New Four Seasons Timeshare on Disney Property and Value Oriented West Side

[DancingBear]

It is not a small point of disagreement either. The difficulties I have seen in effectively managing a multi-tiered offering of resorts built upon a single infra-structure have been glaring for many years (most obvious to me since the opening of the Grand Floridian and the Pop Century resorts). I have long believed that this wide spread has caused most of the resorts to be more expensive than they otherwise might be, and the top tier resorts to offer less service than similarly situated resort facilities in other vacation destinations.

Contracting out the extremes allows the support systems to be operated more smoothly, efficiently, and perhaps even with better results.

I'm not sure what you mean about a single infrastructure. Reservation systems? What else? Hiring and training? Procurement? If this is such a big problem, why does there seem to be a trend in the hotel industry to develop a range of brands (Ritz, JW Marriott, Marriott, Courtyard, Fairfield, etc.; Hilton, Conrad, Doubletree, Embassy Suites, Hampton, etc.; or the Starwood group)?

I honestly believe that the "resorts are more expensive" and "top tier resorts offer less service" both reflect conscious Disney management decisions, not an inefficient infrastructure. Do you really think room prices are driven by Disney's high operating costs and not just trying to maximize return?

 

[YoHo]

In fact, a couple years ago we got some information from managers at Yacht and Beach. I don't remember the whole story, and while the higher end resorts do cost more to support, that number is not linear with room price. In other words, the cost to operate a room at the poly vs. rack rate isn't 1:1 with the cost/rate of the All Stars.

 

[MassJester]

Do you really think room prices are driven by Disney's high operating costs and not just trying to maximize return?

Yes.

 

[MassJester]

As none of us can point to a P/L to prove our points, I suppose there is little point in pursuing this much further. (Please feel to correct me if I've missed something.)

Several of you believe that the financial realities paint one picture, I think you are wrong. We all base our opinions on our observations, our own knowledge, and whatever information we've been able to acquire.

The result is that the strategic partnerships make sense to me, and they don't to you.

Is there more?

 

[dunnhorn]

There are some people, and I’ll admit I’m one, that like Disney when it was a smaller, niche company that produced a products with a specific “flavor”. There are others that enjoy Disney for offering a much broader range of product with the same general level of quality.

Very well put, and I think you hit the proverbial nail on the head. I personally like the idea of Disney expanding into the high end arena (or allowing it to expand on property) and I acutally think of the "disney" name more of a stamp of family friendly quality rather than something unique, if that makes sense. I know this may differ from some folks' opinions - but it is my $.02. Will be interesting to see if the FS has "magic."

 

[EUROPACL]

Originally Posted by DancingBear
Do you really think room prices are driven by Disney's high operating costs and not just trying to maximize return?

Yes.

Wow! I bet you think that $2.50 coke is based on Op costs too.

 

[MassJester]

Wow! I bet you think that $2.50 coke is based on Op costs too.

Awwww. You said you were done with me. You broke your promise.

 

[dunnhorn]

Wow! I bet you think that $2.50 coke is based on Op costs too.

$2.50 coke is not just at Disney. We were at a COUNTER SERVICE restaurant in a northern suburb of Atlanta this weekend and we were charged $2 for a coke. I looked around and there wasn't a single mouse in sight.

 

[EUROPACL]

$2.50 coke is not just at Disney. We were at a COUNTER SERVICE restaurant in a northern suburb of Atlanta this weekend and we were charged $2 for a coke. I looked around and there wasn't a single mouse in sight.

That is a great story and all....one time at band camp...wait different kind of story....yeah I was at a counter service place the other day and they charged me over 10 bucks for a popcorn and soda, I'm sure that is Op Cost too. This is something I know a lot about. Depeding where you are at in the country a 32oz coke (coke,cup,ice,labor,overhead) cost anywhere from 25 up to around 50 cents.

 

[dunnhorn]

That is a great story and all....one time at band camp...wait different kind of story....

Ha good one - actually I wasn't thinking "Op cost" as much as I am thinking "profit margin." Everyone does it... so I don't fault Disney for it. The moderates are actually a pretty decent value - it is the deluxes and value rooms that aren't such a great deal.

 

[YoHo]

The point wasn't that Disney is evil for infllating the price of a bottle of cola (they are, but that's neither here nor there.) The point is thatMassJester's Expection that the room rate is based on the cost of operation certainly doesn't hold in other areas of the business, so why should it here?

Also, there's nothing wrong with you personally thinking that Disney = Quality family entertainment. I think they're borderline on that now a days, but there's nothing wrong with you thinking that.

The question is what Did the Disney management that built WDW think Disney stood for and what does current management think it stands for.

 

[DC7800]

$2.50 coke is not just at Disney. We were at a COUNTER SERVICE restaurant in a northern suburb of Atlanta this weekend and we were charged $2 for a coke. I looked around and there wasn't a single mouse in sight.

But the point remains that the actual cost (to Disney) of that Coke is not that much higher at WDW than the local McDonald's back home which sells it for 99 cents (itself a significant markup). Costs may well be greater for Disney, but not by a factor of 2 1/2 times.

Right now, the Contemporary tower rooms go for $495 while Pop-Century hovers around $109 or so. There is no doubt that costs at a deluxe resort are greater than a value property, but not almost five times greater. Even without factual numbers to support our position, that big a difference should be obvious (and many resort amenities are themselves profit centers, from restaurants to valet parking).

Prices are driven by what the market will bear - maximize revenue - rather than primarily by the production cost of the item (service).

 

[YoHo]

You can simply look at the prices that any hotel chain is offering for their 3-4 star rooms versus their motel rooms. The markup simply isn't anything like what Disney offers. Disney is charging 5 star prices for a 3 star hotel with a view of a castle. There's no efficency involved at all.

 

[raidermatt]

Yes, dunnhorn, the purpose of the Coke example was not to crucify Disney for it, but simply to point out that Disney is using market pricing strategies, not cost based pricing strategies. Certainly they are not alone in that line of thinking. In fact, its the norm.

Quote:
Originally Posted by DancingBear
Do you really think room prices are driven by Disney's high operating costs and not just trying to maximize return?

Yes.

It's in their financial reports. They talk about it in their conference calls. Unless they are lying, they are looking to maximize returns. (I will say that it is interesting to actually be discussing that piece. Everybody else who disagrees with criticism of Disney is constantly reminding us that Disney is a business and must maximize returns and answer to shareholders.)

Very few businesses base their pricing on their costs. The vast majority use market pricing strategies which basically say to charge as much as you can get away with. Yes, an oversimplification, but the overall point is essentially true.

Of course they are looking to reduce costs wherever possible, but not so they can "pass the savings on to the customer". That idea is a myth in the vast majority of cases. Disney has promised 10% annual growth, and that's tough to acheive if you don't acheive some of it through cost-cutting. If you turn around and give the cost savings back, you have achieved nothing in terms of EPS or margin growth.

As an example, Disney recently outsourced valet parking services to an outside company, I believe called C.a.r.s. Disney stated there would be efficiency savings and that the C.a.r.s. employees would be held to the same service standards.

So what happened when Disney realized these efficiency savings, and a supposedly more effiicient, specialized, company took over?

Valet parking prices were raised that very day.

Disney will tweak its value proposition when they feel its appropriate, but its due to market forces, not changes in cost.

Again, its not that any of us are happy to be explaining that this is how Disney operates. But it is the reality that's there.

 

[DisneyKidds]

Hey MJ, hope you don’t think I’m picking on you, you’ve just provided a lot of jumping off points for my thoughts. So here goes……..

Similarly situated companies (like Disney & FS) enter into joint ventures quite regularly that are mutually beneficial and do not constitute surrender to a competitor.

My company is involved in numerous joint ventures undertaken by billion dollar companies who are primary competitors in the same industry. Agreed, it often makes sense and can be mutually beneficial in certain circumstances. However, that usually involves teaming arrangements that allow the combined entity to provide a stable of services neither single entity could, or to manage and mitigate risk, or, as mentioned, to enter new markets. However, Disney siphoning off land to FS and allowing them to come onto (what used to be) Disney turf and do what Disney does is nothing like any of that. It’s not a true joint venture at all. Disney has sold out the high end resort market on Disney property in exchange for a small slice of someone else’s profits. Again, that is no JV relationship.

I don't agree. Companies, like mine, do it when it's profitable and convenient and supports long term plans.

The key here isn’t the profitability or convenience of the arrangement, but the long term plan it supports. For starters, I’m not sure the long term was the primary consideration in this decision. Secondly, if it was, I don’t like the long term plan it represent…..and I don’t think you do either, if you really search your soul. In your response to AV you showed your cards. You’d prefer that Disney keep the high end resort development to themselves. You’d prefer that Disney own and operate their own resorts and theme parks. You’d prefer that Disney was first and foremost a content provider, rather than a reseller or distributor (even though you like their involvement there). Deep down you know what Disney should be at it's core, the directions they should be striving to go in, yet they choose, time and again, to go in other directions. Despite that you continue to be an admiring onlooker. Hey, I am still a happy customer, too. Still love WDW. But you can be that and still be critical of management that continues to lead the company further away from where it rightfully should be. Disney needs more fans like that, as perhaps more outcry could have prevented some of the things that have hurt this company the most. Case in point…….

The animation business was badly managed, buying Pixar was an solid move to remedy those errors.

Something needs to be done to keep the errors from happening that require $7 billion remedies. Disney should never have let Disney Feature Animation fall into the state of disrepair it’s in. Disney should never have let Pixar (or anyone else) be the company that was on the cutting edge of animation technique. Neither of these was ever in the best long term interests of the Walt Disney Company.

My point is, and has been, that the company is moving in the right direction. It is attracting more customers, it is providing more products and services, and it is doing so on firmer financial footing. Further, I think there have been a series of creative improvements, both in the parks and in the broader entertainmnet offering, that have added both value and customer satisfaction.

It seems to me your statement should be that you feel that current Disney management is taking stop gap measures that you feel are appropriate at this point in time. However, do you really agree that moving further away from being a resort operator and creator of content is the right direction, long term, for the company? While I agree that some decent things have been added in the last five years, maybe you could expand on what types of things you feel show a commitment to creative improvement. I think this is the core area where Disney can’t afford to fall short, but does.

On balance, I think things are moving in the right direction. I think increases in the number of service points, increases the number of repeat service points, protective diversification (to insulate against downturns in any particular service offering), improvements to revenue and EBITDA are all very positive.

That right direction thing again. I agree with you on the outcomes achieved being positive (although I don’t think they’ve been as successful in achieving them as you do), but the ends don’t necessarily justify the means, and the means are what these discussion are all about. That is what the critics here are vocal about. Look at all the things it seems even you would agree have been done wrong over the last decade, errors that needed to be remedied, decisions that have led the company away from it’s traditional core business strengths……the evidence is there…….and then ask yourself can you really afford to wholly endorse current management efforts that have improved some measures but have continued to lead the company in the same general direction that led to the admitted errors in the first place. Being critical in that regard doesn't preclude you from loving Disney, from enjoying WDW, from continuing to be an admiring onlooker of the company as a whole......heck, it makes you a better fan, if you ask me. So don't be so quick to dismiss those here that you feel are naysayers. They probably care a lot more about this company than the staunchest cheerleader. Take a look from that perspective, keep an open mind, and you'll find a lot of great discussion.

 

[Another Voice]

I acutally think of the "disney" name more of a stamp of family friendly quality rather than something unique.

That is exactly the difference I am talking about.

A lot of people look to Disney as an escape from the everyday. A trip to WDW is a way to get away from their lives, to live a little better and be pampered, a safe place to watch their children have fun. Disney is a place that can give them all of that, all at known, high quality.

I see Disney as an enhancement to my life. I don’t want to escape, I want to add to my experiences. I don’t look to give be “better” experiences, I want Disney to give me the experience I can’t get anywhere else - the kind of experience that can only happen through storytelling.

I want to know what it’s like to fly into space. I want to know what it feels like to face down a dragon. I want to explore a haunted house, follow Indiana Jones through skeleton infested ruins, and fly over London in a pirate ship. I want to have lunch in a German biergarten and then have dinner in the shadow of a Chinese temple. I want my children to watch movies that gently teach them to be better people, not just entertainment to keep them quite on a car trip. I want my children to know they can accomplish whatever they wish through hard work, belief in themselves, and imagination.

Fancy*** hotels and three dollar cokes can be had anywhere. Despite all the marketing, there is no magic in free dining, timeshare condos or waiting for the pool boy to bring me another beer. I’ve seen enough of this world to understand exactly how important real “magic” can be – and enough to know that “magic” has nothing to do with middle class creature comforts.

“Magic” was the sparkle in my grandmother’s eyes when she walked down Main Street and told us she remembered places just like this. “Magic” was watching Bambi when I was nine and just after my father died, and understanding that it was now my time too to grow up. “Magic” is teasing my kid brother with a childhood picture of him on the Disneyland submarines by putting it in the wardroom of the boat on which he proudly served.

That’s the Disney I remember, that’s the Disney I still hope to get back one day.

 

[MassJester]

The last two posts deserve thoughtful replies that I can't manage as I must drop down to NYC for a meeting--but I will get back to them.

 

[Another Voice]

And I forgot to thank you for your thoughtful response Mr. MJ. I too got tied up yesterday (the bother we put ourselves through to earn money that all goes right to Disney...).

 

[G8RFAN]

I am not sold on these two franchises building enough synergy to compliment each other well. I enjoy both brands individually, but I do not see the typical FS client base being the typical WDW traveler, nor do I see the typical WDW traveler seeing the value of staying at a FS location. What will be interesting is seeing how they co-mingle the brands, to the limited degree as they do with the Swan/Dolphin or even less with the DTD hotel row options or if they integrate it competely such as DVC resorts.

 

[YoHo]

I'm more concerned with the ownership of the Four Seasons then anything else.

I really don't understand the Market for this property. As initially conceived, the Golf resort was supposed to be the non-Disnified hotel. It really didn't do all that well. Grand Floridian was supposed to be the 5 star Hotel, but they couldn't get that rating and have it still be cohesive with the rest of the resort properties.
On the other end of the spectrum, the All Stars and Pop Century have managed to suck in people who were previously paying more at the mods. They were built to pull in people from off property, but they really never succeeded at that and Disney has not finished the buildout.

I'm not convinced that the people that normally would stay at a Four Seasons have any particular interest in WDW anyway. And they're destroying what? two of the well regarded championship Golf Courses to put this in? The one Draw that probably would pull in the Four Seasons set? How exactly does this work again?