January 2019

Consolidation, Round Two: Threats and Opportunities

Thoughts on consolidation.

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More than 20 years ago, the first great round of resort consolidation swept through the ski world. Vail Resorts, American Skiing Company, Intrawest, Booth Creek, Powdr, and Boyne USA were the big players. They were driven by thoughts of “synergies” and by real estate sales that funded high-speed lifts, snowmaking, and other amenities.

The questions then were similar to those being asked today, as a second wave of consolidation builds: Would the conglomerates succeed? Would they harm the independent resorts? Would they help grow the overall market?

On balance, though, the mood was cautiously optimistic: the conglomerates might thrive, but they would not pose a real threat to well-run independent resorts, and might actually help raise awareness of and promote skiing and riding overall, as ASC founder Les Otten suggested back in 1996: “Big players are going to re-energize the sport. They are fevering it up.”

jan19 news and views 01SAM Magazine cover from November 1996 with a "Focus on Consolidation." CLICK THE IMAGE TO READ THE 1996 CONSOLIDATION ARTICLES.SAM publisher David Rowan spoke for many when he outlined a rosy future for independent resorts: “Would logic suggest that the nimble and alert could have a brighter array of opportunities? These new giant players would have an ever-greater need to keep the pipeline of participant winter sports enthusiasts full, and ski areas offering convenient, attractively priced, basic snow-sliding fun should be able to thrive.”

Many echo that same sentiment today. But the two eras have more differences than similarities, as we discovered when we talked with industry leaders who have lived through both—including several SAM interviewed 22 years ago, for an issue devoted to consolidation.

WHAT THEY SAID THEN

Given the nature of the industry, most felt synergy was not likely. Several questioned the conglomerates’ goal of sharing visits among various resorts in a portfolio, both local/regional and destination. Here’s a sample of their thinking, and where they were, c. 1996:


Vern Greco, President and CEO, Purgatory, Colo.: “Achieving synergy requires not just good market segmentation, but great market segmentation. That’s really what market synergy is—great market segmentation.”


Tim Cohee, CEO, Kirkwood, Calif.: “If you’re not one of those guys (part of a conglomerate) and you don’t have a real point of difference, you’ve got to be a little worried.”


Dick Kun, Founder and President, Snow Summit, Calif.: “One thing that’s been under-appreciated in the ski industry is how difficult it will be for a central headquarters of a conglomerate to operate all these unique little subsidiaries. ... By nature, ski areas don’t lend themselves to management from afar.”

(Kun had already gone toe to toe with many big players by 1996, and proved that independent areas could compete.) “We’re a better, stronger company by far than we were 10 years ago when S-K-I first came in,” he said. “It was a classic example of competition making you better.”


Dennis Eshbaugh, President, Holiday Valley, N.Y.: “Unlike manufacturing, where you can consolidate operations and eliminate duplication and actually cut costs because of it, you can’t consolidate that many operations in the ski business. ... You can get some synergy on the management side, the sharing of ideas and leadership and so forth. But we’ve worked very hard on that across the entire industry, including the independents.”


David Crowley, Owner, Wachusett Mountain, Mass.: “Maybe I’m missing something, but if I’m a Mount Snow skier and own a house there and my son’s in the racing program there, why would I want to ski Sunday River? We’ve always been taught to promote loyalty in ski area marketing, why my ski area is best.”


Bill Stenger, CEO, Jay Peak, Vt.: “We need to get skiers who ski four or five times a year to ski nine or 10 times. A good ski experience is what makes people do that. These [conglomerates] are going to improve their product and service. ... with better products our customers are happier, and happy customers come back more often.”

FAST FORWARD TO 2018

We know what happened to those 1990s conglomerates: heavily leveraged real estate development and resort purchases sunk ASC, and eventually handcuffed Intrawest and Booth Creek. Vail Resorts, though, hit upon a winning formula: accumulate top-drawer resorts and aggressively market season’s passes valid across all of them.

Technology has changed the game, too. The information revolution has given resorts the ability to segment the market, and their audience, to very profitable effect. That has made those elusive 1990s “synergies” quite achievable.

So once again, we interviewed a variety of experts and leaders and asked, will history repeat itself? Will the conglomerates succeed? What is the effect of the mega passes? Will they harm or help independents? Here’s what we heard.


Chris MacInnes, President, Crystal Mountain, Mich.: “There are many differences from then to now: The ability to capture, aggregate, and use big data to drive sales based on market intelligence, and communications individualized to enhance effectiveness of messaging, including social media. And the generational shift from Boomers to cash-strapped Millennials. That’s a new threat.

“I think mega passes are a strategic advantage, and Vail’s acquisition of ‘urban resorts’ (Detroit, Minneapolis, Chicago, etc.) is brilliant. Their urban customers are prime prospects for mountain resort vacations, and, properly operated, a high-volume day ski area, with access to millions of people nearby, can be quite profitable. So, these acquisitions are two-fers, with positive NOI and access to customers that are likely to take a ski vacation.

“But we also believe that there is demand for more frequent, ‘on-mountain’ experiences close to home, and we work hard to make this an exceptional experience. Skiing can be part of a lifestyle, which makes it more than just an annual mountain vacation.

“Passes benefit us, too. Advance purchase lift ticket revenue, whether a bulk sale (pass) or single/multi-day tickets, rental and lessons are a HUGE advantage, helping us mitigate weather risk by collecting 50 to 60 percent of these margin-critical sales. It locks customers into a mindset of getting the most for their snowsports investment versus questioning whether or not to ski. With the purchase of a season pass comes an emotional attachment to place.”


Tim Cohee, Managing Partner and CEO, China Peak, Calif.:
“Season passes have become incredibly good deals. You can now buy a season pass and have access to 15+ top resorts for less money than it cost for one resort 10 years ago. The sheer thought of going to some of the resorts that are not typically on your schedule is enough to push the sale.

“But this hasn’t changed where people ski, just that they bought passes instead of lift tickets because of the value of the pass. I’d be very surprised to learn very many people bought a pass that did not include their home resort. As was said in the articles from years ago, people have loyalties, homes, friends, etc.

“I agree with Dick Kun’s comments from decades ago. I don’t see any advantage at all with the marketing—ski resorts are very unique, and I don’t think Vail has changed how people think about their resorts.”


Dennis Eshbaugh, President, Holiday Valley, N.Y.: “It is an instinct to be afraid of the unknown. Twenty-two years ago we were afraid of the conglomerates’ buying, operational, marketing, and deal making synergy. Most of those didn’t pan out to be threats to the independent operator. Today we’re afraid of consolidated or mega passes and their potential to erode sales from the independent operator.”


Bill Stenger, former President and CEO, Jay Peak, Vt.: “The most recent wave of consolidations and the common thread of very affordable season pass offerings is a welcome opportunity for the group of Americans that call themselves skiers or riders. I commend the improved affordability that these mega passes have brought to the sport. But the growth and long term financial success will only come and stay if we as an industry recommit ourselves to entry-level growth.”


Win Smith, President, Sugarbush, Vt.: “Over the years, I have witnessed a number of industries that went through consolidation. ... [Almost all] were very poor fits culturally, and the acquirers did not really understand the business they had purchased. They soon all divested of them.

“This time I believe it will be different. Vail is a well-managed company with a solid strategy, and they have been methodically implementing it.

“So can smaller, independently owned resorts compete against the giants in the industry and have a sustainable future? I think the answer is a resounding “yes.” However, to be sustainable, the independents must know who their market is, understand their guests well, and cater to the strengths of their resorts.

“Importantly, independents will need to be sufficiently profitable to continue making the necessary capital improvements to remain competitive, and they need to be properly capitalized. Independents also have the advantage of being creative and nimble and to be more directly involved with their guests and their communities. They also can retain their own unique brands. These are strengths that can give them a competitive advantage if implemented well.”


David Crowley, Owner, Wachusett Mountain, Mass.: “I am not a believer that the smaller resorts without a unique selling opportunity will survive this most recent roll up of resorts.”

Tom Lithgow, Industry Consultant, former VP, CNL Lifestyle Properties: “Access to capital, especially as the lift-infrastructure matter marches forward, will do far more to threaten the indies than mega-passes.

“In the consolidation of the 1990s, there was considerable doubt and debate that ownership/operational economies would create added value. Today, with technology and experience, there’s measurable economy and value added. Capitalizing on centralized overhead, purchasing, IT, finance, accounting, human capital, marketing, insurance, risk management, etc., is much more achievable now than it was 20 years ago.”


GROWTH: IT’S NOW JOB #1

Another difference: there is a much greater concern over the industry’s growth, or lack of it, than there was in the mid-1990s. Not that resorts ignored growth then; in fact, the last broad national marketing effort, Ski It To Believe It, was launched in the early ’90s. But there’s an urgency today that was lacking then. Again, here’s what industry leaders are saying:

Tim Cohee: “I spend most of my time today thinking about market growth, not market share.

“Here’s a question. Who’s left to buy lift tickets? 1) New skiers. 2) Infrequents. They don’t ski enough to justify a pass even though they know [the passes are] great, and pay the high prices because they don’t go enough to worry about it. 3) People who buy 3-4 pack tickets, in between the window price and the pass.”

Dennis Eshbaugh: “In order for mega passes to be good for the industry as a whole, we need to collectively increase our skier visits—which have been flat for well over 10 years. Geographic consolidation of the industry and reducing the number of access points close to metropolitan populations is a concern. The increasing urbanization of America and the contraction of viable ski centers are not an ideal combination for growing our industry.

“The conglomerates have great capability in both marketing and technical resources to communicate with their current customers, but will they be able to reach and convert new skiers? Should we be more afraid of consolidation, or attrition?”

Tom Lithgow: “If the goal is to grow participation, I’m skeptical that the elite, mega-pass products will contribute materially to that end. It’s more likely that the younger skiing generations stay on the path of ‘a la carte’ visitation, regionally seeking the best drive-to deals.”

David Crowley: “The biggest concern is that a season pass is the only way a new skier can reasonably afford to ski. The single-day skier has been completely removed from any consideration in this most recent consolidation. And it’s not a great solution for trial—$150 for a day of skiing is a little punitive for a person not committed to our sport.”

Chris MacInnes: “By driving the window rate up to make the case for an advance purchase, are we losing the least-engaged guest, who shows up primarily on peak days and pays the most (and must buy everything)? Is the high cost of admission choking out an important segment? Is our drive to create value in the short term reducing recruitment and future conversion?”

Bill Stenger: “There are probably 30 to 40 million Americans who could, if they want, choose skiing as their winter recreational choice. Why don’t they? No one is inviting them.

“It will be up to the 300-plus local and regional breeder areas to do most of the heavy lifting to getting first timers on the hill. The big consolidators must reach out and help tap some of that 30 million potential skier pool who have not been effectively invited or welcomed.

“These ideas are not new. But they are nonetheless true.

“Consolidation has brought about certain positive things such as more affordability in season passes for our avid skiers and riders, but the industry will flounder along if it ignores the entry-level pick and shovel work that needs to be done at the local and regional level.”

JOIN THE DISCUSSION. COMMENT BELOW OR EMAIL OLIVIA@SAMINFO.COM.

More on this topic from John Fry in the current issue Skiing History magazine.