Macau casino operators are scrambling to differentiate themselves in the face of intensifying competition. Through branding, they will transform the hard-core gambling haven into a complete Vegas-style tourism destination
Macau has clinched the lead in the race to become the world’s top-grossing casino destination. The city’s casino revenues surged 22% year-on-year in 2006 to reach US$6.95, compared to the Las Vegas Strip’s estimated US$6.5-6.6 billion for the year (though adding the revenues of the other casinos in Clark County to those from the Strip brings the tally to over US$10 billion).
While Macau’s casino revenues have outstripped those of the legendary Strip, in marketing terms, Macau looks to be following the American lead.
Product branding has been, for better or worse, the United States’ great gift to world commerce. Its growth in the Macau casino sector indicates that the mass market is starting to drive the agenda of the city’s gaming business model.
VIP room operators normally rely on a personalised approach to woo high-rollers, but in an increasingly busy mass market with surging visitor numbers, branding is a more appropriate lure for ordinary gamblers. This can be done in a number of ways, including encouraging repeat visits through loyalty schemes, offering loss leaders such as courtesy buses and complimentary snacks and drinks, or simply mesmerising customers with sheer glitz and glamour.
Macau’s former gaming monopolist Stanley Ho is the operator most dependent on the VIP trade, and his revenue share has been eroded by the march of mass market branding. When the first casinos from rival operators opened in 2004, analysts predicted Dr Ho’s Sociedade de Jogos de Macau (SJM) would retain over half the local market share until 2008. Yet revenue figures released in January showed SJM’s share had already fallen below 50% in 2006.
There are clear signs Dr Ho is repositioning his operation to meet the challenge. As well as opening new casinos, he announced a deal in late January to buy a HK$274 million (US$35 million) stake in Malaysia’s Star Cruises. The investment, done via Dr Ho’s private vehicle, Profit Boom Investment, benefits both sides. It gives Star access to Macau’s coveted gaming market, while providing Dr Ho an inroad to the fledgling Singapore market, where Star Cruises will soon build a gaming resort with its parent company Genting Group.
Genting and Star are well known brands in Asia, and in December proved their international competitiveness by clinching the license for the second of Singapore’s two planned casino-centred integrated resorts, to be located on the resort island of Sentosa. In winning the license, Genting and Star outbid Bahamas-based Kerzner International and a consortium headed by resort-builder Mark Advent (creator of the New York New York casino in Vegas) and including Mississippi-based Isle of Capri Casinos Inc and Australia’s Publishing and Broadcasting Ltd.
Genting Highlands Resort
Brand Ally
By associating with Genting Group, Dr Ho gains a strong brand with which to take on the western competition. The new partners plan to construct a boutique hotel and casino in Macau, slated to open in 2009. The hotel is likely to be named Resorts World, and the casino will be operated by SJM. The link with Star also opens up the possibility of creating a new and lucrative revenue stream in Macau, through gambling cruises.
As the American and Australian newcomers to the Macau market start to open multiple venues targeting different market segments, the impulse to tie customers in to their brands is likely to grow stronger. Chinese consumers have responded enthusiastically to western brands ranging from fashion to fast food. Western casino and hotel brands appearing in Macau will likely achieve a similar following.
Some observers believe novelty, rather than incipient brand loyalty, drew the crowds to the openings of Wynn Macau last September and Sands Macau in May 2004. According to that line of thinking, mass market customers will simply keep transferring their affections every time a new venue opens, like a big game of musical chairs. The true mass market test for the new properties is retention rates. Sands Macau is certainly showing staying power, recording only a one percent fall in market share to 20% in 2006, despite the increased competition. SJM suffered the largest decline in market share.
Incentive to Innovate
For years, branding didn’t really matter in Macau. There was little incentive to innovate, as all the city’s gambling halls fell under Stanley Ho’s monopoly license. The operators not directly controlled by Dr Ho needed to maintain goodwill by making sure they didn’t encroach on his business interests.
Now Macau is making up for lost time, thanks to the influx of billions in overseas investment following the ending of the monopoly in December 2002. The latest brand to enter the market is Hard Rock International, operator of the themed hotel and restaurant chain. It has signed an agreement with Melco Hotels and Resorts Ltd – part of Melco International, the Hong Kong-listed company run by Dr Ho’s son Lawrence – to run a Hard Rock Hotel and Casino at Melco’s City of Dreams complex being built along the nascent Cotai Strip (of reclaimed land between Macau’s Coloane and Taipa islands). The Hard Rock venue will feature a 380-room hotel and a 25,000 sq ft casino, and is likely to open in the last quarter of 2008.
Hard Rock International is based in Orlando, Florida, in fact the world capital of theme parks. The company also has operations in Las Vegas and in 44 other national territories, comprising 123 Hard Rock Cafes, seven hotel casinos and one stand-alone casino.
Industry analysts say the expected arrival of Hard Rock in Macau is another example of the ‘Vegas-isation’ of the territory.
Betting on Non-Gaming
While over 90% of the revenues of Macau casino operators are derived from gaming, Vegas operators now earn roughly half their revenue from dining, retail, entertainment and other non-gaming sources. As the Macau market matures and moves towards the Las Vegas model, its non-gaming revenue is expected to increase in importance. Las Vegas Sands Corp (LVS) Chairman Sheldon Adelson is gambling on it.
In the third quarter of 2006, LVS, operator of the Sands Macau and The Venetian in Las Vegas, announced consolidated results for its American and Macau operations showing a 29% increase in food and beverage revenues to US$138.2 million, and a 29% increase in retail revenues to US$9.6 million. LVS’ nongaming revenue growth will likely jump further following the July 2007 opening of the US$2.3 billion Venetian Macau, which will feature sprawling entertainment, retail, expo and dining facilities, in addition to its 3,000 suites.
LVS President and Chief Operating Officer William Weidner commented on the company’s Macau strategy during a conference call with financial analysts to discuss LVS’ third quarter results: “Our extensive coast side development plans are based on two fundamental concepts; that the market will expand as quality product is introduced; [and] that the highest quality products in the marketplace will not only win market share from the inferior product, but will also expand the market to a new set of customers, a set of customers that either doesn’t visit Macau at all today, or visits Macau only infrequently.”
The desire of casino operators to move ever further into general entertainment means the distinction between theme parks and gambling palaces is becoming increasingly blurred to nearly everyone but the gaming regulators. No visit to Nevada’s ‘Sin City’ is complete, for example, without witnessing the pirate battle at Treasure Island Las Vegas – though nowadays the spectacle is more like Showgirls than Pirates of the Caribbean, with skimpily-attired male and female performers busily jigging in the rigging.
It seems a modern casino entrepreneur needs to be a combination of showman, property developer, hotelier and retailer as well as bookmaker. One of the industry’s natural showmen is Steve Wynn. He is now almost as well known for buying famous paintings and displaying them in his hotels – and recently, for accidentally putting his elbow through one of them – as he is for running gambling venues.
In Macau, smaller casino operators without the deep pockets of Steve Wynn or LVS are finding other ways to differentiate them-selves in an increasingly busy mass market. A current fad is for themed properties.
Worth its Weight
The Grand Emperor Hotel and its accompanying casino on the Macau peninsula went for a look of imperial opulence. It chose to wow visitors by literally paving the lobby with gold – 78 one-kilo bars of it, to be precise. Emperor Entertainment Group has a strong entertainment brand in Asia, with film star Jackie Chan – a minority shareholder in the project – appearing at the opening of the property in January last year,
In Macau, even the shopping complexes are turning into theme parks. David Chow’s Fisherman’s Wharf retail and restaurant development is a pastiche of architectural styles from around the world, reminiscent of a section of Disney’s Epcot Center in Florida. LVS’ Venetian Macau resort will soon add Italy to the list of places you can visit on a trip to Macau.
Although initial visitor numbers at Fisherman’s Wharf have been disappointing, the owners hope to revive its fortunes with the new themed casino in the grounds operating under SJM’s licence.
The new casino’s exterior is loosely based on a temple from ancient Babylon – another civilisation noted in The Bible for its love of excess. In reality, the frontage looks more like an Art Deco cinema theatre parachuted on to the banks of the Pearl River Delta than a temple on the banks of the River Tigris.
Other local operators are busy building a corporate identity to pull in visitors, and it seems clear that when it comes to gaming, size and branding does matter. Hong Kong-listed Galaxy Entertainment Group, headed by Hong Kong construction tycoon Lui Che Woo, started 2006 with two casinos and a 9% revenue share. By the end of the fourth quarter, it had five casinos operating and finished the year with a 19% share. The Galaxy properties have taken advantage of the opportunities for cross-promotion and group purchasing, as well as the novelty factor that new openings present.
The one recognisable casino brand that did develop during the monopoly era was Stanley Ho’s Casino Lisboa. The birdcage-shaped Lisboa was built in the late 1960s, and as Stanley Ho’s right-hand man Ambrose So pointed out in an earlier interview with Inside Asian Gaming, “the ceilings are low and it’s very cramped.” Still, the Lisboa has achieved iconic status, and SJM is cashing in on that with the adjoining Grand Lisboa, set to open this month. SJM also has the benefit of size, providing licences for 17 of the 24 casinos currently operating in Macau.
Grand Emperor Hotel
Sign of Maturity
Gaming industry consultant Roger Egan says: “It’s a sign of the maturing of the Macau casino market that branding and themed venues are playing an increasing role. It’s a way of offering niche products to spread the appeal of Macau to non-gamblers as well as gamblers. The thinking is that you can drive up room occupancy rates, length of stay and general revenues if you can turn Macau into a general sightseeing and entertainment resort rather than just a gambling town. With this new business model, gambling could become the icing on the cake, rather than making up the whole cake.”
The quest for branding in Macau can also be seen in the frantic rush of the different casino operators to sign up big name hotel chains to their new developments.
But what of Macau’s traditional casinos and their VIP operations, who lack an obvious brand identity, brand allies, or linkage to a big organisation? How many of the analysts currently writing about Macau’s gaming industry have heard of the King Seiner Palace casino? Yet King Seiner is part-owned by Success Universe Group, one of the big three players in the Macau VIP market.
Given the sheer number of potential customers available in mainland China, the march of Macau’s mass market looks unstoppable. Wynn Macau managed to corner a 16% share of the territory’s gaming revenues within three months of opening.
The Las Vegas experience has been that in the world of casino operations, the big get richer and the small get poorer. Unless Macau’s small operators are able to hold on to the VIP trade and its big margins, the territory may end up imitating Vegas yet again.