Tides that Bind
One of the definitions of resilient is “the capability of a strained body to recover its size and shape after deformation caused especially by compressive stress.” By that standard, it’s hard to imagine a more resilient casino market in the country than the Mississippi Gulf Coast.
Consider that in addition to enduring the now four- (or is it five?) year-old economic bust that has yet to re-boom, the Mississippi Gulf Coast is still coping with the twin shocks of Hurricane Katrina and, to a lesser extent, the BP oil spill. Though Katrina was seven-and-a-half years ago, the Gulf still has 25 percent fewer hotel rooms than it did prior to the storm, and far less of the non-gaming attractions and amenities that are essential to tourism. In 2012, gaming revenue was $828.4 million, pretty much the level it has hovered at since 2009 and significantly off its peak year of 2007 when revenues topped $1 billion for the first and only time in its 21-year history. Still, these are numbers that stand up well to other mature jurisdictions that have endured far less.
The Gulf has other distinguishing qualities: Universal belief among existing operators in the uniqueness and the quality of the southern Mississippi coast as a destination; a broad range of national gaming operators whose marketing capabilities are becoming more refined and potent all the time; and a line of companies that are either committed to or interested in new project investment. These companies include the Golden Nugget, which bought Isle Casino Biloxi and plans to invest over $100 million in a renovation and expansion project, and Rotate Black, which plans a $112 million project in Gulfport that features a four-star, Hemingway-themed hotel.
“We’ve had a couple of natural disasters that have hindered our ability to grow as we’ve seen more gaming in the states around us,” said Allen Godfrey, executive director, Mississippi Gaming Commission. “The positive thing about the Mississippi Gulf Coast is that it appears to be where the majority of interest in new construction is coming. My view is the coast is more of an attraction to investors because it’s not something that’s found in the rest of the United States. Everyone wants to go the beach and the water.”
Many in the existing market caution against adding supply to what is a demonstrably tight market, pointing to the struggles of the $60 million Margaritaville Biloxi project, which opened without a hotel last May. This message that hasn’t been lost on Godfrey and the Commission, which last month published new infrastructure requirements for comment that included a 300-room or larger hotel of at least four stars as defined by the Forbes Travel Guide as well as an amenity that “will be unique to the market and will encourage economic development and promote tourism.”
“My takeaway from Margaritaville is that it’s a different market now than it was five, 10 or 20 years ago, said Godfrey. “That project may have fared differently in its first months of operation had it been six or eight years ago rather than today. Competition is so tough that you have to bring something to the market that is unique and will drive tourism. It also says if I bring new people to the market, I need to put them into my hotel. It further solidified the impression that you need to put money into a hotel. I think Margaritaville still has a lot to offer and if they can work through some of their growing pains, they’ve got a great opportunity to move forward.”
Godfrey is confident that the next supply additions will augment things for the better. “I think Tilman Ferttita and the Golden Nugget group are showing a lot of commitment to the market,” he said. “They’re investing $100 million in renovations because they plan to be a large part of the market. He hasn’t been in the gaming business a long time, but if he performs as he has in his other businesses and his commitment is what he says it is, I anticipate him being very successful.”
Work on Golden Nugget Biloxi began last month and is expected to be completed by March 2014. The property will have 720 updated hotel rooms and suites, new retail offerings, remodeled spa and poker room, an H2O pool and ultra lounge with all-season hot tubs and fire pits. Three of corporate parent Landry’s restaurant concepts will also be part of the project: Bubba Gump Shrimp Co., Lillie’s Asian Cuisine and Morton’s The Steakhouse.
Construction on Rotate Black’s harbor-side project in Gulfport could start later this year, but the company is still working on financing details, requesting an extension last month for a December deadline, something Godfrey called “a normal course of action.” The project “is an example of something that came forward in the Commission through denying it twice, encouraging them to go back and dig deeper because of the value of the location. We said, ‘bring us something to the market that’s going to grow the market.’ They brought back a four-star, 305-room Hemingway Hotel and nice water features with the Hemingway theme. I believe that’s going to be a very positive addition to the market.”
The new entrants will compete in a crowded field filled with some of the savviest casino operators in the business. A snapshot of several of these operations and their views of the market follows:
HOLLYWOOD CASINOSituated in Bay St. Louis, Penn National’s Hollywood Casino has first shot at the drive-in market from New Orleans, which returns the flavor with plenty of repeat business. Most of Hollywood’s market comes out of Southeast Louisiana; Pearl County and Hancock County are second in importance; just about all of the property’s business is within 50 miles, said Chett Harrison, vice president and general manager Hollywood Casino Bay St. Louis.
“We are the only all-in-one resort property on the coast,” Harrison said. “We have the golf course on-site; other operators have them, but they’re 10 or 15 miles away. We have a boat dock out back. We have it all right here in a secluded area; we’re not in the middle of the rat race.”
Bay St. Louis is close enough to Louisiana to feel the effects of Pinnacle’s new L’Auberge Baton Rouge casino. “I’m sure they’re diverting some people out of New Orleans who would come here,” Harrison said. “So things aren’t going down anymore, but they’re not going up either. We’re doing pretty well; probably outperforming our market a little bit. A lot of people look at Penn National’s revenue, but Penn is EBITDA-driven. Sometimes you give up what we consider to be bad revenue to do that. I can create revenue but can I get it to the bottom line? Their philosophy is, if you can’t, don’t do it. That’s why we’re in strong shape. The downside is you’re fighting competitors who don’t look at it that way. They’ll spend their brains out, which makes it difficult, particularly with that promiscuous lower-end player. It’s a player’s market; there is no doubt about it. They can get just about anything they want at certain places.”
Harrison still sees plenty of upside in Hollywood’s existing target market. “Even though we’ve been here 20 years, you still have a market in New Orleans that doesn’t know where we’re at,” he said. “We’re really concentrating on New Orleans.”
Part of that is a new emphasis on Asian table game play, specifically the Vietnamese market. “We’ve hired an Asian host and are starting to go after the Asian business,” said Harrison. “Some of the larger properties, Beau Rivage and IP, have built specific facilities to cater to them. We don’t have that, but we have the right host; someone who knows them and exactly what they need. You just don’t hang a shingle out and say we want Vietnamese business. It’s not a traditional, advertising-driven market. We have some space on the second floor that we can dedicate to them having their own food. We have two great Asian chefs that we hired when we rebuilt the buffet. We’ll also be hiring Asian dealers. We want to see how it grows.”
IP CASINO RESORT & SPABoyd Gaming took possession of the IP last October, a casino that Jack Bernsmeier, senior vice president of operations, describes as “a great property; not one that was in dire straits or in need of anything. We thought it would fit well with how we do business and with the philosophy of our company.”
And it has. “It’s a great location for us geographically,” said Bernsmeier. “We have a great number of properties in the Midwest and to the north and east. I think the reality is a lot of those customers were already coming to the coast, so it didn’t take a lot of enticement for them to come here because they were coming to this part of the country anyway.”
The IP’s player database has been hooked up with Boyd’s B Connected loyalty program; the property had to get a new card in everybody’s hand, a process Bernsmeier described as “a bit of a heroic feat. Not everyone comes in the next day; some might come a year later and they’re using a card that doesn’t work, so you have to go through all of that. We’re probably 99 percent of the way there now. We had to make some changes at some of our other properties too, because we had to talk both ways.”
With the corporate loyalty program in place, the IP is picking up a lot of cross-property business from the immediate region. This includes Boyd’s Treasure Chest property in the New Orleans area, its Tunica property south of Memphis, and from its racetrack gaming facility in Vinton, La., west of Lake Charles.
At the property level, Boyd’s primary investment this year will be $40 million to build a moat around the casino barges to help preserve their longevity. There have been a few other changes, including switching a high-ticket Brazilian restaurant to a more affordable Italian concept that caters to a larger demographic, which “seems to have worked well. It’s open seven days a week now rather than three or four,” said Bernsmeier.
The poker room has been moved upstairs where it will be off of the property’s Tien restaurant and slots have been moved back into the old poker room space. Some of the property’s non-smoking areas will be re-aligned so that all of them will be in one area and smokers won’t be tracking through non-smoking areas. “I think people appreciate those kinds of things; whether it’s finding a machine without traversing several floors or keeping non-smoking area free of smoke,” Bernsmeier noted.
IP also has a mobile app on their website; the first company in the area to offer one.
As for the Gulf Coast market, “you’ve got to believe there is some growth,” said Bernsmeier. “You just have to be a little cleverer than you were the day before and work a little harder than you did the day before to get to it. And there is more risk involved. There’s no computer program that’s going to solve your marketing challenge. It takes a lot of really smart people spending an immense amount of time digging and digging to see what the anomalies are.”
GRAND BILOXI CASINO, HOTEL & SPAAs was the case with the Gulf Coast market and gaming in many areas of the country generally, 2012 was a tale of two halves for Caesars Entertainment-owned Grand Biloxi, said Jonathan Jones, senior vice president and general manager, who took the reins in December 2011.
“We had a good first half; made some small adjustments to the cost structure, our hold was favorable in the first half in addition and volumes were what we had hoped for and what we expected to see,” said Jones. “The second half was tough. I talked to people around Caesars across the country and everything started to slow down in the May-June period. We also had Hurricane Isaac pre-Labor Day, which didn’t help things. We had reservations on the books; not only did we have to cancel them but for awhile thereafter people stopped trying to come here. There was a lag effect.”
Jones said the property “did a great job with the things we could control,” like customer service, which it measures rigorously and where Grand Biloxi posted best-ever scores in 2012. The data comes from Caesars’ Total Service Initiative, which generates 200 detailed surveys a week for the property. “We get qualitative reports like phone calls and letters, but also a lot of data where we can dig in and fix some processes,” said Jones. “We work with our slot team, beverage team, steakhouse, and are starting to work a little more on the hotel. We can see how service correlates to intent to return and overall customer loyalty. Every week, I get about 60 comments and an overwhelming number say they love coming to Grand Biloxi because of the way they’re treated. We can absolutely control the way a customer feels when they’re here and the way we treat them.”
Given that, and with the strength of Caesars 40 million-plus Total Rewards database and a national footprint of properties behind it, Grand Biloxi’s primary targets are regional and national. About 80 percent of its customers come from outside 70 miles. “We really live off of Atlanta, Florida and places like Memphis where we have three locations nearby in Tunica,” said Jones, who said tapping into Caesars database in new ways will be an emphasis in 2013. “We have a new asset in Cleveland and will have another in Cincinnati. I’m fairly certain our players in Cleveland don’t know that it’s 50 degrees in Biloxi and we have a pool that’s heated, and a golf course that 150 people can play on a warm winter day.”
Jones is similarly sunny about the prospects for his 494-room property, which operated above 95 percent occupancy in 2012; and he thinks a fresh set of eyes can help. “We certainly are still trying to get over the past,” he said. “One of the great benefits of the people here is the length of service; they’re very skilled and have great relationships with the customers. We have 800 employees here with a combined experience of almost 10,000 years, so it’s a huge asset. They’re our number one competitive advantage and number two is Total Rewards. The challenge is everyone was here before Katrina. We had a bigger footprint then; fewer casinos; fewer markets around us that had legalized gaming and a stronger economy. I come here and I see a beautiful property: intimate; safe; great employees; all the amenities I could possibly ask for with a spa, a golf course, a beach and a pool; and I’m excited about it and what the future holds.”
HARD ROCK HOTEL & CASINO BILOXIThe big development on the board this year for the Hard Rock is a new 154-room hotel tower that is slated to open in time for New Year’s Eve. The tower will take the property’s total room count to 480 and increase the number of suites from 26 to 40. It’s also a testament to the progress the property has made since opening in 2007.
“We run here about 99 percent occupancy for the year, so we were able to show our owners that adding another room tower would pay itself back in a short period of time,” said Duncan McKenzie, president and general manager. “We’re excited about that because rooms on the weekends are impossible here and weekdays are very strong also. We have two or three days a week, from Sunday to Tuesday, when we have some rooms but otherwise we are very full.”
The Hard Rock has grown in acceptance in Biloxi as the brand itself has become more demystified and acceptable to the broadest possible audience. “What we’ve tried to do here is make people understand that the brand transcends generations,” said McKenzie. “The first Hard Rock Café was visited by Eric Clapton and that era of rockers. That’s the era of rockers for people in their late 50s. But it also has a very strong appeal to younger rock enthusiasts. What we’ve had to do is let people know that everyone is welcome here. We’ve done that through some adjustments. We found that we needed to lower the volume of music in the casino and change the content to be more inclusive of an older rock generation, and, in this part of the world, country music fans. We still have offerings for younger people, louder music in the café, out at the pool and in the nightclubs. But we have made the casino a little kinder and gentler.”
The Hard Rock’s market is mostly local and regional, with some national visitation during the snowbird season. As an independent property competing with the largest corporate operators in the industry, its marketing efforts are strengthened by close cooperation with Hard Rock International, which has fostered initiatives with the Seminole’s Hard Rock-branded properties in Florida and the ability to leverage resorts such as Hard Rock Punta Cana and Hard Rock Hollywood for winners of Hard Rock Biloxi’s golf tournaments. Hard Rock Biloxi also has a marketing relationship with Cosmopolitan in Las Vegas and is looking for others.
BEAU RIVAGE RESORT AND CASINOWith the Gulf Coast’s largest and most amenity-rich hotel casinos, George Corchis, president and chief operating officer of regional operations, MGM Resorts International, is confident about the future, even if he wishes the market were further along in the present.
Tourism in particular is a focus, understandable for an operator with 1,740 rooms. “I thought we’d be much further along after seven-and-a-half years, but we do have a lot of good things that are underway, nearly finished or recently completed,” said Corchis. These include the Infinity Space Center in Pearlington, near the Louisiana border; the Biloxi Lighthouse Visitors Center; a newly-funded Maritime and Seafood Industry Museum; the Mardi Gras Museum at the historic Magnolia Hotel; and the Ocean Expo Aquarium, at the corner of I-10 and I-110, the first phase of which is expected to open in summer of 2014.
Corchis is also bullish on the efforts to build a destination marketing organization for the Gulf Coast, which will unite the efforts of individual counties. “We’re getting closer to having more resources than we’ve ever had to drive more business and tourism to the coast of Mississippi,” he said. “Every industry that represents tourism is involved in that.”
MGM’s M Life loyalty program, which continues to be refined, is proving to be a major asset. “When you can go to the Beau Rivage and your rewards could include going to Aria, Bellagio, Mirage, Mandalay Bay and MGM Grand Las Vegas; no one has better destination resort properties or benefits than we do,” said Corchis. “The worldwide brand and the reach of resorts like MGM Grand and Bellagio are second to none. We really formalized the cross-property side early last year. We had goals in place, and achieved 3.5 times our original goal of room nights that we were trying to drive to Las Vegas from regional guest play.”
This year, Corchis will remain very focused on employee engagement and guest service performance. “We ended 2012 with the highest Net Promoter scores in our history. Beau Rivage has one of the highest scores in the entire company,” he said. “Our employees are our secret sauce. We are very focused on every department from the front of the house to the heart of the house.”