Macau: attracting new tourists with sustainable model

Published in Plataforma Macau  (Chinese & Portuguese version by Marco Rizzolio)

 Macau’s economy is heavily dependent on tourism: the total contribution of Travel & Tourism to GDP represents 87.6% of Macau GDP. Macau was ranked the 6th most visited city in the world with 30 Million visitors in 2015 (Half of them staying overnight). According to analysts, with the rise of Chinese tourism, appetite to travel to Macau will continue to grow and is expected to reach 38 Million visitors in 2025.

In the next 2 years, the total number of hotels will reach 114 with an increase of 10.000 new rooms. The Total number of available rooms will be 42.000 by the end of 2017, representing an increase of 24% of 2015 capacity.

But more than tourism, Macau’s Economy in the last decade has been reliant on High Rollers VIP players, fueling high occupancy rates and strong consumption of jewelry, watches and other luxury items. The anti-corruption campaign in China has hit revenues at Macau’s high-rolling VIP lounges and is forcing operators to move toward a more sustainable model in attracting players and visitors from mass market.

With the new supply of hotels, and fewer VIP players, Macau Hotel Occupancy rate will decline until Macau Government complete the big transportation and infrastructure projects currently under construction.

Further delays regarding the construction (Bridge HK Macau and Metro) of new infrastructure to support double-digit Chinese inbound growth could undermine capacity to attract mass market growth.

 A change in China tourism demographics and habits is another point to watch. The decrease in occupancy rates and rise of Millennials visitors will force the Hospitality sector to redefine their strategy, when promoting their offering to visitors. ? 

•  Pricing: With millennials (70% of outbound tourists) being China’s savviest consumers, pricing of goods is clearly a key consideration when they shop overseas. Millennials are largest buyers online always seeking for value. With the reminmbi devaluation in coming years, the tourism and hospitality sector should also look at prices. Macau is one of the most expensive places in the world regarding hospitality. 5 and 4 star Hotels in Macau are in average 30% higher than Europe and US (USD 200). Minimum betting in Mass segment is also the highest in the world (HKD 500) compared to any other gaming jurisdiction. Other factor affecting Macau is the decline of VIP Gaming towards Mass Market. Since end of 2015 the ADR (Average Daily Rate) is declining, and we are starting to see a surge in promotions and discount for hotel rates in Macau due to decrease in VIP players and decrease in expenditure.

 Casino operators and hotels are now more focus in attracting mass customers such as Millennials and propose competitive prices. Operators will need to evaluate their strategy when opening new shops and selecting brands, as luxury retail market is shrinking.

• Diversification towards non-gaming activities: explore Macau culture & heritage , culinary …There is a change in Chinese travelers behaviors of. For Millennials, wellness is a daily, active pursuit. They’re exercising more, eating smarter and smoking less than previous generations. They’re using apps to track training data, and online information to find the healthiest foods. There is a also shift from shopping to having fun. The number of attractions offered by each hotel property will be key driver to attract more visitors and make them to stay longer. Diversification towards non-gaming activities such as entertainment, culinary, Heritage, will gain more importance.

Macau is well served in terms of heritage and scenic spots. It’s part of UNESCO world heritage sites which is good if we compare to Hong Kong, which has zero sites but it’s far behind HK for entertainment activities (Ocean Park, Disney Land, Exhibitions etc…).

Much improvement needs to come hoping that the construction of new casino will bring more entertainment activities.  We started to see some new entertainment offering with Studio City. Few weeks ago Galaxy Entertainment announced new Avatar Theme park for next development phases. Government has also is liability and role to play in defining strategic plan for diversification.

• Move towards technology and On Demand Economy. China is the largest online community worldwide. The new generation of tourists – Millennials-are constantly connected online looking for information. They are turning to a new set of services that provide access to products without the burdens of ownership, giving rise to what's being called a "sharing economy".

Hotels will have to move towards innovation and technology in order to engage with Millennials that are constantly connected online. New set of products and services need to be explored and distributed via innovative platforms.

Promoting business through digital platforms is not only effective in gaining wide publicity, but also a source of innovative operation models for business development and creating endless business opportunities. Unfortunately the E-Commerce bridge between China and Macau is underdeveloped, not to say almost non-existent. Currently there is no legislation in Macau and Government needs to define the legal status of third parties involved in online transactions payments to help the development of online trade. The internet has changed things by allowing mass peer-to-peer connectivity and brought enormous benefits to the consumers. Look at services like Uber or AirBandB, facilitating On demand and proved to be helpful worldwide. Unfortunately most of these services are still illegal and not supported by Macau law.

 Marco Duarte Rizzolio

Managing Partner at Follow Me Macau Ltd