From EuroDisney to Disneyland Paris

Transcription

1 From EuroDisney to Disneyland Paris Olga E. Annushkina This case study was prepared on the basis of the publicly available resources and as a basis for the class discussion rather than to illustrate either efficient or inefficient handling of a company situation. Copyright SDA Bocconi

2 Walt Disney Co., one of the largest entertainment companies in the world, decided to build an entertainment park in Europe after the success of its first international venture: Tokyo Disneyland, opened in 1983, reported booming attendance since its first year of operations. The opening of Euro Disney was celebrated in However, the Euro Disney resort did not meet its expectations regarding the number of visitors during the first years of operations and in 1994 it reported losses of $1 million a day because of its high fixed costs and interest payments on debt. The company started its negotiations with French government back in As the result of negotiations, the French government provided $750 million in loans at minimum interest rates, built roads and rail networks to the park and allowed Walt Disney Co. to buy land at 1971 prices1. Inspired by the successful growth of Walt Disney Company in the past years, the management probably got overconfident regarding the new venture in Europe and decided not to repeat some mistakes made in the past: in the first place, they decided to manage supposedly profitable hotels adjacent to the Euro Disney park and decided to directly participate to Euro Disney (contrary to Tokyo Disneyland, where the company relied on royalties, not direct ownership of the resort). However, Walt Disney Co. made several important strategic and financial miscalculations for its start-up in Europe, which resulted in heavy losses during the first years of operations. In order to please sophisticated Europeans, Walt Disney Co. did not save on the investments to provid the park with castles and monuments designed with a great care to the details. Expensive tram lines were built along a lake to travel visitors from the hotels to the park which did not take into account that Europeans were more funs of walking compared to Americans. Mini-bars in economy hotel rooms and lavish golf course remained underused as they did not fit with the habits of average European family on vacation with children to a resort park. Moreover, Euro Disney was too self-relied in the selection of contractors: two general contractors became bankrupts during the construction period, and Disney had to pay two times as a consequence to get one part of work done. 1 Mouse Trap: Fans Like Euro Disney But Its Parent's Goofs Weigh the Park Down, by P. Gumbel and R. Turner, The Wall Street Journal, Copyright SDA Bocconi

3 Prices charged by Euro Disney were way above the European expectations: the park admission fee was set at $40.9 for adults (which was higher than in the U.S.), whereas a room at the best Euro Disney hotel was circa $340 a night. Not surprisingly, the hotels occupancy ratio was fragilely balancing at 50%. Having spent more than their average budget on the hotel and entrance fee, park visitors saved on merchandise and did their best to limit food consumption. Euro Disney management blamed unexpected European recession that hit almost right after the opening, high interest rates and devaluation of some European currencies against the French franc. Still, the planning of Euro Disney activities included some serious flaws that regarded many areas of the resort operations. Disney executives, for instance, believed that European parents, as their American counterparts, would be eager to bring their children to the park even if involved skipping a class or two at the school or to take short holiday breaks. Those assumptions turned out not to be very reasonable. If families would come to Florida for an average of four days, the average stay in Euro Disney was of only two days, arriving early Saturday morning (to save on Friday night hotel charge), spending two days in the park and checking out on Sunday morning. In some cases they stayed also for Monday, upsetting the expectations of the management who planned Friday to be a busier day than Monday. As a result, Euro Disney management was forced to reduce prices level. Entry prices at the park for local residents went down to 150 francs ($27.27) from 225 francs ($40.9) for adults, and to 100 francs from 150 francs for children (in the first opening years the French accounted for less than one-third of the total visitors) 2. The burden of interest rates and high fixed costs did not allow them to invest in the construction of the second theme park which was supposed to boost the hotel occupancy rates. Some bad press reviews appeared before the opening of the park did not help too as some French intellectuals protested against the American culture invasion. According to Walt Street Journal, at one of the press conferences held before the park's opening some protestors greeted Walt Disney Chairman Mr. Michael Eisner with rotten eggs. During the opening festivities a rail strike interrupted connection from Paris for last April's, while a small band of pickets called Mickey Mouse a greedy rat. Later, some French farmers gathered at Euro Disney's doorstep to protest against the General Agreement on Tariffs and Trade. What was initially seen as a small group of protest, contributed to the bad image of Euro Disney in the eyes of French public: as a result, many people were almost 2 Entertainment: American Quits Chairman Post At Euro Disney, by D.J. Jefferson and B.Coleman, Wall Street Journal, Copyright SDA Bocconi

4 ashamed to confess that they worked for Euro Disney or that they actually brought their children to the park. Park restaurants did not account for Europeans eating habits. For instance, it was assumed that European did not eat that much of breakfast (the famous notion continental breakfast played a bad joke in the planning phase) and therefore hotels were forced to serve breakfast in small unsuitable halls, which huge lines of guest who surprisingly did not want just coffee and croissant, but also bacon and eggs. Another mistake was the rule that forbade alcohol in the park was taken really badly by French parents, who had a daily habit of having a glass of wine for lunch. The food portions were relatively large, as the management assumed that Europeans who don t eat much snacks between the meals, would be eager to have larger portions of food during lunch. Walter Meyer, executive chef for menu development at Euro Disneyland, interviewed during the opening days, said: A few things we did need to change, but most of the time people kept telling us: Do your own thing. Do what's American. 3 Another challenge was inflexible French labour legislation regarding hiring and firing policies and working hours. The company struggled to find the right balance of the employees as a number of visitors in high season could have been ten times the number of visitors in a low day. However, Euro Disney management met resistance also in such unexpected areas as its employees appearance as it issued precise instructions on acceptable clothing, hair styles, personal hygiene code and jewellery as part of the company s terms of employment (making the violation of those instructions a case for firing) which instantly caused a wave of protest in press about American insensitivity toward French individualism, culture and privacy. For instance, the rules required men's hair to be cut above the collar and ears, with no beards or moustaches were allowed, whereas all tattoos must be covered and women s makeup was limited to mascara (false eyelashes, eyeliner, eyebrow pencil and fingernails worn over the ends of the fingers were forbidden). Employees were supposed to keep their hair in one "natural colour". As for jewellery, women were supposed to wear only one earring in each ear, with the earring's diameter no more than 2 centimetres, and neither men nor women were allowed to have more than one ring on each hand 4. French labour unions organized huge protest, talking and distributing information leaflets to thousands of potential employees of Euro Disney. Later after the park opening a French Government labour inspector filed a formal complaint. 3 Disney Magic Spreads across the Atlantic; Popular U.S. Theme Park Prepares for Opening of Euro Disney Resort near Paris in April '92, Nation's Restaurant News, by J. Hayes, A Disney Dress Code Chafes in the Land of Haute Couture, The New York Times, Copyright SDA Bocconi

5 After of first years of heavy losses the Walt Disney Co. management quickly realised that some adjustments to the business model were badly needed by the European branch of the company. In order to account for the local business context, the management of Disneyland Paris (a new name to Euro Disney which some potential guests found a bit confusing as it lacked the indication to the entertainment park and to its closeness to Paris) was given more authority. Some decisions were decentralized and a new French manager was appointed to run the park. The company also has opened representative offices in London, Amsterdam, Frankfort, Milan and Madrid to made local advertising more efficient, to promote the park and to act as an intermediary for travel agents. Entrance fees, hotel rates and food prices were reduced to make the park more attractive. To fight the seasonality, in the winter of 1995 a child could get in free with an adult who bought a package including a stay in one of the park's seven hotels. Air France also offered free transportation for children traveling with their parents from major cities in France, Spain, Italy, Switzerland, Austria, Germany, the Netherlands, the United Kingdom and Portugal. The park management also hoped in troops of British families to be brought by the freshly built Eurotunnel. In early 1995 the outlooks for the park looked more optimistic, also due to higher occupancy rates, which went up to 60% in 1994 from up from 55% in Sources: The Walt Disney Company annual reports Mouse Trap: Fans Like Euro Disney But Its Parent's Goofs Weigh the Park Down, by P. Gumbel and R. Turner, The Wall Street Journal, Entertainment: American Quits Chairman Post At Euro Disney, by D.J. Jefferson and B.Coleman, Wall Street Journal, Disney Magic Spreads across the Atlantic; Popular U.S. Theme Park Prepares for Opening of Euro Disney Resort near Paris in April '92, Nation's Restaurant News, by J. Hayes, A Disney Dress Code Chafes in the Land of Haute Couture, The New York Times, Disneyland Paris nears stability, A.Walker, Hotel & Motel Management, , Vol. 210, Issue 6 Disneyland Paris. The first 2000 days, case study prepared by K.Hitrova and L.M.Huete, IESE, EuroDisneyland, case study prepared by T.M.Spyridakis, J.S.Black. H.Gregersen, S.Krishna, Thunderbird, The American Graduate School of International Management, 5 Disneyland Paris nears stability, A.Walker, Hotel & Motel Management, , Vol. 210, Issue 6 Copyright SDA Bocconi