How successful is Club Med at the time of the case?
Club Med is responsible for the concept of the "all-inclusive" vacation, in which tourists pay a set price for a package that includes airfare, a hotel room, meals, entertainment, and sports. All-inclusive vacations really caught on among singles during the '70s and helped make Club Med the world's dominant resort in the category.
In 1986, most of the all-inclusive competitors had adopted Club Med's style of recreational activities with staff members acting as directors of these organized games. By then, the only major difference that Club Med maintained was the fact that their price did not include drinks. In Jamaica in the late '70s, executives founded the chain that would evolve into SuperClubs. They began by targeting Club Med's weaknesses, rooms too Spartan, the price didn't include liquor, and the fact that some people found activities too regimented and the mealtimes inflexible. So the new resorts offered better rooms, included drinks, and gave guests more flexibility. Soon other all-inclusive were sprouting around the Caribbean. The chain that became Sandals launched in 1981.
Club Med built a healthy business in the '60s and '70s catering to singles. Then it went after families. But it got in trouble with the Baby Boomers, who wanted more luxuries than Club Med offered. Club Med is at risk of being overtaken by competitors more in tune with the market. That includes other all-inclusive resorts and cruise lines, which offer one-price packages with an ever-increasing array of amenities.
By the '80s, vacationers seeking an all-inclusive vacation had a lot of other options. Companies like SuperClubs rolled out resorts that beat Club Med's pricing and better targeted specific slices of the traveling public, like singles, couples, or families. Other firms created more upscale resorts, like the couples-only Sandals chain.
There is no doubt that Club Med's performance decreased from 1985 to 1986. While the total capacity increased from 11,052 beds to 12,384, its total occupancy decreased from 52.9% to 47.3%. Moreover, Net Income/Sales decreased from 5.6% in 1985 to 5.3% in 1986.