Gamal Aziz clearly understands opportunity costs and the cognitive error of anchoring. How a Vegas hotel went from good to grand describes how and why he ripped out hundreds of millions of dollars’ worth of the MGM Grand’s most profitable assets:
Aziz’s secret is a counterintuitive management practice — nicknamed “working backward” — that he invented on his arrival at the Grand. The strategy calculates the maximum revenue that each business or space could generate in a perfect world — that is, if every customer spent the most the market could bear and if traffic reached its physical limits.Aziz then subtracts actual sales from that hypothetical number and calls the difference a loss, even if the venue is making money. His formula for closing the gap usually starts with a jackhammer.
That’s 180 degrees from the way most U.S. companies do things, which is to benchmark based on existing sales: Microsoft, for instance, is aiming for 12 to 14 percent growth next year on about $44 billion in revenue.
The specifics:
He set out to turn the Grand’s venues into attractions rather than just functional outlets. His first target was Gatsby’s, a restaurant with blue couches, a grand piano, and $2.1 million in annual sales. MGM’s board didn’t want Aziz to touch it — that is, until he showed them a projection that Gatsby’s was “losing” $3 million a year in revenue.Aziz recruited chef Michael Mina, whom he’d brought to the Bellagio, to helm a new restaurant dubbed Nobhill. With Mina’s name attached, Nobhill drew more customers, including Bill Clinton and Tiger Woods, paying higher prices. In 2005 the restaurant pulled in $6.5 million in sales, almost a third more than Aziz’s projection.
Next, Aziz aimed his wrecking ball at the hotel’s 29th-floor penthouse, where most of the luxury rooms were given away free to high rollers. The hotel’s operations manager figured that, in theory, the rooms could command an average of $1,000 a night. To Aziz, that meant the Grand was squandering $1 million a month in potential revenue.
But rather than ask high-net-worth gamblers to pay full retail, Aziz decided to target conventioneers: When a company booked a block of rooms, its C-level executives could stay in the penthouse suites. Last year Aziz converted the floor into a chic hotel-within-a-hotel dubbed Skylofts, pushing the occupancy rate up from 50 percent to 74 percent. Revenue, meanwhile, is up 90 percent.