Coral Divers Resort Case Analysis
Coral Divers Resort Case Analysis
Strategic Recommendation: What do you advise Coral Divers to do? Core divers Resort (CDR) should focus on making their current business operation more efficient by keeping an eye on operating costs and partnering with adventure resorts for customers who wants adventure diving. The company financials cannot support any expansion for family oriented resort with the company being over leveraged with little cash and liquidity. Secondly, this strategy has ease of implementation and provides a profit increase of 10% with little capital expenditure
Also, Greywell has built a lifestyle around the Coral Divers Resort business and enjoys it with his family. Selling the resort with his little equity in the business will not provide enough money for him to start a new business in another location. Focusing on being more efficient is more profitable for the company as the industry is in its maturity phase with stiffer competition and readily available substitutes.
What do you think Coral Divers would like to accomplish over the next 5 years? Coral Divers is experiencing declining revenues and unprofitability for the past three years. Other resorts that have been able to specialize in certain segments of the diving industry, Coral Divers have been unable to distinguish themselves from other resorts. Coral Divers Resort (CDR) is looking to differentiate itself from other resorts in the New Providence, Bahamas region. The company is looking for opportunities in the diving industry to find a unique niche and gain a competitive edge that will lead to an increase its revenues.
The resort has a beachfront location, the rich resource of the ocean is within close proximity and have developed a good reputation as a quiet and safe resort which appeals to vacationers looking to get away from busy tourist resort hotels. The diving instructors in the resort are certified by PADI and NAUI.
It is a family- run one-service business that is inefficiently operated. It is heavily leveraged making it difficult to get funding for further expansion while facing stiff competition.
There are opportunities in the diving industry to find a unique niche market (adventure diving, family oriented resort) for Coral Divers and gain a competitive edge that will lead to an increase in its revenues like providing additional service to customers eg picking and taking clients to the airport and other educational services about scuba diving which requires less capital expenditure.
The bleaching impact of climate change on coral reefs makes them to lose their beauty, making diving less attractive for divers. The recent surge in airfares and the changing demographics are potential could reduce the customer base of diving resorts.
The current ratio of CDR shows that the company is not able to service its current obligations. The resort’s short –term assets cannot cover its current obligations of $88,476. However quick ratio value of CDR will provide a clearer indication of the company’s liquidity and success in meeting its obligations.
CDR quick ration of 0.1875 suggests that the company has a very low ability to service its maturing short- term obligations. This ratio is a more reliable variation of the current ratio because inventory, prepaid expenses, and other less liquid current assets are removed from the calculation. In other words, it shows how CDR can quickly convert its assets to cash without a loss in value if necessary to meet its short-term obligations? The resort’s low quick ratio makes it difficult for the resort to meet creditors requirement and obtain further funds for future business expansion since they operate a business that does not provide a steady and predictable cash flow. Favorable liquidity ratios are critical to creditors within the resort’s industry.
Return on Assets
The negative return on CDR’s asset shows that the company’s asset is not used effectively to generate profit and shows the business is not profitable. However, the assets in the resort are highly depreciated which is unusual and it is affecting the return on assets. CDR should reduce its depreciation expense since the resort is not fully booked in the low rental seasons of the year. The resort’s return on assets of -5.75% indicates there is a need for improvement in this area to ensure the company can remain competitive and continue to operate successfully.
Return on Equity
The percent rate of return on equity for Coral Divers Resort is -87.04%, which indicates that there is absolutely no profits earned based on the owner’s investment in the resort and it would be harder getting a positive return when extra capital is added to the resort.
Debt to Total Assets
CDR debt to asset ratio of 0.934 indicates that the company can barely meet its long-term obligations, remain solvent, and avoid bankruptcy. This shows that the company can barely withstand more losses without harming creditor interests making it really difficult to obtain additional financing for expansion.
Debt to Equity
The debt to equity ratio for CDR is 14.12 show which that the company is heavily leveraged and that most assets the resort has is financed by debt. This creates issues around controlling stake in the company when more debt is added to the company.
On what basis do customers choose Coral Divers or competitors? Scuba diving trips to Bahamas tend to be luxury items and therefore it is more likely people would travel during good economic conditions, the amounts of disposable income people have and the weather condition.
Are the driving forces causing demand for this service likely to increase or decrease? The driving forces are likely to increase in the future, there has been increase in the population of scuba divers in the last 20 years and the economy is recovering from the last meltdown.
Are the driving forces acting to make competition more or less intense? The driving forces are making competition more intense. There are 26 officials diving operators in Bahamas with different program offerings. Most of the resorts are well known for their high quality services and the brand awareness and recognition is present between the groups of tourists who choose to dive in the Bahamas. The capacity and additional services offered by the hotels for additional revenues makes the competition even harder.
Will the driving forces lead to higher or lower industry profitability? The driving forces has the potential of leading to greater industry profitability due to the increase in the number of active high paying divers.
Does this industry offer good prospects for attractive profits? The profits of the industry is limited, there is higher competition, and the scuba diving industry entering into the maturity phase. Although there is some industry growth, the current marketing appeal of a diving resort is facing high competitions from other leisure alternatives.
Sustainable Competitive Advantage Tests:
Does this business have a resource that is valuable/rare?
The resort has a beachfront location, the rich resource of the ocean that is within close proximity and have developed a good reputation as a quiet and safe resort which appeals to vacationers looking to get away from busy tourist resort hotels. The diving instructors in the resort are certified by PADI and NAUI.
Is the resource competitively superior?
The resource of Coral Divers is not competitively superior when compared to its competition.
Do they have a resource that is hard to copy?
Coral Divers resource is easy to copy as anybody with a nice location, boats and the necessary certification from PADI can start a resort.
Can the resource be made obsolete by the different capabilities of competitors? With the emergence of different types of diving, CDR’s resource is been made obsolete due to non-distinguishing brand, adventure diving and family oriented resorts
Is the firm organized to exploit its valuable, rare, costly to imitate resource? Coral Divers has failed to exploit its resource due to increasing cost, negative return on equity and three years of loss
Do you think this company has a sustainable competitive advantage? The company does not have a sustainable competitive advantage and would face stiffer competition in the future. Other resorts that have been able to specialize in certain segments of the diving industry (adventure diving, family resort) and have been successful over the past years as the industry continue to grow.
How intense is the rivalry of existing competitors for consumer dollars? The rivalry is really intense; the additional services offered by the hotels for additional revenues makes the competition even harder.
How likely/easy would it be for new competitors to enter this market? Anybody with a nice location, and the necessary certification from PADI can start a leisure resort.
Do customers have a lot of competitors to choose from or very few? There are 26 officials diving operators in Bahamas with different program offerings. Most of the resorts are well known for their high quality services and the brand awareness and recognition is present between the groups of tourists
Are there any firms in other industries offering suitable substitutes? There are several firms and industries offering substitute e.g. movie, sports, game etc.
Porter Five Forces Analysis
The supplier power is minimal, the business is service based and is vertically integrated.
Degree of Rivalry
There is high degree of rivalry and cost of competition in the diving industry leading to lower profitability
Buyer power is high, there is low cost in comparing price and services of resorts. Service and amenities provision to customers is really important.
Threats Of Substitutes
There are several substitutes ranging vacation elsewhere to other leisure activities like sports, golfing, boating, skiing and other technology products e.g. video games, and movies.
Threat Of New Entrants
Although it is easy to open a resort, there is medium threat of new entrants due to high competition and the industry being in maturity phase.