Club Med Case

Assess the Strategic Health of Club Med: How is the company performing? State Clearly whether you would recommend investing in this company and why or why not.

Club Med's results over the last 5 years (1981-1986) are very satisfying and show high increase in sales as well as profitability (Exhibit 3: 11.6% ROI). Revenues have increased by 157$/unit, Net Income has increased by 10.1 M$, yearly occupancy remains high throughout the world, except for Asia where it went from 65.5% in 1984 to 47.3% in 1986 (this may be due to the 750 beds that we're added during that time frame). Finally, the number of guests has doubled while the Sales/Guest ratio has remained stable (Exhibit 2). All signs of good health.

The company's position in the industry is strong. Its prices are lower than competitors', it has a strong bargaining position with its suppliers (e.g. Commercial airlines offering volume discounts) as well as a strong position with respect to buyers who can't find such complete packages at similar prices through other vacation options. In addition, with 35 000 GO application in 1984, Club Med's popularity offers them considerable leverage with labor.

However, a very high staff turnover (46% for newly recruited American GOs in their first season and 27.6 overall) needs to be examined. There is certainly a financial impact to a high rate of turnover. The cost of attracting, recruiting and training new GOs can be significant over time. What's more, Club Med's business and environment is unique, one that requires employees who can relate and adapt to the somewhat restrictive lifestyle. Turnover requires GOs to constantly adjust to new surroundings, hindering their ability to create memorable experiences for GMs. Employees should be used to gain a competitive advantage over competitors, which is something rare and hard to duplicate. High turnover can set a negative image of the organization, and may turn future potential employees away.

Club Med's distribution network is solid. "Bundled" packages (vacation package + air transportation) are sold either directly to consumers through the reservation center and numerous "vacation stores", or through travel agents. In order to deal with a fast-changing distribution network, Club Med did the right move by increasing loyalty of top travel agencies thorough education programs, membership titles ("Club Med Experts"), tied promotions, informational seminars and travel-agent schools creation.

In 1986 however, competition started increasing at an "alarming rate" and Club Med started losing its image of uniqueness. Two main competitors are located in Jamaica where Club Med doesn't have resorts. They offer unlimited alcoholic drinks as part of the package and claim to offer better quality and "first-class hotel amenities" that are rarely found at all-inclusive resorts. At Superclubs,