Although management is impressed by the plan and has already had detailed architectural plans prepared for the

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Question:

Although management is impressed by the plan and has already had detailed architectural plans prepared for the expansion, they are cautious. When the casino was first built, everyone was enthusiastic about the casino's potential, but the results have been disappointing. Management wants a thorough study made of the financial prospects for this expansion before committing funds to it.

Detailed financial data for every casino in Atlantic City are public information and are routinely exchanged. Thus, data such as that given in Tables A and B for the current year are readily available.

TABLE A Selected Annual Financial Data (000s omitted)

	Revenues
Property	Casino		Rooms		Food and Beverage		Net Income
Atlantic City Casino	$	220,183	$	14,862	$	36,833	$	23,921
Competitors
1		254,753		17,604		36,457		40,979
2		224,077		14,836		34,493		18,834
3		237,700		15,787		35,168		47,146
4		158,602		9,897		18,788		1,574
5		210,848		13,870		35,265		64,765
6		251,675		17,665		33,867		17,904
7		147,037		10,191		35,020		(9,075	)
8		121,581		13,469		21,863		2,246
9*		123,947		12,157		22,643		(1,176	)

* In operation in for only 6.5 months

TABLE B Selected Statistics

Property	Casino Space (square feet)	Number of Rooms	Number of Restaurants
Atlantic City Casino	50,850	521	7
Competitors
1	59,857	727	9
2	59,296	645	9
3	59,439	512	9
4	49,639	501	14
5	52,083	750	7
6	40,814	504	8
7	50,516	500	5
8	34,408	504	6
9	60,000	612	8

Background Information

Customer surveys indicated that a vast majority of the visitors to Atlantic City gambling casinos are middle-age adults who live within 150 miles of Atlantic City. Further, there are 2 distinct groups of visitors. Approximately 17 percent of the visitors are frequent visitors, averaging 24 visits per year and accounting for 67 percent of all visits. The remaining 83 percent of the clientele are infrequent visitors averaging 2 to 3 visits per year and accounting for 33 percent of total visits. The firm found that approximately 11 percent of the people living within a 150 mile radius visit Atlantic City annually. This compares with 14 percent of the people living in Las Vegas' primary marketing area who visit Las Vegas annually. Thus it appears that future market expansion is possible.

The firm also noted that there has been a change in the mix of mode of transportation for visitors. Initially 92 percent of all visitors arrived by private car, now 44 percent arrive by bus. This change is significant as there is a difference in spending patterns. Auto travelers tend to spend a couple of days in the city. Hence they eat more meals and need lodging. Bus travelers are usually day trippers who come only to gamble. They do not need lodging and generally only eat lunch, some snacks and beverages.

Required:

Complete a value chain analysis. Describe your understanding of the competitive position of the Atlantic City Casino. Identify areas for potential cost reduction and/or value added for customers.