Answer 2 questions:2. Complete a competitor analysis. What implications can be drawn from this analysis?
3. Analyze Horseshoe’s current financial position, including a statement of cash flow for they earned December31, 2009, and relevant financial ratios.
Ivey Case 2006 9B11B011 HORSESHOE RESORT Kevin Dean wrote this case under the supervision of Elizabeth M.A. Grasby solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com. Copyright © 2011, Richard Ivey School of Business Foundation Version: 2015-04-28 It was January 2010, and Peter Cowley, general manager of Horseshoe Resort (Horseshoe), located near Barrie, Ontario, was in the midst of finalizing a proposal for a new adventure park. As an all-season resort, Horseshoe aimed to increase resort visits in the summer months. Cowley wanted to determine how best to use the land and investment dollars to cater to Horseshoe’s target market and add to its portfolio of activities to enhance Horseshoe as a tourist destination. HORSESHOE RESORT HISTORY Horseshoe was a ski and golf resort located in Horseshoe Valley in Oro-Medonte, Ontario. Oro-Medonte was north of Barrie and a 60-minute drive north of Toronto, the largest city (population approximately 5.6 million) in Canada (see Exhibit 1). Started in 1963 by Bill Loharu, an Estonian ski instructor, the first ski club was located on the southern ridge of a U-shaped valley, which led to the resort’s name. Over the years, Horseshoe developed from a small ski club into one of Ontario’s premier resort locations. Loharu sold Horseshoe to a limited partnership in 1988. In the 1990s, Horseshoe entered into a joint venture with Shell Vacations Limited to develop three phases of timeshare1 properties located on the upper ridge of the valley with ski-in/ski-out facilities. This venture added 272 two-bedroom timeshare units to the area. Horseshoe was sold in 2008 to Skyline International (Skyline) for $36 million. Skyline added the resort to its portfolio of high-end accommodations of Toronto area hotels (including The Pantages and the Cosmopolitan) and harbour-front development properties in Port McNicholl, a 35-minute drive from Horseshoe. 1 Title in a property held by several owners, each entitled to the use of the property for specified periods each year. mailto:cases@ivey.ca http://www.iveycases.com/ Page 2 9B11B011 Facilities Resort amenities included downhill ski operations with 25 runs and six chairlifts open both day and night, 308 feet of vertical,2 35 kilometres of cross-country ski trails and snow tubing. Ski-lift tickets at Horseshoe cost $54 for a day (including evenings). Horseshoe’s facilities also included a hotel and two timeshare projects, indoor and outdoor pools, conference facilities, casual and fine-dining restaurants and two 18-hole championship golf courses. The Valley golf course spread throughout the base of the valley and started in the heart of the resort; whereas, the more challenging Highlands course was located on the upper ridge and was home to the 2006 Canadian Tour Championship. Apart from the typical hotel facilities, such as multiple indoor and outdoor pools, Horseshoe made use of its unique landscape and had created vast mountain biking and hiking trails throughout the Copeland Forest. For more adventurous patrons, third-party suppliers offered activities such as off-road Segway tours, Yamaha riding adventures, a paintball park and a Treetop Trekking park (see Exhibit 2). See Exhibit 3 and Exhibit 4 for fiscal 2008 and 2009 statement of earnings and balance sheets, respectively. Horseshoe’s statement of cash flows for the year ended December 31, 2009, is given in Exhibit 5. Select financial ratios for Horseshoe and for competitors in the ski and golf industry are given in Exhibit 6. INDUSTRY OVERVIEW All-season resorts were affected by trends in both the ski and golf industries as well as by trends in the general tourism industry. Research on the North American tourism industry had shed light on recent travel trends.3 Canadian travel survey data revealed that family travel, as a proportion of all travel, had declined 10 per cent over the past 10 years, and travellers were opting for “quick escapes” instead of longer vacations since shorter vacations were easier to schedule.4 As well, the percentage of trips to resorts more frequently included children.5 According to Statistics Canada, 31.7 per cent of all domestic resort trips occurred in January and February, and 41.4 per cent occurred in July, August, and September, with the remainder being fairly equally spread among the remaining seven months. Statistics Canada also reported that there had been dramatic growth in activity-based vacations. For example, resort tourists participated in sports and outdoor activities at almost twice the rate of non-resort tourists. With travel schedules and expectations changing, resorts needed to update their offerings for the changing demands of a more discerning consumer.6 The Canadian ski industry reached an all-time high in the 2007/2008 winter season with over 20.5 million skier visits;7 however, it had declined by 11.5 per cent by the 2009/2010 season. Ontario resorts experienced a 5.4 per cent decline in skier visits over the same time period.8 The number of U.S. skier 2 The change in elevation from the base of the ski hill to its highest point. 3 Marcoux, Julia. 2004. “The Canadian resort traveller: Trends and implications for the resort industry.” Statistics Canada. 4 Shaienks, Danielle. 2000. “The Changing Family and the Evolution of the Canadian Family Travel Market, 1980-1999.” 5 Marcoux, Julia. 2004. “The Canadian resort traveller: Trends and implications for the resort industry.” Statistics Canada. 6 Redekop, David. 2000. Travel Forecast 2000: Twenty-one questions for the 21st Century. (Pg. 41) The Conference Board of Canada: Canadian Tourism Research Institute. 7 A skier visit represents one skier or boarder participating at a resort for one day. 8 Ontario operated 23 per cent of all resorts in Canada (66 of 286 resorts), with only Quebec having more resorts (78 resorts). Page 3 9B11B011 visits to Canada had also declined, likely due to the increase in the Canadian dollar relative to the U.S. dollar. The bulk of international skiers visited British Columbia and Alberta, whereas less than four per cent visited Ontario.9 The ski market could be segmented into three categories: local residents, day visitors, and overnight stays. British Columbia and Alberta received the largest proportion of overnight stays as a percentage of their region’s total skier visits, and Ontario had the largest percentage of day visitors of any region.10 As result of the Canadian golf market boom in the 1990s and early 2000s, when a number of new golf courses were developed, the Canadian golf industry was in a state of oversupply. Consequently, golf courses, private and public, across Canada were experiencing decreases in both membership and golf rounds played. This oversupply of golf courses increased competition among all private and public golf courses, resulting in the widespread discounting of golf fees as never before seen in the industry. THE COMPETITION The Heights of Horseshoe One other ski club, which was owned separately, was located in the valley. Across the road from Horseshoe was The Heights of Horseshoe, a private, equity-based ski club that shared snow-making facilities with Horseshoe. The Heights offered 20 runs and four chairlifts, but had only one chalet and no overnight accommodations. Blue Mountain Blue Mountain was an all-season resort located on the Niagara Escarpment, on the southern tip of Georgian Bay, just outside the city of Collingwood. The resort, a 90-minute drive north of Toronto, was purchased in 1999 by Intrawest Corporation and was added to Intrawest’s portfolio of premium resorts, including Mont Tremblant, Stratton, and Whistler/Blackcomb. Blue Mountain offered 35 day/night ski runs serviced by eight chairlifts, 720 feet of vertical, snow tubing, an 18-hole golf course, indoor tennis, mountain biking and an indoor aquatic centre. The Village, a newer development started in 2000, had significantly increased accommodations, conference facilities, restaurants and shops, and was modelled after similar developments at both Whistler and Mont Tremblant. A hillside solar-powered roller-coaster would be open in summer 2011 to add to the year-round attractions offered at the resort. An adult ski-lift ticket cost $58 for the 2010/2011 season. Mount St. Louis Moonstone Mount St. Louis Moonstone (Moonstone) was located just north of Barrie and was an 80-minute drive north of Toronto. Opened in 1964, the ski resort had 36 runs serviced by 10 chairlifts. Moonstone increased its vertical to 550 feet by moving over two million cubic metres of soil to the two highest peaks at three different times in its history: 1979, 1989 and 1996. Seen as a more traditional ski resort, Moonstone did not offer night skiing or accommodations, so most business came from local residents and day visitors from the surrounding area. Boasting a highly acclaimed snowboard park and offering typically 9 Canada has six ski regions: British Columbia, Alberta, the Prairies, Ontario, Quebec and the Atlantic region.