Stupid cutback hits home.

[JeffH]

We were at MGM yesterday, and on top of the show cutbacks (no B&tB show until 1:45pm, when they usually ran at least 2 shows before then), we found that they had eliminated the only character meal (breakfast and lunch) in the park at Hollywood and Vine. I can understand cutting back CMs and shows to save money, but to eliminate something where they MAKE money, where you PAY to see characters, simply makes no sense to me??? The last few times we've been there they did good business, and if it was a matter of not being busy enough to make money, they could have cut the hours a bit to make it a 10-2 brunch or something like that?
They've managed to establish at least one character meal at each park (2 at Epcot and MK), now MGM has none!
I don't know if it's a cutback or what, but last night was the second time that only 2 princess barges came out during Fantasmic.
I did raise hell at the restaurant and customer service and will through e-mail as well.

 

[HB2K]

Looks like JeffH found his straw....

Another satisfied customer.

Anyone want to take bets on how long until Disney finds & drops DisneyKidds' straw?

 

[d-r]

One thing I have faith in about Disney is good old fashioned capitalist greed. If they were making money with the character breakfast at Hollywood and Vine, they would still have it.

 

[hopemax]

It may not be as simple as does something make money. Take this scenario.

You offer something, anything doesn't matter what it is but it costs you $5000 to do and it brings in $9000. That means your net profit is $4000. But if you cut that thing you've saved $5000. That's $1000 more than you previously had, and it's less work too.

Spreadsheet is happy, bank account is happy, but neither of those takes into account the unhappiness felt by the customer who may decide that they will stop using this other thing too. Then the other thing which also costs $5000, but was bringing in $12,000 now is bringing in only $9000, and it's on the chopping block now.

I think this is what AV means by "cutting costs faster than you lose customers."

 

[All Aboard]

You offer something, anything doesn't matter what it is but it costs you $5000 to do and it brings in $9000. That means your net profit is $4000. But if you cut that thing you've saved $5000. That's $1000 more than you previously had, and it's less work too.

Hope, I'll make you two offers - choose only one please.

1) Hand me $5,000 and I'll hand you back $9,000 in return.

2) Do nothing.


That's the way you have to view your scenario. By cutting something that had a cost of $5k and revenue of $9k, you are not better off by $1k, you are worse off by $4k. You cannot view the expense in a vacuum. It is paired with the revenue. You lose one, you lose the other.

Put another way. Let's say the event you described was the ONLY thing you had. Keep it and you keep getting the $4k however often your example is. Eliminate it and you are left with nothing.

 

[curtisl]

That's sad. My wife and I enjoyed meals there both times we visited. The character interaction there was very intimate and never felt rushed, due to the cozy size of the restaraunt. This meal will be missed.

 

[Planogirl]

I already sent my email of complaint to the WDW website and got the usual "send us your phone number and a Disney rep will call you" spiel. I don't want a phone call so I ignored it this time.

You see, all of these things add up to create a whole WDW. I see the different parts of the whole being chipped away one after the other and I hate it. Epcot was the first to be blown away by the budgeteers IMO and I didn't like what I saw at MGM during our last trip either. MGM felt flat and it WAS my favorite park. Just as Epcot WAS.

I still stay hopeful though.

 

[Luv2Roam]

Me thinkith this will not be a bad year to skip a second WDW trip.
I'm sure this is just the beginning.

 

[CasualObserver]

Originally posted by gcurling
Hope, I'll make you two offers - choose only one please.

1) Hand me $5,000 and I'll hand you back $9,000 in return.

2) Do nothing.

That's the way you have to view your scenario. By cutting something that had a cost of $5k and revenue of $9k, you are not better off by $1k, you are worse off by $4k. You cannot view the expense in a vacuum. It is paired with the revenue. You lose one, you lose the other.

This is true if you view only the item by itself. This would be like saying that the only revenue source is park admission. Sure, cutting out $5000 cost to get $9000 in park admission is definitely sitting on your hands. However, if your $5000 is an expense AFTER getting the park admission, then Hope is right. I think her point is that Disney Mgmt is looking at every "after the gate" expense in terms of short term balance sheet gain.

They already have the gate, so if it costs more to run something than it generates in profit and that something is in addition to the gate admission, then it looks like they are going to cut it.

Given that philosophy, it seems possible that there could be many more cuts in "after-the-gate" activities that don't make a minimum profit equal to the expense.

I think the signs may point to that philosophy in play:

Plush has such a great profit margin.
Clothing sales have almost as much.
Okay, all merchandise has a huge markup

Food sales, especially sit-down resturants don't have the same markup. More overhead.

Character meals have even more overhead than resturants.

Attractions/Shows have yet more overhead.

So when was the last time you saw a plush/clothing/trinket shop closed down permanently or even had the hours cutback while the rest of the park was open?

Casual Observer.

 

[hopemax]

Basically, I object to the idea that "If X closes, it must have been operating in the red."

Businesses also like to play with the efficiencies. If they are operating two restaurants and both are only partially full (but both profitable), they like to think that they can close restaurant B and everyone who used to eat at B will now go eat at A. The business cut its overhead, and they still get all the money. Sure H&V is closed, but people still need to eat breakfast so it means some other restaurant is making more money.

 

[All Aboard]

However, if your $5000 is an expense AFTER getting the park admission, then Hope is right. I think her point is that Disney Mgmt is looking at every "after the gate" expense in terms of short term balance sheet gain.

Before the gate or after the gate, if the "thing" is making money, then it's making money. If it has a reduced margain, that's a consideration. But if you don't an alternative to recoup the lost $4000, you are worse off.

If you close off a $5000 expense drain to save money, but in the process you lose a $9000 revenue spigot, you are $4000 worse off than before. It's NOT a savings.

OK, a husband and wife both work. Her job nets them $50,000, but she has to spend $5000 a year on clothes, gas, etc. The pair decide that they need to save on expenses. So, to save $5000 she quits her job. Financially, are they now better off?

In the example Hope used, it doesn't matter that the expense is greater than the profit ($5000 v $4000). It matters that the profit is greater than zero.

Please forgive me on this one. I'm not trying to be argumentative.

 

[CasualObserver]

I think the difference between the two versions is that hopemax is offering the proposition that Disney is looking at after-the-gate margins on an item-by-item basis. An item either brings in more profit than it costs to operate or not. She is proposing that Disney is expecting to make a 100% profit on each activity or it gets closed. Whether that number is 100% or not isn't the issue - it may be that an activity must make a 20% profit, who knows.

Whatever the number is, Disney feels that they can make more money by not spending those dollars on the activity they closed.

If they can take that $5000 that they would have spent on the activity and make more than $9K, then they quit the activity. When you are cutting expenses as your primary means of increasing overal profits, then it comes down to margins. You cut the smallest margin activities. They can't cut attractions and shows but so much before affecting the gate (I think the drop in gate revenue due to attraction/show cuts is already happening), so they cut the next smallest margin activity - character meals.


I have been arguing that the notion of cutting expenses, and trying to get more profit from the faithful, is a short-sighted and assinine. Disney would be better off expanding the base, increasing revenue, and that only comes from offering services and value to new customers. Reducing the reasons for a new customer to decide on Disney does nothing for the long term.


... but who says Disney is operating for the long term.


Casual Observer.

 

[DisneyKidds]

Please forgive me on this one.

Please Mr. Curling, don't ask for forgiveness. You are 1,000,000% correct.

Take the 'thing' that costs you 5,000 and brings you in 9,000. Cut it out today and you save your 5,000, that is true. You have your 5,000 today. Tomorrow you have your 5,000 plus a little interest, etc. Howver, do the 'thing' today and you have your original 5,000 plus another 4,000. Invest the 5,000 in the 'thing' again tomorrow and you then have your original 5,000 and another 8,000............and so on, and so on. You are making a profit plain and simple. If the 'thing' only brought you in 5,001 you still have a dollar you didn't have before. Even if you do this 'after the gate' you still have more than you started with - and you have satisfied customers.

I think the example Hope should have used is this one. Suppose the 'thing' costs you 5,000 and only brings in 5,000. You just recoup your cost. This still isn't a good enough reason to put it on the block. You aren't out anything, and you have satisfied customers. Now try this one on for size. The thing costs you 5,000, but it only brings in 4,950. Do you do it or cut it? Back in the day of Walt, when all of WDW was a value and Baron could have his Poly for below market rate, I bet he'd say there were lots of things that might not have made money, but were done because they satisfied the customers and created a loyal following.

I really don't know what is going on with things like H&V. One of two things I suppose. Perhaps it, and things like it, are losing money. That would be the most sensible reason to cut it. The only other thing I can figure is that perhaps for Disney to be able to do some longer term things they are looking at they need to cut 5,000 here and 5,000 there in order to accumulate enough money to do something larger, or they will use the 5,000 to do something different that might generate more profit than the old thing. The Casual one touched on it and it is called opportunity cost. By using the 5,000 for one thing, you lose the opportunity to do something else.

My money would be on the scenario where H&V was not making any money, at least not directly. That would be the short sighted, spreadsheet driven decision. Of course, even if it was losing a little but bringing people into the park a case could be made that it would have been worth keeping to satisfy the customers - the way Walt might have done. Hopefully Disney was smarter and evaluated the opportunity cost and determined there were other things they could do with that money that will satisfy more guests.

 

[DisneyFanGuy]

As a person who works for a biggggggggg customer service company, the one item not discussed that stands out is that Disney must expect the money that folks spent on the character to be spent elsewhere once it closes. The would have done some sort of study that suggested that they would not lose all of that revenue, and that it would go elsewhere while they saved the cost of the character meal.

For example. I run three restaurants in a small town in Wisconsin. One restaurant needs to be replaced, and generates "x" in revenue, and has "y" in costs. My company may NOT build a new one because they did a study that suggests that 40% of the revenue will go to other locations and that they will save ALL of the costs. So they make more money by closing one location than investing money in it to continue operating......even though it made a profit. So we make more money with two restaurants instead of three.

All of this depends on the remaining two restaurants having enough excess capacity to absorb the extra customers. So I assume that Disney has excess capacity at it's other restaurants either at MGM or outside, and assumes that much of the cash per guest spent at the current location will transfer as revenue to someplace else.

People are promoted on stuff like this. Guest happiness doesn't even come up for decisions like this one. Nobody cares in this kind of deal. (I can picture the presentation "deck" now!)

 

[Planogirl]

DisneyFanGuy said:

All of this depends on the remaining two restaurants having enough excess capacity to absorb the extra customers. So I assume that Disney has excess capacity at it's other restaurants either at MGM or outside, and assumes that much of the cash per guest spent at the current location will transfer as revenue to someplace else

I think this is interesting but after factoring in the convenience factor I can't picture where Disney expects the displaced guests to spend this money now. Any thoughts?

 

[Poohnatic]

Yes, I probably would spend money on a meal elsewhere at MGM, but not the 60 bucks I'd pay for a lunch at H&V. More like 10 bucks on snackables (then have food back in the room that's in our fridge)....it wouldn't be spent on other stuff, because my family goes often enough that we hardly buy souveniers.

Net loss for a day for my family of four $50 bucks. Multiply that by 100 families, there's the 5,000. Penny wise but pound foolish. It's a shame, because H&V had excellent characters (even if they were the same few you can see at nearly all the other meals) and very attentive servers.

Suzanne

 

[manning]

Sure H&V is closed, but people still need to eat breakfast so it means some other restaurant is making more money.

I'm heading over to Bob Evans outside the gate.

 

[All Aboard]

We are very, very close to the same page now.

If they can take that $5000 that they would have spent on the activity and make more than $9K, then they quit the activity.

Yes, as long as they take the $5k and spend it elsewhere to generate the $9k+. Absolutely then are they better off.

But, if they simply stop the $5k expense and bank the so-called "savings" then they are worse off.

A margain improvement strategy of eliminating low contribution or underperforming activities is rarely prudent. Especially in a growth company. I don't think Wall Street focuses much on margain vis a vis Disney. Bottom line profit (perhaps even top line revenue) growth is more important.

A strategy of eliminating low margain activities without redeploying the resources to higher margain activities may improve margain, but reduces both revenue and operating profit.

 

[crusader]

this debate is conflicting

Two things are failing to be mentioned here:

1. The characters employment agreement and status
2. The actual profitability of a character meal at MGM.

It is impossible to debate the decision making process without being advised of the circumstances.

A strategy of eliminating low margain activities without redeploying the resources to higher margain activities may improve margain, but reduces both revenue and operating profit.

This statement seems to contradict here. Eliminating a low margin activity reduces both revenue and expense. If you improve your margin on an activity how would your operating profit decline? Unless you are saying it will cause you to lose other business. In this case I don't see how that can be? If the character meal was operating poorly - and has continually been doing so then you already were losing business so why retain it?

 

[d-r]

fwiw-

Back in the day of Walt, when all of WDW was a value and Baron could have his Poly for below market rate,

Poly didn't exist in the day of Walt-