Red Spruce Resort Case Study

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Red Spruce is currently operating 6-months out of the year, and could improve tremendously whether they renovated their facility or not. Appendix C shows the financial opportunities for operating year round renovating or simply operating year round. If Red Spruce were to operate year round and renovate their facilities, they would have a Net Income of $2,318,450.48. This would be a $1,331,160.34 improvement from 2013 and would be a $1,159,225.24 improvement from renovating and only operating for 6-months. The payback period for this investment would be cut in half, and would only take 0.47 years to pay back the initial investment. Operating year round with renovations would have an ROI within the first year of $1,227,824.48, and over the life of the investment would have an ROI of $22,093.878.84. If Red Spruce did not pursue the renovation and operated year round they would still benefit despite the decline in occupancy rate, and room nights sold. Running year round would give them a Net Income of $1,797,119.87, compared to $987,290.14 in 2013, this is still an improvement of $809,829.73. Renovating and operating year round is the ideal situation but even if they decided not to renovate they could still become more profitable by operating 12-months out of the year.

Red Spruce has invested in creating better recreation activities to attract leisure customers back to the resort, but the analysis does not support this decision. Red Spruce is currently earning $12 per room on activities and it is costing them $13.20 to support these activities. Activities are resulting in a loss of $8,415.60 annually to support activities. If they were to renovate their facility it would reduce the net loss per room to 80 cents (Appendix D). This would result in an annual loss of $5,751.22. With no renovations costs are going to increase and will result in a $1.46 loss per room for activities. This would result in an annual loss of $10,164.36. Getting rid of the recreational activities and allowing the leisure guests to enjoy the lakes and trails would allow Red Spruce to focus on larger groups that make up 45% of room revenue, and target their needs by improving food and beverage services. Currently Red Spruce makes $38.94 per room on food and beverage service, and makes $273,089.22 annually. If they go through with the renovation they will earn $42.72 per room and will earn $305,600.14 annually. If they decide not to renovate they will only earn $36.42 per room on food and beverage service, and will bring in $252, 850,99, which is $20,235.23 less than they currently make. Cutting recreational activities will allow Red Spruce to generate even more revenue from their food and beverage services, and cut the losses in the recreational activities (Appendix D).

Conclusion

Red Spruce is behind in both their standard, and the industry standards for renovations. This has led to decreased market share, lower occupancy rates, and lower rates. Red Spruce’s competitors have invested heavily in improvements and have captured large market shares, and are responsible for 90% of the revenue earned. Red Spruce attempted to improve recreational activities and improve their online presence, but have failed to capture back market share, and improve profitability.

It is recommended that Red Spruce takes on the renovation project and operate year round. Even if they decide not to operate year round, but take on the project costs will be cut and revenues will be increased. In either scenario the payback period is less than 1 year making the investment safe. The ROI is high for year 1 and will continue to grow over the life of the investment. The project will open up opportunity for more rooms available, a higher occupancy rate, and they will earn more annually by pursuing the project.

Red Spruce has focused heavily on recreation activities, but the analysis shows that they are actually losing money on those activities. If they renovate or don’t renovate they are going to continue to lose money, and the larger groups visiting the resort aren’t going for these leisure activities. Red Spruces biggest asset currently is their food and beverage services, and if they renovate their facility they will continue to see improvement in that sector. Cutting activities and letting leisure guests enjoy the lakes, and nature trails, and activities that are free will give them more capital to invest in one of their strengths and will eliminate losses. Red Spruce should pursue the project, operate 12 months out of the year, and eliminate their activities.

Appendix

Appendix A

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Appendix B

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Appendix C

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Appendix D

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