Just over a year ago, the members of the Eastern Band of Cherokee Indians voted to allow alcohol sales at Harrah’s Cherokee Casino and Hotel while the rest of the reservation would remain dry.
The controversial ballot measure pitted economic development proponents who saw alcohol sales as a necessary step in developing a world-class resort against opponents with moral qualms about alcohol, believing it would lead to social ills.
While the social impacts of alcohol sales at the casino are impossible to quantify, the effect on the casino’s bottom line has been instantaneous.
Meanwhile, Harrah’s Cherokee is in the midst of a massive $600 million expansion project that aims to position its brand as an international resort destination.
For general manager Darold Londo, the business’s aspirations made the addition of alcohol sales almost a requirement.
“We never really would have gotten to a resort definition without certain amenities,” said Londo. “Although it’s arguable whether alcohol was totally necessary, it’s brought us in line with our competitors.”
Londo also said the fears of alcohol opponents haven’t come to fruition.
“It has not created the problems that were anticipated by some tribal members,” Londo said.
To Jessica Nifong, 23, a tourist who stopped in to the casino while visiting Cherokee last week, alcohol is indeed necessary.
“I expect it. I think it’s part of the environment because it helps people relax,” said Nifong, who is from Winston-Salem. “I just assumed it would be there.”
So far this year Harrah’s Cherokee has recorded $1.3 million in alcohol sales, serving nearly 200,000 drinks to around 15 percent of its guests. The casino’s management estimates that guests who consume alcohol have contributed $5 to $10 million in gaming revenue during the same period.
The sale of alcohol has provided a quick revenue boost and evened the playing field, but it hasn’t brought in as much money as the management predicted.
Rolling out in a harsh environment
“The alcohol sales have been less than expected, and there are a number of reasons,” said Norma Moss, an enrolled member of the tribe who served for 10 years on the Tribal Casino Gaming board and recently took on the role of assistant general manager of resort operations.
Moss, who pushed hard for the ballot measure, said the casino’s slower-than-expected alcohol sales have to be seen in relation to what’s happening at all casinos around the country. The casino business is down like many other sectors of the economy, and alcohol sales in particular have dropped off.
Londo said that has to do with the consumer mentality.
“People out there, including me, aren’t buying that second glass of wine or that extra dessert,” Londo said.
Also, Harrah’s Cherokee spent 13 years attracting customers who didn’t need alcohol.
“By definition, we were serving a customer base for whom alcohol wasn’t a requirement,” Londo said.
Lastly, the rollout of alcohol sales has been gradually phased in, and it’s still not fully integrated into the business model.
At first, the casino introduced only beer and wine sales and only at its restaurants in October 2009. Beer and wine made it to the casino floor in December.
Liquor became an option in January, but mixed drinks didn’t really hit the floor until May of this year when the first bona fide bar opened.
In July, an entertainment lounge with a full bar, televisions and a stage came online. The lounge offers patrons the first environment designed with alcohol consumption in mind, a place you can listen to music or watch football only 20 feet from the gaming floor.
Roger Clarke, 74, of Ft. Myers, Fla., was shopping in downtown Cherokee last week. He’d been to the casino the night before and appreciated the new bar.
“I prefer having the option myself,” Clarke said.
At the same time, the gaming floor and casino entrance have been totally renovated. The new design scheme feels clean and modern.
Moss said the new HVAC system could handle the 100 percent transfer of circulated air, which means that even when people are smoking right next to you, you can still breathe.
In the meantime the gaming floor went from 3,400 games to 4,700 — 160 of the new additions are table-based.
Londo wants to see all of the casino’s features operating before he guesses at the impact of alcohol revenue on the business model.
“The whole process is still in its infancy. It’s still developing, but for the customer’s, there’s the impression of a full-service alcohol environment,” Londo said.
Gamers and walk-ins
The casino business serves two distinct client segments, casual walk-ins that form the retail customer market and loyal “gamers” who spend their money playing the odds.
According to Londo, the recession has cut deepest into the number of retail visitors the casino gets, but “gamers” are the ones who tend to drink, according to industry stats.
“It’s not 20-year-olds or 30-year-olds or 60-year-olds who drink,” Londo said. “It’s not females or Asians or anything else. But if you’re looking at gamers, they tend to be more likely to consume alcohol.”
The recession has unsettled gamers as a group too, because they were used to amenities like free drinks on the floor as long as they were gambling.
Londo said the Harrah’s Cherokee model didn’t support alcohol as a freebie.
“Some gaming customers have been used to getting the product free or at cost, and it was incumbent on us to introduce the product at closer to market price,” Londo said.
He believes the shift away from free drinks and food may be a broader paradigm in the industry.
Londo, sees alcohol sales as a defensive measure that will help the business hold its ground as the recession grinds on.
“It gives us a hook or a stickiness that from a defensive standpoint has allowed us to hold customers or keep customers,” Londo said. “It’s hard to quantify that because year after over year, organically, all businesses are off, including us.”
While revenue is up at the casino compared to last year, it is still down compared to pre-recession levels. Tribal members who supported alcohol sales hoped the new revenue stream would offset losses stemming from the recession.
Fifty percent of the casino’s profits go back to the tribe’s membership in the form of per capita payments. After years of growth, per capita payments dropped 11 percent in late 2008, and proponents of alcohol sales were hoping alcohol sales at the casino would help reverse that trend.
Creating a new brand
“If you look at Harrah’s casinos east of the Mississippi, the properties that continue to update and invest in the future seem to be holding up better than their peers to weather the storm and position themselves,” Londo said.
According to Londo, the Harrah’s operations in Hammond, Ind. and Atlantic City, N.J., have out-performed their peers, precisely because they’re still trying to grow at a time while industry giants like Mohegan Sun, the nation’s second largest casino, are still off.
Harrah’s Cherokee Casino and Hotel planned its expansion before the recession hit, but it began in earnest last year. By January 2011 the resort will boast the largest hotel in the state, 21 stories offering 1,108 rooms, 68 suites and 8 premium suites.
Moss called the new hotel tower, which sits in a valley surrounded by high peaks, the “miracle in the mountains” during its topping off ceremony in April.
In addition to the hotel, the newly constructed 3,000-seat concert venue opening Labor Day weekend will bring in acts like Hank Williams Jr. and Crosby, Stills and Nash. A 16,000-square foot spa will be the last element in the expansion to open in 2012.
The new amenities are all designed to create a resort feel for patrons. Cherokee already boasts a championship golf course and trophy fly-fishing water.
Londo said by expanding and including alcohol, the casino has been able to pursue branding partnerships with Paula Deen’s Kitchen and Ruth’s Chris Steakhouse.
Londo said so far, it’s been hard to track the impact of alcohol sales separate from the other pieces of the expansion on the business.
“It’s hard to say this one area is responsible. They’ve all helped us improve the package,” Londo said. “If it was an excuse not to come before, we’ve satisfied that.”
The customers’ experience
“The bottom line is customers expect to have alcohol in a casino environment, and it’s gratifying to know we can offer it,” Moss said.
But after more than a decade operating without alcohol, Harrah’s Cherokee has had to implement a whole new business model in the midst of a recession. If the climate wasn’t ideal, at least the expansion afforded the opportunity to create a building with the distribution and delivery in mind.
“The property was never set up to accommodate alcohol from the distribution standpoint so all of that had to happen, and it was timely because we were in the midst of an expansion anyway,” Londo said.
Now everything from distribution loading docks to plumbing to multi-game consoles in the bars make it possible to keep the drinks flowing. Londo said because most Harrah’s casinos have alcohol, the model was already there.
“The processes, the procedures and the know-how to implement it in the business model were readily available to us,” Londo said. “It has its uniqueness, but it’s not as challenging as you might think.”
One of the most unique elements of the business model is that it took a referendum of a sovereign nation to get the green light.
“The message of the referendum was that the membership wanted it and they believed it was necessary to the casino’s success,” Moss said.
Londo is less worried about alcohol sales than with how the overall economy is looking. He said there could be worse things than running a casino in a mountain valley situated between Charlotte and Atlanta.
“You take the good with the bad,” Londo said “There’s not a more beautiful place to operate a casino.”