Banyan Tree Hotel & Resorts
Esther Yeh | Jasmine Tan | Josephine Hau | Lo Chuan Jian | Melanie Chew | Merlisa Pung | Pearlica Chan
Presentation Outline
Company Overview Internal Analysis: Resources, Capabilities & Core Competencies External Analysis: PESTLE, Porters 5 Forces Competitors Analysis Current Performance Recommendations
Company Overview
Company Overview
Listed on SGX since 2006 Developer, owner and manager of spas and resorts 2 brands Banyan Tree Angsana
Company Overview
Internal Analysis
External Analysis
Competitors Analysis
Current Performance
Recommendations
Company Overview
3 revenue sources
9% Hotel investments Fee-based businesses Property sales
29% 62%
Source: Banyan Tree Annual Report 2010 Company Overview Internal Analysis External Analysis Competitors Analysis Current Performance
Recommendations
What are Banyan Trees strengths?
Resources, Capabilities & Core Competencies
Resources Capabilities Core Competencies
Experienced & Effective brand management multi-disciplinary management team Constant innovation Well-trained & innovative workforce Trusted brand Excellent reputation
Company Overview
Create holiday destinations Deliver top-notch service Commitment to sustainable development
Internal Analysis External Analysis Competitors Analysis
Ability to leverage on strong brand equity in delivering superior customer experience Leads to customer loyalty & satisfaction
Sustainable Competitive Advantage
Current Performance
Recommendations
Business-Level Strategy
A Broad CrossOverall Low-Cost Provider Section of Strategy Buyers
Market Target
Broad Differentiation Strategy
Best-Cost Provider Strategy
A Narrow Buyer Segment (or Market Niche)
Focused Low-Cost Strategy
Lower Cost
Focused Differentiation Focused Differentiation Strategy Strategy
Differentiation
Type of Competitive Advantage Being Pursued
Company Overview Internal Analysis External Analysis Competitors Analysis Current Performance Recommendations
Where is Banyan Tree headed towards?
Expansion into China: Rationale
Diversication Avoid tying the Banyan Tree fortunes to volatile Thailand market Leverage on tremendous growth projected for Chinas domestic travel sector Revenue from existing resorts in China doubled from 2008 to 2010
Company Overview
Internal Analysis
External Analysis
Competitors Analysis
Current Performance
Recommendations
Expansion into China: Strategy
Established China hospitality fund to use for expansion Total funds: S$214 million Aim to plant 19 Banyan Trees in China by 2015 Locate its resorts in second-tier and third-tier cities Ability to charge premium price High prot Low costs of operations
Company Overview Internal Analysis External Analysis Competitors Analysis Current Performance Recommendations
What are macroeconomic factors in China that Banyan Tree are exposed to?
PESTLE Analysis: Political
Politically-stable Single party leadership via the Chinese Communist Party Satisfaction with party due to extraordinary economic growth
Company Overview
Internal Analysis
External Analysis
Competitors Analysis
Current Performance
Recommendations
PESTLE Analysis: Economic
Worlds fastest growing economy with average GDP growth of 10.5% from 2003 to 2012
China India Germany Japan USA
15
% real change in GDP
10 5 0 -5 -10 2003
2006
2009
2012
Source: EIU Market Indicators & Foecasts Company Overview Internal Analysis External Analysis Competitors Analysis Current Performance Recommendations
PESTLE Analysis: Economic
% Growth $ billion
China hotels & motels industry value: $billion, 2006-2010 16 14 12 10 8 6 4 2 0 2006 2007 2008 2009 2010 70 60 50 40 30 20 10 0
Source: DataMonitor Company Overview Internal Analysis External Analysis Competitors Analysis Current Performance Recommendations
PESTLE Analysis: Social
Number of millionaire households in China: 2002-2012 (in thousands)
858 740 635 391 147 173 199 230 292 465 542
2002
Total millionaire HH AuM (US $Tn) Average AuM per millionaire HH (US$ Mn) 0.45
2003
0.55
2004
0.64
2005
0.76
2006
1.01
2007
1.44
2008
1.79
2009
2.16
2010
2.63
2011
3.20
2012
3.87
3.08
3.18
3.25
3.30
3.47
3.68
3.84
3.98
4.14
4.32
4.51
Source: BCG Wealth Market Sizing Database 2008 Company Overview Internal Analysis External Analysis Competitors Analysis Current Performance Recommendations
PESTLE Analysis: Technological
Worlds second-largest expressway network Projected to own 820,000km of expressway in next decade Invested US$70billion on new airports & expanded existing airports capacity
Company Overview
Internal Analysis
External Analysis
Competitors Analysis
Current Performance
Recommendations
PESTLE Analysis: Environmental
41 UNESCO World Heritage sites Banyan Tree has received government approval to open resorts in several sites E.g. Mt. Huangshan, Jiuzhaigou valley & Lijiang old town
Company Overview
Internal Analysis
External Analysis
Competitors Analysis
Current Performance
Recommendations
PESTLE Analysis: Legal
Government imposes bureaucratic red tape Causes delay Foreign rms own right to use but not own land Must maintain good guanxi with the government
Company Overview
Internal Analysis
External Analysis
Competitors Analysis
Current Performance
Recommendations
PESTLE Analysis: Conclusion
Extremely lucrative market for players in luxury hotels and resorts industry Economic outlook highly positive Potential in domestic tourism Concerns Bureaucratic red tape Lack of law enforcement against counterfeits
Company Overview
Internal Analysis
External Analysis
Competitors Analysis
Current Performance
Recommendations
Is the luxury hotels & resorts industry in China lucrative?
Industry Analysis: Porters 5 Forces
Many established luxury players in High the industry Government: Medium Construction rms: Low of choices Variety of luxury hotels & resorts in China Private investors: Very Medium High Low switching costs Employees: High
Luxury hotels and resorts in China are generally lucrative Low to middleLow end hotel and resorts industry
Rivalry among existing rms
Bargaining power of suppliers
Medium
Threat of substitute products
Threat of new entrants
Bargaining power of buyers
Low High barriers to entry
Company Overview Internal Analysis External Analysis Competitors Analysis Current Performance Recommendations
How is the competition in the luxury hotels & resorts industry in China?
Competitor Analysis
Companies Critical Weight Capabilities Banyan Tree Raw Score Brand Management Innovation Quality service Sustainable development 50% 10% 25% 15% 100% 6.5 7 8.5 8.0 Weighted Score 3.25 0.7 2.125 1.2 7.275 Aman Resorts Raw Score 5 5 7 5 Weighted Score 2.5 0.5 1.75 0.75 5.5 Accor Group Raw Score 7 6.5 7.5 8 Weighted Score 3.5 0.65 1.875 1.2 7.225 InterContinental Group Raw Score 7.5 7 8 8 Weighted Score 3.75 0.7 2.0 1.2 7.65 Starwood Raw Score 7 7 8 6 Weighted Score 3.5 0.7 2.0 0.9 7.1
Company Overview
Internal Analysis
External Analysis
Competitor Analysis
Current Performance
Recommendations
Competitor Analysis
Accor Group & Aman Resorts Offer similar resort concepts Neither has a strong foothold in market InterContinental Group & Starwood Major players Mostly dealing with hotels & business travellers Different target market segments
Banyan Tree has potential to become dominant player
Company Overview
Internal Analysis
External Analysis
Competitor Analysis
Current Performance
Recommendations
How is Banyan Tree currently performing in China?
Current Performance in China: Quantitative
Contributions to Banyan Trees revenue increased from 8% to 18%
2008
Future
Revenue from Chinas operations doubled
2010
Future increase in revenue
Company Overview
Internal Analysis
External Analysis
Competitors Analysis
Current Performance
Recommendations
Current Performance in China: Qualitative
difculties Transportation food for Banyan Unacceptable China Low quality of Poor customer service Tree Poor maintainance Boredom Positive reviews Negative reviews
Thailand
9%
9% Ideal should be <10% 16% 23%
Affect brand equity
13% 34%
China resorts yet to meet 77% high-quality standards expected 28% Total no. of reviews: 319
91%
Total no. of reviews: 644
Source:
Company Overview
Internal Analysis
External Analysis
Competitors Analysis
Current Performance
Recommendations
Are Banyan Trees expansion plans able to meet investors expectations?
Forecasted Financial Performance: Capital
Fund Name Type Size Investors Time Frame The Banyan Tree China Hospitality Fund Private Equity Fund S$214 million (RMB 1.07 billion) Chinese domestic HNWI & Banyan Tree 6 years (2011-2016)
Company Overview
Internal Analysis
External Analysis
Competitors Analysis
Current Performance
Recommendations
Forecasted Financial Performance: Benchmark
6% return over 6 years 4% return over 10 years 1/3 share of its yearly prots
Company Overview
Internal Analysis
External Analysis
Competitors Analysis
Current Performance
Recommendations
Forecasted Financial Performance: Assumptions
China hotel revenue 2010 ($000) Total hotel investment revenue in 2010 Percentage contributed by China resorts* Total revenue contribution by China resorts Percentage contributed by Banyan Tree brand resorts only Total revenue contribution by China Banyan Tree brand resorts Total number of China Banyan Tree brand resorts Contribution per China Banyan Tree brand resort
*Percentage obtained from annual report 2010
4 Banyan Tree & 2 Angsana resorts operating in China in 2010 Assume Banyan Tree contribute 67% of revenue Assume operating prot margin is 9.84% (average from past 3 years)
189,327 18% 34,079 67% 22,833 4 5,708
Company Overview
Internal Analysis
External Analysis
Competitors Analysis
Current Performance
Recommendations
Forecasted Financial Performance: Assumptions
Total number of China resorts Current Additional resorts in 2011 Additional resorts in 2012 Additional resorts in 2013 Additional resorts in 2014 Additional resorts in 2015 Total no. of China resorts Company Overview Internal Analysis External Analysis 4 2 3 5 4 1 19 Competitors Analysis Current Performance
Assume total number of resorts opening in 2015 is 19 (Banyan Tree website) Assume China corporate tax remains unchanged at 25%
Recommendations
Forecasted Financial Performance ($000)
2010 4 resorts in 2010 (existing resorts) 2 resorts in 2011 3 resorts in 2012 5 resorts in 2013 4 resorts in 2014 1 resort in 2015 Total revenue from hotels Operating prot before tax (9.84%) Tax (25%) Operating prot after tax (A) Required return (B) Additional return required (A-B) 22,833 0 0 0 0 0 2011 25,733 5,708 0 0 0 0 31,441 3,094 773 2,320 7,576 -5,255 2012 29,001 12,886 8,562 0 0 0 50,429 4,962 1,241 3,722 7,576 -3,854 2013 32,684 14,500 19,299 14,271 0 0 80,754 7,946 1,987 5,960 7,576 -1,616 2014 36,835 16,342 21,750 32,166 11,416 0 118,509 11,661 2,915 8,746 7,576 1,170 2015 41,513 18,417 24,513 36,251 25,733 2,854 146,280 14,689 3,672 11,017 7,576 3,441 2016 46,785 20,756 27,636 40,855 29,001 6,433 171,455 16,871 4,218 12,653 7,576 5,078 Total 212,549 88,590 101,751 123,542 66,150 9,287 601,869 59,224 14,806 44,418 45,454 -1,036
Total returns from investments will fall short of investors expectations by $1,036,00
Company Overview Internal Analysis External Analysis Competitors Analysis Current Performance Recommendations
Summary of Evaluations
Hotels & resorts industry is generally lucrative in China Competition in this niche market is not strong Quality of resorts compromised in midst of expansion plans Current expansion plans is insufcient to meet investors expectations
Company Overview
Internal Analysis
External Analysis
Competitors Analysis
Current Performance
Recommendations
Recommendations for the next three years
Recommendation 1: Open 2 Additional Resorts
Rationale
To generate sufcient prots to meet investors expectations
Implementation
Resorts should be located in rural areas with rich local cultures & good supporting infrastructure 3 possible locations Hunan province Henan province Guizhou
Benets
Excess returns of $335,000 Excess prots could be used to make up any shortfall in Banyan Trees Angsana brand resorts in China
Company Overview
Internal Analysis
External Analysis
Competitors Analysis
Current Performance
Recommendations
Recommendation 2: Increase Quality of Resorts
Rationale Implementation Benets
Allow Banyan Tree to continue expanding in China Maintain brand equity Quality of Conduct regular internal audits Banyan Tree resorts in Tighten quality management policy using China has stricter goals & KPIs been compromised Increase training & implement continuous training programmes Review current level of human resources & employ more workers if required Improve quality of food
Company Overview Internal Analysis External Analysis Competitors Analysis Current Performance Recommendations
Recommendation 3: Open Banyan Tree Management Academy in China
Rationale
To support Banyan Trees aggressive growth in China Need for differentiated training for Chinese employees
Benets
Opportunity to build a highlytrained and dedicated workforce in China Opportunity to increase knowledge capital
Company Overview
Internal Analysis
External Analysis
Competitors Analysis
Current Performance
Recommendations
Recommendation 4: Establish Good Guanxi with Investors
Rationale Implementation Benets
Boost investors condence Increase access to funds in future Investors play Allow investors to establish a sense of a crucial role ownership towards Banyan Trees projects in providing funds for Golden loyalty cards Banyan Trees expansion
Company Overview
Internal Analysis
External Analysis
Competitors Analysis
Current Performance
Recommendations
Recommendation 5: Establish Good Guanxi with Municipal Governments
Rationale
Government co-operation is essential
Benets
Increase access to business opportunities & information Reduce risk of compulsory acquisition by government Increase stability & certainty of business in China
Company Overview
Internal Analysis
External Analysis
Competitors Analysis
Current Performance
Recommendations
Conclusion
Overall Estimated Financial Impact
2010 4 resorts in 2010 (existing resorts) 2 resorts in 2011 3 resorts in 2012 5 resorts in 2013 4 resorts in 2014 1 resort in 2015 2 additional resorts in 2015 Total revenue from hotels Operating prot before tax (9.84%) Tax (25%) Operating prot after tax (A) Required return (B) Additional return required (A-B) 22,833 0 0 0 0 0 0 2011 25,733 5,708 0 0 0 0 0 31,441 3,094 773 2,320 7,576 -5,255 2012 29,001 12,886 8,562 0 0 0 0 50,429 4,962 1,241 3,722 7,576 -3,854 2013 32,684 14,500 19,299 14,271 0 0 0 80,754 7,946 1,987 5,960 7,576 -1,616 2014 36,835 16,342 21,750 32,166 11,416 0 0 118,509 11,661 2,915 8,746 7,576 1,170 2015 41,513 18,417 24,513 36,251 25,733 2,854 5,708 154,988 15,251 3,813 11,438 7,576 3,863 2016 46,785 20,756 27,636 40,855 29,001 6,433 12,866 184,322 18,137 4,534 13,603 7,576 6,027 Total 212,549 88,590 101,751 123,542 66,150 9,287 18,575 620,443 61,052 15,263 45,789 45,454 335
Conclusion
Recommendations Open 2 new resorts in 2015 Improve quality of resorts in China Open another Banyan Tree Management Academy in China Establish & maintain strong guanxi with investors & municipal governments Potential for Banyan Tree to become market leader in its premium segment in China
Question & Answer
