In Macau, ‘elite’ used to mean ‘VIP’ … Not anymore … With cash players gambling at levels that once were seen only in the junket rooms, casinos are responding with amenities and services that are ‘VIP’ in every sense of the term. The new Pavilion Club is Galaxy Macau’s answer. And it is something special. Deputy COO Gabe Hunterton explains the strategy behind it and how premium mass is transforming the market
Macau booked US$38 in gaming revenue in 2012, and with the consensus among analysts for 15% revenue growth this year, it appears the world’s largest casino market is going to get a lot larger. VIP baccarat will account for about two-thirds of this, and for this reason it’s going to grab most of the headlines as this extraordinary story unfolds. But by no means is it the sole engine driving the plot. Arguably, it’s no longer the primary one either. Play at the cash tables is growing at around triple the rate of VIP. Through the first half of 2013, these games generated MOP55.6 billion ($6.95 billion) in revenue, an astounding performance made more astounding by the fact that the “mass market” as it’s called (to distinguish it from the credit-based play that’s conducted in the VIP rooms with nonnegotiable chips) has been delivering yearon- year revenue growth of 30% or better for 10 straight quarters.
Combined with a 7% increase in slot revenue in the first half, the effect as of 30th June was to push VIP below 70% of the market for the fourth consecutive quarter. Since the fourth quarter of 2009, which was the last time VIP came in at less than 70%, revenue from mass tables and slots has grown at a combined 27% or more every year. They’re trending this year at rates that should find them at close to 35% of the market, and that hasn’t happened since 2006.
“Five years ago, there was no such thing as somebody who bet 20,000 or 30,000or 40,000 [Hong Kong] dollars on the mass gaming floor. All of that bettingwas done in VIP rooms. Now there are players who bet 200,000and 300,000 and 400,000 a hand in mass gaming. And those players not only expectbut they deserve a superior experience. And that’s what Pavilion Club High Limits givesthem. It has all the amenities of the VIP room, because the people gambling in there aregambling at exactly the same level.”
Clearly, the fundamental dynamics of the market are shifting in ways that say a lot about the impact of China’s burgeoning middle class and the returns that are likely to accrue on the massive amounts of capital being invested in new resort construction on Cotai specifically to target it.
It’s important as well for what it says about the operational demands required to make all this meaningful to the consumer. Because the thing about this surging mass market is how it is revolutionizing the way the industry thinks about profitability. As cash gambling is conducted directly between the player and the casino— no junket intermediaries and VIP room promoters to be cut in for 40-45% of the win—after-tax margins are around three to four times greater than on VIP.
It’s impossible to overstate what this means for the bottom line in a market as capacity-constrained as Macau is as a result of restrictive government policies affecting imported labor and the supply of new table games. The casinos have had to get very good very fast at identifying and segmenting players on the basis of their value and tailoring marketing and service levels to maximize the yield on each, especially as this concerns the biggest bettors, the prized “premium mass,” as they’re known, the elite of the elite whose high-rolling preferences deliver three to four times more yield per table than the average cash player.
Galaxy Entertainment Group joined the vanguard of this movement two years ago when it opened Galaxy Macau, its US$2.1 billion Cotai flagship, and began to fine-tune a premium-mass strategy distinguished by its “VIP” approach to delivering service and rewards. This has continued into 2013 with the result that growth in mass table win and mass tables and slots combined had handily outpaced market-wide growth in both sectors in the first quarter. J.P. Morgan is looking to Galaxy Macau for HK$87,211 in daily win per table this year (a 32% increase over 2012) and a 24% increase in win per slot to $2,729. With revenue up 23% to HK$8.9 billion in the first quarter—EBITDA was up 48%—the property appears to be well on the way to achieving both.
“It’s no secret thatthis is where the marketis headed. And we believethat we’re in a goodposition now—actually,we believe were in a verygood position now—toservice those customers.”
The strength of its mass business saw Galaxy Macau running at a comfortable 22% operating margin in the first quarter (30% under US GAAP rules), and the story is only going to get better as a government allocation of 50 new tables for 2013 is fully distributed across the group along with 38 tables acquired with the recent purchase of the Grand Waldo on Cotai, previously licensed as one of GEG’s City Club-branded casinos. In June, the property entered the lucrative live-dealer electronic table market with a 150-seat stadium installation. This will prove important in balancing out the offering at the lower bet ranges with the three exclusive areas carved out of the main floor for higher-limit players, the Pavilions, as they’re called. The property’s biggest slot players also have an exclusive gaming room of their own, elegantly designed by Las Vegas-based Steelman Partners, the architect behind all of Galaxy Macau’s distinctive interiors, and outfitted with about 110 machines. June saw the unveiling of another Steelman creation, the Pavilion Club—a 4,000-square-foot baccarat salon reserved for Pavilion Black and Pavilion Platinum members, the highest tiers in Galaxy Macau’s popular loyalty program. Pavilion Club houses nine tables in a setting as luxurious as any VIP room, complete with amenities and service levels normally enjoyed only by high-rolling junket players. It is, as the corporate literature states, “the most exclusive aspect of the Pavilion membership to date”.
Pavilion Club entrance
Deputy Chief Operating Officer Gabe Hunterton is the man in charge of making all this work. A Yale alumnus and a 15- year industry veteran, he joined Galaxy Entertainment Group in 2009 and served as chief operating officer at StarWorld Hotel before making the move to Cotai last December. He recently spoke with Inside Asian Gaming about the strategy behind the Pavilion Club and the factors he considers key to Galaxy Macau’s continued growth in the lucrative premium-mass segment.
IAG: How is the Pavilion Club different, or rather how does it complement, what you’ve been offering your premium mass players?
Mr Hunterton: The first thing is, it’s a carded access area, which means there’s always going to be fewer players in there, so it’s a more exclusive environment. It’s built to a more luxurious standard than the other areas around it. And it’s a different experience. The players who are playing in there kind of want to be segregated from the main gaming hall and want to be able to gamble in a more exclusive area. And, obviously, there are the heavy service levels in there and the elevated design levels.
It’s a tiered card system: How does that work in premium mass? Or rather, how does it work as you go up the tiers?
The four tiers are Gold, Platinum, Pavilion Platinum and Pavilion Black. Basically, they represent differences in the amenities that are extended to the customers. There’s a higher reinvestment rate as you move up in the tiers and also larger discounts available. Customers can earn rewards on all their gaming and non-gaming spending at both Galaxy Macau and StarWorld Hotel. And of course there are escalating privileges and benefits ranging from free ferry tickets to tickets for concerts, as well as events that are restricted to the members of the Black Card club.
Galaxy Macau has created a similar area for high-limit slot players, a very innovative concept for the market. How did that come about?
It’s a very similar model with a very different player in mind. Again, it’s a highdisposable- income person who really enjoys playing slots, and because of the amount that they play they deserve a superior experience, and we give them that experience. They get a much more exclusive private area designed by Paul Steelman and extending to 4,000 square feet with two private gaming rooms. There are also enhanced amenities, including a gourmet food and beverage menu. And this luxurious environment is perfectly complemented by Galaxy Macau’s inimitable “World Class, Asian Heart” hospitality.
“Most important is service. Our guests need good service. And good service meansdifferent things to different guests. Here at Galaxy Macau we believe in a levelof attention to detail which we call our signature “World Class,Asian Heart” service. Some guests want to be extensively pamperedand constantly have things delivered to them. For example: some guests just wanta cup of hot tea. The key to delivering a highly attentive experienceis having staff that can deliver that level of personalized and sincere service.Anyone can build a beautiful gaming room. Not everyone can have staffthat can deliver a first-class gaming experience. I think that’s the key differentiator.”
It’s interesting how slots have gone from an afterthought in Macau to a sector that demands dedicated luxury playing spaces.
We’re finding the number of players is growing at an amazing rate. Many casino operators are trying to play catch-up in order to service this group, but at Galaxy Macau we feel we’re quite a long way ahead of the game.
It’s been quite an evolution. How do you continue to respond effectively?
Given our world-class facilities and “Asian heart service,” I think that we are at the head of the industry in terms of quality. But we still need to work very hard to stay ahead of the competition. The segment is growing every bit as fast as the premium table customers, so we just need to keep offering them the superior service, the great experience, and all the extra amenities that we’re providing to the table customers. The Pavilion High Limit Slots was created for this very reason, offering a luxuriously designed area where members can indulge in an exclusive slot machine experience with a variety of popular games, as well as progressive and mystery jackpots. Premium slot players were particularly pleased to see the premium attention, commitment and due respect that we have given to highlimit slot players with the establishment of this exclusive, private, and dedicated slot gaming area. It’s been very well received and has certainly met the players’ increasingly sophisticated expectations.
What do spaces like that and like Pavilion Club say about the changing expectations and preferences of these players?
It’s interesting. It’s not so much about what they expect or what they’ll settle for, but what they deserve. Five years ago, there was no such thing as somebody who bet 20,000 or 30,000 or 40,000 [Hong Kong] dollars on the mass gaming floor. All of that betting was done in VIP rooms. Now there are players who bet 200,000 and 300,000 and 400,000 a hand in mass gaming. And those players not only expect but they deserve a superior experience. And that’s what Pavilion Club High Limits gives them. It has all the amenities of the VIP room, because the people gambling in there are gambling at exactly the same level.
So, obviously, there is a need for this at Galaxy Macau. Did it originate with player feedback or was it based on Galaxy’s own observations?
I would say almost 90% player feedback. And then some information on where we believe the market is headed. But it was our customers telling us they wanted an even more exclusive experience, an even more luxurious experience, and it’s our job to listen to them and then to deliver that. We’ve got to continue to offer a superior experience, and a superior experience means what the customer wants.
How do you create that experience? Strategically speaking, what are its key elements?
I think most important is service. Our guests need good service. And good service means different things to different guests. Here at Galaxy Macau we believe in a level of attention to detail which we call our signature “World Class, Asian Heart” service. Some guests want to be extensively pampered and constantly have things delivered to them. For example: some guests just want a cup of hot tea. The key to delivering a highly attentive experience is having staff that can deliver that level of personalized and sincere service. Anyone can build a beautiful gaming room. Not everyone can have staff that can deliver a first-class gaming experience. I think that’s the key differentiator.
“Macau right now is largelya southeastern Chinadestination.And we want to growto be a worldwide resortdestination. Of thosepremium mass customersa lot of them are fromvarious countries aroundAsia, whether it’s Singaporeor Korea or Indonesia.”
So training, the fostering of a distinct corporate culture, these would be fundamental to the strategy?
Our employees are by far our most important asset, and we continue to invest in them, training them, helping them to learn how to do their jobs even better. We have an entire department devoted just to training. They train the new employees, and they also increase the skill sets of the existing employees. After all, it is our employees that are the embodiment of our unique “World Class, Asian Heart” approach that forms the real personality and culture of Galaxy Macau. We are warm, respectful, attentive, but passionate too. Everything we do come from the heart and it is very important that we are seen to be transparent, honest and trustworthy and always sincere.
Is there a distinct course of training that goes into serving high-limit players? Are employees trained specifically to work in an area like the Pavilion Club?
There’s a gaming-specific course. But, you know, honestly, I would say serving a premium mass gaming customer or serving a customer in a very expensive restaurant is actually very similar. There is no rule book. You’ve got to be able to walk up and read the difference between the customer who wants his meal in 40 minutes and the customer who wants his meal in two hours. And if you’re really good you don’t have to ask that question, you just know the answer. The premium mass customers are the same. Some customers like the staff to be very engaging with them and talk to them, and some customers prefer to be left alone while they gamble. The key is having a staff that can tell the difference. And that comes down to employing the very best people, giving them excellent training, and ensuring every single person at Galaxy Macau is committed to our “World Class, Asian Heart” service standards. That’s what makes coming to Galaxy Macau an outstanding experience, whether you are a gamer or non-gamer, a premium Pavilion player or on the main gaming floor.
What about player development staff? In the absence of junkets, their role would be vital. How does this work when it comes to an elite player who happens to be a cash player.
Well, it’s very important. These people work for us. These are the people that have the relationships directly with our customers and, again, they have to deliver our “World Class, Asian Heart” service in a way that is appropriate to each individual customer. They provide a highly personalized service and they work really hard to make the customers aware of all the amenities available to them at Galaxy Macau. Often they will introduce the customers to Galaxy Macau and they are instrumental in ensuring that the customer returns. So they’re a very important part of the team.
In terms of average bet size, for Galaxy Macau where does mass end and premium mass begin?
The price points are basically the same around town. But most places consider pretty much a limit above 2,000 [Hong Kong] dollars to be premium mass.
We’re reading a lot about how price points are rising. They’re up over 30% on average just in the last year. Do you see that trend continuing?
Because of the sheer numbers? The segment will continue to grow?
Absolutely, it’s going to continue to grow. As China’s economy continues to grow, as the upper middle class continues to grow, as the scope of Macau in terms of hotel, gaming, tourist and transport infrastructure continues to grow, we’re going to have more visitors based on the attractions we have to offer. There are going to be more visitors because people from larger parts of China are going to come to Macau. Macau right now is largely a southeastern China destination. And we want to grow to be a worldwide resort destination. Of those premium mass customers a lot of them are from various countries around Asia, whether it’s Singapore or Korea or Indonesia. And basically, again, they are asking for a level of service they definitely deserve and we believe that our “World Class, Asian Heart” service provides just that. … I think some figures will give you an idea of the potential from China. Last year, there were about 300 million qualified travelers who could visit Macau through IVS [the Individual Visit Scheme]. However, only 6 million visitors came to Macau three times or more last year. According to McKinsey’s research, the middle class, those with average incomes of RMB106,000 to 229,000 per year [US$17,000-$37,000], in China will reach 400 million people by 2020. This group of people will become mainstream spenders, and there is a lot of potential in this segment.
Pavilion High Limit Slots
Those at the level you’re catering to at Pavilion Club, are these former VIP players who have become cash players? Or is this a new kind of higher roller coming to Macau?
I think it’s mass-market customers who are getting wealthier and wealthier. And as their wealth grows the amount of money they gamble grows. Anywhere else in the world, someone who is betting 400,000 a hand is going to be in a private room. Here they can be in a private room or they can be out in the open. There’s absolutely nothing like it in the world.
In the context of the table cap, how do you plan to keep pace with this kind of demand?
One of the ways we do this, we just opened an LT Game [live dealer e-table] stadium, which allows us to have more product for a customer at a lower price point so that we don’t have to raise our prices to the point where people can’t play. And it allows us to continue to deliver within premium mass the customers who want to play at a higher price point.
Would this also include plans to expand on the Pavilion Club strategy?
We’re very fortunate at Galaxy Macau that we can offer a wide range of experiences, with more than 2,200 rooms, suites and villas across three world-class hotel brands: the five-star Galaxy Hotel, Japan’s legendary Okura Hotels & Resorts Worldwide and the award-winning and ultra-exclusive Banyan Tree Hotels & Resorts. Facilities include theGrand Resort Deck, with lush oasis gardens covering 52,000 square meters, the world’s largest Skytop Wave Pool and a 350-ton white sand beach; the widest selection of pan-Asian and international cuisine under one roof in Macau; UA Galaxy Cinemas, a nine-screen, 3D-equipped complex unlike anything in Macau; CHINA ROUGE, an exclusive, members-only performance lounge; Foot Hub, Macau’s largest, premium foot reflexology center; and two boulevards of distinctive retail shops. … We’ve got a lot of chances to be right with the customers. We do our best to offer the customer the best possible experience. But at the end of the day, it’s their decision. If they enjoy the trip then we’ve been successful. If they don’t enjoy the trip then we’ve failed.
There will be a lot more of this when Phase 2 comes on line. How does premium mass figure into that? Do you factor the offering into the design?
Oh, yes, absolutely. That’s one of the reasons why we’re bringing in two luxury hotel brands, Ritz Carlton and JW Marriott. The needs of the premium-mass market will have a lot of influence on the type of restaurants were going to put into Phase 2. They also have a lot of influence on the way we’re going to build the gaming area in Phase 2. It’s no secret that this is where the market is headed. And we believe that we’re in a good position now—actually, we believe we’re in a very good position now—to service those customers. This is a major investment and we set very high expectations for success. The customers’ experience is most important to us. We are confident that Phase 2 will extend the appeal of Galaxy Macau to an ever more diverse group of visitors, and we will Pavilion High Limit Slots continue to exceed expectations.