to business travelers
Source: Mintel Oxygen
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Financials for Business Class Package
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Breakeven Analysis on Car Acquisitions
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Locations of Riverboat Casinos
• San Francisco, CA
• Santa Monica, CA
• St. Louis, MO• Chicago, IL• New Orleans, LA
Locations of Riverboat Casinos
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37MYTH #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).
Many negative views of riverboat casinos are myths according to the Louisiana Casino Organization
Source: Louisiana Casino Organization
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Casino Financials and Assumptions
Source: Louisiana Casino Organization