| This
case was prepared by C.A. Voss. It is not meant to represent good or bad
business practice and is designed for teaching purposes only. Some names
and figures may have been disguised.
Copyright ©2000 Professor C.A.Voss. |
The Hotel
St Lucia
The competitive situation
The "No-Money" proposal
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Background
The Malabar Beach Hotel, a family owned hotel, was situated just outside
Castries, the capital city of St Lucia, a small island in the West Indies.
The hotel was opened in 1968 and by 1999 had 86 rooms; eighteen of the
rooms were self contained chalets, the remainder being in a recently built
hotel block. The Hotel was situated in six acres of ground on Vigie Beach,
a mile long sandy beach containing two other hotels (both of which were
well separated from the Malabar Beach Hotel)
There were two restaurants offering a good choice of courses and wines
with meals. There were three bars and the hotel was known for its good
cocktails at reasonable prices. The reception buildings were originally
the family home. There was a swimming pool set back from the beach and
a watersports facility. Watersports which included windsurfing, waterskiing,
and sunfish sailing were provided free to guests. In the evenings there
was usually some entertainment, a band, crab dancing, or some similar activity.
There was little entertainment in Castries, but guests often walked or
took taxis to neighbouring bars or hotels. A typical brochure entry is:
The Malabar Beach Hotel is just a short drive from the town
of Castries. It is ideally situated for those wishing for a beach side
location, with all the fascination of a local town nearby. Unpretentious,
but with comfortably furnished air conditioned bedrooms, this hotel has
a casual, relaxed atmosphere. There is a restaurant and bar beside the
swimming pool. Complimentary sports include tennis, snorkeling, sailing
and water skiing.
The twin bedded rooms are in a garden setting and the cottages
are alongside the sandy beach. At night it is unpleasant to sit on the
beach side lounge bar, and there is entertainment most nights of the week
with a live band for dancing and a weekly floor show and calypso band.
The airport transfer time is about one hour 30 minutes. (From Sovereign
Holiday Brochure).
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When the Hotel had opened, the Island and the Hotel catered primarily for
the `carriage trade`, rich up market, usually British clientele who made
their own reservations and travel arrangements. They came seeking winter
sun and there was very little summer trade. The development of low cost
jet travel and the opening of an airport at the south end of the island,
capable of taking the largest planes, had drastically changed the nature
of the tourist trade on St Lucia. The Island moved quickly into catering
for package tours.
Video
of St Lucia
Because of traditional trading ties, the two major sources of holidaymakers
were Great Britain and Canada. Because there were few holidaymakers from
the United States, good air connections with the United States were slow
to develop. As a result US package tour operators established themselves
on other islands, and by 1999 when air services from the United States
had become satisfactory, St Lucia had not yet become an established destination
for Americans. As a direct result of these changes St Lucia's clientele
had moved downmarket, and its image had moved form up market to a package
tour island. The Malabar Beach Hotel's clientele followed the island's
pattern closely. In the early 1970s the hotel developed strong links with
British Airways with the tour operators using seats on BA, avoiding charter
flights. In subsequent years it had developed a flourishing business with
the airline and a number of British and Canadian tour operators. The Hotel,
because of its location both near the airport and the town, attracted a
substantial number of business travellers. The British Market was strong
all the year round, enabling the hotel to run with fairly constant levels
of occupancy throughout the year. The Malabar Beach Hotel had found it
difficult to break out of St Lucia's down market trend. The management
had taken a number of steps to move more up market in relation to other
hotels on the island. For example, they had changed their Canadian agents,
who had been at the bottom end of the market. They also had a positive
drive to build up US business from a level of about 0.5 per cent of customers.
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The Competitive Situation
The Malabar Beach Hotel was one of a number of hotels on St Lucia. Craig
Barnard felt that these hotels fell into three segments: luxury hotels,
middle of the road, and inexpensive. The luxury hotels were typified by
the Cunard La Toc Hotel  .
This had a high standard of room, service, and facilities, set in 100 acres
with a nine hole golf course, floodlit tennis courts, and comprehensive
watersports facilities, all of which were free to guests. In addition it
had a number of shops including a boutique, a travel agent, a hairdressing
salon, and a souvenir shop. There was a secluded, though not private, beach
(all beaches in St Lucia were public property, with right of access to
all). The hotel facilities programme of nightly entertainment. The Malabar
Beach Hotel was firmly in the middle segment. Hotels in this segment were
modern, well equipped with restaurants, bars, water sports facilities,
and a swimming pool. They were generally on a smaller scale, less luxurious,
had fewer staff, and had a narrower range of facilities than the luxury
hotels. In a package tour, the clients paid an inclusive price for a travel
and accommodation package to a tour operator, an airline, or an agent.
Hotels in the inexpensive segment tended to be older or simpler, with less
well equipped rooms often lacking major facilities. Typical of this segment
was the East Winds Inn. This had ten beachside cottages in a secluded bay.
Free watersports were available, but there was no swimming pool. It was
described by a well known guide book as `very casual with upkeep somewhat
ditto, but with devoted island savvy clientele`. In the middle of 1981,
the hotel business in St Lucia was not good, with the general worldwide
depression having led to a reduction in the tourist trade. Craig Barnard
believed that the Malabar Beach Hotel had higher occupancy levels and was
weathering the depression better than other hotels, but business was down
on previous years.
Malabar Beach Hotel - Guest statistics
|
1997/98 |
1998/99 |
Origin of guests |
bed/nights |
| Arrivals |
5,428 |
4,981 |
Great Britain |
14,520 |
| Bed/nights |
53,135 |
36,262 |
Canada |
8,100 |
| Occupancy |
84% |
58% |
USA |
2,800 |
|
|
|
Caribbean |
4,200 |
|
|
|
Other |
6,600 |
The depression had led to a bout of savage price cutting on the island
with even the luxury hotels undercutting the Malabar Beach Hotel in selling
rooms to tour operators.
| Distribution and pricing
In Canada and the UK, tour operators bought rooms at fixed prices
from hoteliers, then added their own markup to arrive at the brochure room
price. In the US, rooms were offered by hotels at the price they were sold
to the customer, the rooms were bought by wholesalers who received a commission
of about 20%, who in turn sold them to retailers and other agents. |
The Malabar expected to get $US 180 a day for a double room (excluding
meals) for a UK tour operator, during the high season. The Cunard La Toc
was believed to be offering surplus rooms to operators at a high season
rate of $US 44 per day and the St Lucian Hotel to be offering surplus rooms
at a high season rate of $US 20 per day.
| Currency . St Lucia used the East Caribbean Dollar. It was
linked to the US dollar. At the time of case writing, it was £EC
2:50 = $US 1:00 |
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Management
The Malabar Beach Hotel was family owned. Craig Barnard had recently taken
over the management of the operation from his father, who though in his
seventies, was an active member of the board. Craig Barnard ran the Hotel
using a tight financial control system. The Hotel was divided into four
profit centres: hotel, bar, kitchen (and restaurant), and laundry. Management
attention was focused on maximising the profitability of each profit centre
(except the laundry which was expected to break even). Revenues were allocated
to each profit centre. For example, if guests had paid for meals in advance,
these revenues were allocated to the kitchen. Guests could charge for meals
or drinks against their room numbers; the accounting system enabled all
tills be balanced at the end of the day, to be controlled against a particular
profit centre, and to be posted to guest folios. Craig Barnard believed
that a tight profit centre was important, not only for profit maximisaton,
but also to control shrinkage of bar and kitchen stocks and cash losses
from the tills.
Staffing
Malabar Beach Hotel Staffing
| Bar |
12 |
Transport |
3 |
|
|
Housekeeping |
18 |
| Dining Room |
22 |
Watersports |
3 |
| Kitchen |
21 |
Bell Boys |
4 |
| Food and Beverage |
2 |
Maintenance |
4 |
| Store room |
2 |
Gardeners |
7 |
|
|
Security |
13 |
| Laundry |
4 |
Reception |
12 |
|
Total |
122 |
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Staff were paid on a fortnightly basis made up of a base rate plus service
points (staff were paid $EC 160 per service point in high season, and $EC
in the low season A new member of staff would be paid $EC 180 per fortnight
plus two service points, an established receptionist would be earning around
$EC 600 per fortnight (two weeks) plus service points, and a department
head about $EC 2000.
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Guest Expenditure patterns
Guests could book in advance using different plans, depending on their
needs. The plans were: American Plan (AP), all meals; Modified American
Plan (MAP), bed, breakfast and dinner; European Plan (EP), no meals; and
Continental Plan (CP), bed and breakfast.
The choice of plan varied with country of origin. The British usually
chose MAP, Canadians EP, Americans EP or MAP, visitors from the Caribbean
CP, and other visitors MAP. Visitors who had not prepaid their meals could
purchase meals at the Hotel or eat at other restaurants. For guests paying
for meals the Hotel charged $US 4 dinner. There was an a la carte buffet
lunch with the average spend per guest taking lunch being $US 4.00.
Restaurant expenditure- typical high season month
| Revenue allocated from pre-paid plans |
$US 112,800 |
| Meals Paid for |
$US 12,000 |
|
|
| Total Revenue |
$US 124,800 |
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|
| Food Cost |
$US 6,000 |
| Guest nights |
4,100 |
Guests drinking at the bar normally charged their drinks to their rooms.
The average expenditure per guest in the bar was $US 6.00 per day. Cost
of sales (excluding labour) was 30% of revenue. The overall extras bill
of MAP clients was between $US 56.00 and $US 64.00 per week and of EP clients
about $US 104.00 per week.
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The "No-Money" Proposal
Over the year Craig Barnard had been devoting considerable thought to the
problems facing the Malabar Beach Hotel. As well as the problems outlined
previously, he was worried by over-dependence on Great Britain and Canada.
He felt that the economies and the currencies of both these countries were
likely to decline against the US dollar. (The Eastern Caribbean dollar
was linked to the US dollar.) He therefore wished to increase his US clientele.
He had retained a firm of marketing advisors in the United States who had
advised him that the US holiday market could be considered in three segments:
singles, couples and families. Craig Barnard had rejected the singles
market as it had connotations that he was unhappy with, but had decided
to consider the implications of the other two segments further.
In his search for ways of developing the hotel he had visited one of
the Club Mediteranée complexes. Club
Mediteranée was founded in 1950 in France, originally running
`Polynesia` facilities around the world. There were three Club Mediteranée
villages in the Caribbean (two in Guadeloupe, one on Martinique). The Club
villages are all very French in character. There is a strong emphasis on
informal open air atmosphere. Guests live in `huts` and are encouraged
to wear `Polynesian' clothes. All drinks are paid for with beads, which
are bought in advance and worn as a necklace. All food and wine with meals
are included in of charge. He had been impressed by the operation, but
realised that it would not transfer easily to the Malabar Beach Hotel.
However, from these various discussions and visits he developed the belief
that a substantial segment of the market would buy a comprehensive holiday
package. He had developed a proposal that he believed would radically change
the nature of the product offered by the hotel. His proposal was to do
away with money in the hotel and sell holidaymakers a package that included
everything. They would use no money during the holiday, and have no bills
to settle at the end. He felt that such a range would be very attractive
to a substantial number of holidaymakers. To turn the concept into reality,
he faced a number of difficult tasks and decisions. The first was to sell
the concept to the board. The board, not unexpectedly, had strong reservations
about the concept and questions were asked about how the concept and questions
were asked about how the concept could operate in practice. The no money
concept would need clearly defining. It was proposed to include all meals,
drinks (at the bar and wine with meals) and cigarettes in the cost of the
holiday. A key question was what other services would be provided free.
In addition to hotel expenditure, holidaymakers typically spent money on
telephone calls home, local tours, visited the town of Castries ($US 8.00
taxi ride), and bought souvenirs.
St.
Lucia Sites & Side Trips, Things to See and Do
Popular Tours
(Craig Barnard owned St Lucia Representatives who
organised these tours)
| Tour |
Cost |
| Round the Island Tour and Walk in Volcano |
$US 34:00 |
| Barque Voyage (Craig Barnard owned the Barque - Buccaneer,
one of the two boats making day trips) |
$US 60:00 |
| Martinique visit |
$US 180:00 |
| Grenadines Visit |
$US 260 |
Another element of the no money plan was its price and how the price should
be stated in relation to existing plans. Another issue facing Craig Barnard
was, given that he could sell the concepts to the board, how should the
concept be implemented? There would be changes in the way in which the
Hotel was marketed and in the Hotel operations. He felt that he had two
alternatives, either to decide on a changeover date and introduce the package
on a large scale from that date, or to introduce the concept incrementally
over a period of six to twelve months.
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