Good Example Of MGM Resorts International Case Study
Introduction: Strategic Profile and Case Analysis Purpose
The MGM Resorts International is multinational company in the hospitality industry that manages a chain of hotels or properties in different states and parts of the world. MGM operates in different states including Michigan, Mississippi, and Nevada and in China. With over 45,000 employees locally and international, MGM is capable of catering to its guest. Quality accommodations and services are the main reasons why MGM was able to acquire $18.09 billion enterprise value in 2010. In 2010, MGM gained revenues that amounted to $6 billion. Due to this scale, MGM is one of the top three largest and highest earning companies in the hospitality industry.
Kirk Kerkorian founded MGM Resorts in 1973 in Las Vegas. At first, MGM Resorts only had 2,100 rooms. Eventually, the business grew until Kerkorian was able to expand the company services to include MGM Grand Air, an airline offering charter travels, and the MGM Grand. By the mid-1990s, MGM was able to invest in other ventures including real estate and expansions of its properties in other countries such as Australia and South Africa among others. MGM Resorts also made several acquisitions. All of the foregoing strategies led to an increase of 327 percent in revenue by 2000.
Although MGM’s revenue is relatively high, the global economic recession that began in 2008 has significantly affected the position of the company. One of the challenges for MGM was to maintain its revenue despite the impact of recession. Even during the recovery period, the company appears to be slow compared to other companies in restoring its capacity. Nonetheless, despite this weakness, experts in the industry show that MGM shows promise as a long-term investment. For this reason, experts in the industry show that investing in MGM is worthwhile as the company’s properties including the Bellagio, Mandalay Bay, and MGM in Last Vegas are expected to yield profits in the coming years. MGM’s portfolio already began improving in 2010 and 2011.
Prior to taking advantage of MGM’s investment potential, however, it is important to note that the company is facing debt concerns. By 2007, the MGM reported its debt reaching $12.1 billion. Following the global recession, not only did the company’s debt increased but its capacity to recover was also crippled by the impact of recession. For this reason, the company went bankrupt in 2009.
Despite the foregoing problems in the company, however, experts and in the industry say that MGM still has a chance to recover its losses based on market predictions. MGM’s performance in 2011 prove that although the company’s net loss amounted to $90 million, it is still less than previous predictions. In addition, the company’s revenue increased by 3 percent in the same year. For this reason, the analysis focuses on the ways that MGM may continue its growth despite existing challenges and threats. Considering the intended topic for analysis, the succeeding discussion focuses on MGM’s internal and external environment. The outcome of analysis is expected to yield solutions and recommendations to help MGM recover and gain competitive advantage over other companies in the market.
General environmental analysis
Trends in the hospitality industry could help MGM determine strategies to improve its services and increase market share. By becoming aware of trends in the industry, the company would be able to adopt strategies to meet market needs and demands. One of the trends in hospitality is increasing consumer sophistication. Hospitality has thrived due to its diverse market that includes the budget segment. Nonetheless, over the years,
Another trend in the industry is the prevalence of online gaming, particularly online casinos. Wynn hotels earns from this venture. Penn National’s main source of revenue are also gaming in nature. The company has various casino and racetrack properties, from which the Penn National gains revenue. Opening to multinational ventures is also a trend in the industry. Based on annual reports, MGM earns steadily from its foreign properties. The same holds true for the competition. Companies such as Wynn also earn and thrive from foreign properties earnings.
One of the ways that companies thrive in hospitality is by establishing their brand identities and image. Boyd, for instance, is a family-run company and it prioritizes values and sustainability. The company is able to compete because its values differ from the competition.
Overall, the segments that would have the most significant influence on the company in the next several years include luxury travelers and business people, gamers, families, and the foreign market. The increasing interest in luxury travel and accommodations would make MGM one of the market’s options. Furthermore, since majority or revenues in the industry is from gaming, casino and racetrack goers would also influence the profitability of MGM and the competition. Sustainability-conscious populations would also define profitability in the market. Due to issues in sustainability, companies are expected to gain attention from guests who value ethical and socially responsible practices.
Another important point that must be discussed when talking about the outlook in the next 5 to 10 years is the relevance of technology. Many people nowadays rely on the Internet. Even gamers that frequent casinos and racetracks find online gaming as an alternative. Furthermore, trends point to consumers’ reliance on technology to make transactions such as making accommodations reservations. For this reason, technology will also affect the company’s profitability in the coming years. MGM’s capacity not only to market and advertise its brand online but also to utilize technology to offer new features and services for guests may contribute to its profitability and reputation.
One of the ways to assess MGM’s capacity to recover is to analyze five forces that would affect its profitability. Porter’s Five Forces include the following: the bargaining power of suppliers, bargaining power of buyers, threat of new entrants, threat of substitutes, and industry rivalry. New entrants do not threaten the profitability of MGM for the reason that the company is already saturated. Many companies are already operating in the industry and most of them are established and most profitable. For this reason, gaining entry into the market is difficult. The cost of entering the market also serves as a barrier to new entrants. The bargaining power of suppliers will not affect MGM’s outlook.
The impact of recession, however, increase the threat of substitutes and industry competition. Recession has also affected the bargaining power of buyers. For this reason, consumers would more likely choose budget accommodations over luxury services due to limitations brought about by the economic decline. The presence of substitutes such as budget accommodations threaten the profitability of the company. Furthermore, the success of the competition also threatens MGM’s profitability. At present time, many companies are faring better than MGM because of their current business strategies.
Overall, the attractiveness of the industry is minute due to intense competition. Compared to MGM, there are other more successful companies that have gained higher revenues in the industry. Competition is therefore one of the threats to the profitability of MGM. Nonetheless, MGM may still continue to compete because it has existing resources to do so. There is not existing threat to new entrants because of the influence and capabilities of existing companies in the market.
Strengths. One of the strengths of MGM is the company’s counterpart in other countries. MGM is doing unexpectedly well in Macau and is generating satisfying revenues for the company. Based on the case, the company continues to thrive mainly because of its foreign properties. Aside from this, MGM’s brand is also another strength. MGM’s brand equity is solid such that it has established the company’s image and reputation over the years. MGM is one of the most recognizable brands in the industry.
Weaknesses. MGM Resort’s debt burden does not bode well for the company. The company’s liabilities mean a gradual decrease in its assets and revenues especially since MGM’s debt has matured in 2013 and 2014.
MGM’s current construction of properties is also one of the company’s weaknesses. One of MGM’s major project is the CityCenter located in Las Vegas Strip. The construction of the CityCenter was valued at $9 billion. MGM sealed the project with its business partners in 2006 prior to the economic recession. Hence, while attempting to reduce the damage of recession on the business, MGM is equally trying to provide funding to the completion of the CityCenter project. It is one of the reasons why MGM is unable to develop and implement new strategies because the company needs to honor its commitments to fund for the CityCenter’s construction. In 2009, funding for the project was one of the reasons why MGM went bankrupt.
Opportunities. Existing opportunities for MGM Resorts International include the development of the tourism market. In recent years, the tourism market saw an increase in movement due to gradual recovery from the recession. Hence, the MGM may take advantage of this by marketing its luxury services for guests. Other opportunities include technological innovations that may improve the company’s delivery of services (i.e. automated transactions, online gaming, etc.) and investments in foreign markets. Social responsibility and ethics are also opportunities in that these improve the image and reputation of companies.
Threats. Competition is one of the major threats to MGM. Based on the case, the company will likely face market share erosion because of the competition. MGM’s competitors focused on building their brand equity, which works against the company. As other companies focus on building their brand image, they are able to gain more of the existing market share as more people learn about and patronize their brand. The impact of the global economic recession is also one of the threats to MGM’s continued success. In 2008, MGM’s stock prices went down almost 100 percent. This could further affect the profitability of the company.
Solutions and Recommendations: Strategy Formulation and Implementation
MGM’s target customers include the middle to upper classes looking to experience luxury accommodations, business travelers, and gamers. At present time, the company is meeting the needs of this market but it needs to expand its services by also venturing into online gaming, establishing brand equity as a means to promote the brand to guests, and using technology to implement innovations.
Current business strategy
One of the company’s current business strategy is acquisition. The case narrated how MGM thrived by expanding its portfolio through the acquisition of several properties. Furthermore, MGM is relying on its gaming properties for continued profit and revenues. MGM is also trying to deliver excellent customer service as one of its major offering to customers.
Although expanding through acquisition served the company well in the 1990s, it does little to improve MGM’s operation now. One of the ways to address this problem is to minimize the company’s number of properties. It is important that MGM conduct assessment to identify profitable properties, most of which are overseas. Consequently, MGM should sell unprofitable properties in order to minimize its losses. Wynn hotels thrived because by 2010, the company is only managing three properties. Minimizing MGM’s properties is a good strategy because it would allow the company to focus on growing profitable ventures and minimize its spending on unprofitable ones.
MGM would mostly benefit from rebranding and minimizing losses by letting go of unprofitable ventures. MGM must follow Wynn’s lead, one of the top earning companies, which only owns three properties. In this way, MGM could significantly reduce the company’s debts while still maintaining its profitable properties. Rebranding by adopting corporate social responsibility, customer services, and sustainability could also help the company draw its market share back from the competition.
My recommendations would be for the company to conduct a financial analysis and report of the company’s earnings based on each property. In doing so, the company would be able to determine what properties are generating profit from those that do not. Consequently, MGM should let go of unprofitable ventures and focus on growing its profitable properties. In so doing, MGM could earn from selling its properties and reduce spending in the management of unprofitable properties. MGM should also focus on expanding internationally where the market exists.
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