3 Reasons Macau Casino Industry Must Adapt to Survive

Macau casino revenue has declined for five straight months. While politics on the mainland are partially to blame, casinos should update their business model.

Macau is far away the preferred destination for gamblers, with annual casino revenue lapping Las Vegas several times over ($45 billion to $6.2 billion) in 2013. Shimmering mega-casinos like the Venetian Macau, Wynn Macau and City of Dreams have built cash cows around a simple business model: attract high rollers and get them to throw down as much money as possible at the baccarat and blackjack tables.

• Macau will see its annual casino revenue drop for the first time in 2014
• Casinos must adapt to mass-market and female clientele
• Improved non-gambling services are crucial to Macau’s future growth

While Las Vegas has transitioned from the City of Sin to a multi-vectored entertainment Mecca, big non-gambling projects like the Cirque de Soleil have flopped in Macau. As the only center of legal gambling according to Chinese gambling laws, gamblers flock to the city with tunnel-vision.

At least that’s the standard story on Macau. But a recent string of disappointing financial reports coming out of the casino sector have led many to reconsider the effectiveness of the high-roller heavy business model. Annual growth could dip into the red for the first time since the market was opened up in 2004, and some voices are clamoring for a more up-to-date approach.

#1: It just isn’t new anymore

The tourism and entertainment industries depend on freshness. If you aren’t new you’re old, and if you aren’t interesting you’re boring. Macau has benefitted greatly from being the new kid on the block, but ten years after launch, it’s running out of steam.

Many Chinese high-rollers have been to the city dozens or hundreds of times, and the experience has grown redundant. Shaun Rein, the founder of the China Market Research Group and author of several best-sellers on consumer taste in the Middle Kingdom, shared the following anecdote:

I interviewed one high roller who loves to place US$1 million bets at the blackjack table. He told me he was switching away from Macau to Singapore because it was new and different from where everyone else was visiting…Many high rollers have been going to Macau for years for multiple visits per year and now want to try something different.

Any tourist destination needs to occasionally shake things up to get tourists coming in. This wouldn’t be the first time Macau has undergone a makeover, and it certainly won’t be the last.

#2: Mass-marketers are coming in droves

Another downside to the high-roller heavy model is that by definition it pays scant attention to mass-market gamblers, the kind of people who make smaller wagers but do it with cash, not credit, and don’t demand comps.

A growing proportion of Macau’s visitors are average Joes, and they’re looking for things like tables with lower minimums, mid-priced meals, and affordable retail items. Some Chinese families have even told reporters that their primary interest in going to Macau is to shop, not gamble.

The demographic is changing in another way as well. More women are looking for seats at the gaming tables, something that has caught the local industry off guard. Said Rein, “The casinos also need to be more friendly when stopping women at entrances…They are not all hookers.”

#3: Non-gambling amenities are seriously lacking

Each trend points to the conclusion that Macau poker rooms and casinos need to tweak how they do business in order to regain momentum. And in order to become fresh again, and better appeal to mass marketers, these establishments need to invest in non-gambling amenities.

While high rollers generally descend on Macau in stag party fashion, mass market males often bring their wives and children. And these secondary tourists need to be entertained as well, with things like children’s activities, shopping and dining being especially popular. Rein weighed in:

Casino resorts need to cater to women and children with exhibits, dining, amusement parks, shopping so that they can have fun while husbands are gambling…The retail component is critical for Macau to remain competitive, but the mix needs to move away from just luxury that targets male consumers and the typical standard brands of Louis Vuitton and Gucci.”

One idea that has been thrown around is to build a Disneyland-style resort in Macau, which could potentially become a hub for vacationing families across Asia. The initial investment would be in the billions, but the potential payoff is almost unfathomable.

Time to look in a different direction

Macau’s slump is by no-means insurmountable. The city is home to the world’s best casinos and is situated only a short ferry or plane ride away from mainland China and its population of more than one billion. There’s no reason why business can’t pick up in the near future. It depends on continued evolution.

The key is diversification. The problem with a gambling-only business model is that it only appeals to gamblers, and research shows that a great number of those coming to Macau aren’t part of that target audience. Cirque de Soleil may have floundered at both the Venetian and the Wynn, but that doesn’t mean more glitz and glamour wouldn’t serve Macau well.

Macau casino magnates Sheldon Adelson of Sands, Steve Wynn of Wynn, and Stanley Ho of Melco Crown each have made gambling news running family-friendly integrated resort operations in Vegas and Singapore. They would be well advised to apply some of that expertise to Macau.