To VIP or not VIP, that’s the question

Does Macau need better tourists or does it need to bet more on the high rollers? Is the future of tourism in China or abroad?

MB July 2020 Special Report | Crossroads of Macau tourism

It is known that the former Secretary for Social Affairs and Culture had an easy time producing soundbites.

But when, just over a year ago, Alexis Tam said that, “we have to attract better tourists who come to Macau to appreciate our world heritage, our culture and gastronomy, they come to consume, to stimulate the economy,” the phrase was far beyond the headlines that occupied the news at the time.

The sentence itself summarizes many of the questions that mark the crossroads of Macau’s tourism at this time: diversification is necessary, but how can we attract these tourists? Are there enough ‘new’ tourists interested in Macau to make the local economy viable? Saying these tourists are ‘better’ suggests the ones that exist are ‘bad’, namely the high rollers (or from the premium sector as they are usually called; those who come to gamble and leave a lot of money)?

“What truly needs to happen for Macau to achieve real longterm growth is to wean itself off its dependency on the mainland. Only when that happens will we achieve true diversification,” states Macau businessman Ben Lee, Managing Partner, IGamiX Management & Consulting Ltd.

At first glance, Mr Lee’s phrase sounds like a utopian dream.

But he understands that it doesn’t. “It is a mission impossible only if we maintain our current mindset.”

“What truly needs to happen for Macau to achieve real longterm growth is to wean itself off its dependency on the mainland. Only when that happens will we achieve true diversification” – Ben Lee

“Imported labour skills and knowledge”

To wean ourselves off the mainland he explains, “would require two factors. The first is the political dimension i.e. the mainland tells us that they are no longer ‘feeding’ us and that we have to learn to ‘sink or swim’.”

The second thing that has to happen is that, “we must vacate our position of labour supremacy and accept that Macau needs a whole lot of imported labour skills and knowledge to be able to diversify our economy away from gaming. Our current management and knowledge base is increasingly being skewed towards gaming rather than away from it.” And to reinforce what he says, he cites the example of Singapore where, “with a population ten times that of Macau, constantly refreshes their labour pool to evolve and maintain their prominence as an international destination.”

Andrew Pearson, Founder and Managing Director of Intelligencia Limited, also understands that in general, “the Chinese who come to Macau are not very sophisticated and are not prepared to spend the money that American and European consumers are.”

But Mr Pearson explained to Macau Business that this doesn’t call into question the idea of tourist diversification. “It’s about evolution,” he stated, comparing the first set of Chinese gamblers, a few decades ago, with the Chinese tourists who come now. “They are a completely different breed. Las Vegas didn’t evolve into a world class capital of fine dining, high-end bars, raging nightclubs, and musical residencies overnight,” he adds, “it took decades for Vegas to evolve into a mecca of high-end nightclubs, expensive restaurants, and DJ residencies that are now proving to be massive financial drivers. It’s all about entertainment and the Chinese will evolve just as the Americans and Europeans did, and Macau must continue to push for diversification.”

Contrary to Ben Lee, Andrew Pearson understands that “Macau’s advantage is still the 50M people within a fifty-mile radius of here, and this is a bigger advantage than ever because of the recent pandemic.”

Why is this?

The answer is the high rollers, “the premium mass, and the ‘Grind’ as some have dubbed them. I like to joke that the high rollers exist in a rarefied world, ‘Never have so few meant so much to so few,’ I jokingly say, i.e., the high rollers who frequent the junket rooms drop small fortunes every time they land in Macau. However, the casinos and junket rooms are having to offer increasingly generous incentives to get them to play, and the casinos are finding that the premium mass is where the profit is.”

“VIP/premium segment has to be our short term recovery solution”

VIP and premium mass customers made up of only one percent of visitors in 2018, yet drove around 70 per cent of total Gross Gaming Revenue.

“When the suspension of the IVS and group tours is lifted, it is unlikely that Macau will want to see the sort of traffic we used to have pre-Covid, and we have also seen our Chief Executive talking up IVS as our immediate focus. Ergo, the low traffic/high value VIP/premium segment has to be our short-term recovery solution out of sheer practicality,” adds Ben Lee.

David Green, the founder of Macau Newpage Consulting, a specialist on regulations in the sector, stated last May that Macau is in a better position than its main rival, Las Vegas, to overcome the crisis in the gambling sector, because it has substantial financial reserves and it can count on the ‘VIP gamblers’.

It is for these reasons that some people, in addition to the mass market, defend a clear bet on the VIP market.

“Macau should distinguish itself from other competing destinations by providing differentiated gaming service products,” is the opinion of Zheng Gu, from the College of Hotel Administration, University of Nevada, Las Vegas. “Enhancing its traditional VIP room operations is an effective way to achieve this goal. Implementing such a revenue management strategy, Macau will be able to preserve its risk-taker market and minimise the revenue risk posed by upcoming competition in the region,” he wrote in a research paper called Product Differentiation: Key to Macau’s Gaming Revenue Growth.

At same time, “Macau is a unique market unlike any other jurisdiction, such as Manila, Singapore, Sydney or even Las Vegas for the simple fact that we don’t have a bank of local residents able to visit the casinos anytime they like without constraints of any form,” explains Ben Lee to Macau Business, “it is naturally unsurprising that the top strata of mainland Chinese society are the ones to have the greater means and flexibility to gamble more frequently and at greater levels than the mass.”

“Historically, the VIP segment has always been the first to rebound, as the players in that segment are the ones with not only the financial means but more importantly the flexibility in terms of personal schedule, to travel whenever they want,” add Mr. Lee, stating “Mass [market] historically lags behind VIP somewhere from six months to twelve, however the question of the comfort level we raised before [Covid-19], will pose the biggest barrier to normalisation of the market. Social distancing in some form of other will likely remain, and will present new challenges for mass market focused operators for some time to come.”

Tourists spend little

“There is only a slightly significant correlation between GDP in Macau and visitor expenditure,” say two Chinese researchers. “This may indicate that more attention should be paid to how to raise the level of visitor expenditure,” and this means tourists could and should spend more when they visit the MSAR.

Wang Jingwen and Liang Mingzhu, from Jinan University, conclude that a better transportation system, female consumption and cultural tourism products are, “the key points associated with high pulling function [affecting] visitor expenditure. These findings may provide strategic insights for diversifying Macau tourism development, with the aim of achieving a greater economic impact and competitive advantage under the guiding of positive features of the consumer society.”