HRC_background.doc

Additional case study materials for HRCCASE STUDY 1Reference:Shankar, Ajith R N (2005). “Isaac Tigrett: A Maverick Entrepreneur.” ICFAI Center for Management Research, Hyderabad, IndiaExcerptsOn June 14, 1971 Isaac Tigrett (Tigrett), and Peter Morton (Morton), started the first Hard Rock Cafe (HRC) restaurant in Londons fashionable Mayfair district. The restaurant combined rock music, memorabiliay related to rock n roll and American cuisine. The cafe-music-museum concept became very popular and soon the restaurant opened units in different parts of the globe. HRC was the first theme restaurant chain in the world. In 1988, Tigrett exited from the HRC venture and in 1992 started the House of Blues Entertainment Inc. (HOB). This was a company engage in the dining and entertainment business. HOB, which started its operations on Thanksgiving Day by feeding the homeless, encouraged racial and spiritual harmony, and brought the neglected Blues culture into the mainstream. Differences of opinion among Tigrett and the other HOB board members over operations resulted in Tigrett opting out of the venture in 1997.The commojn thread that ran through all Tigrets entrepreneurial ventures was his respect for human values. While Love All, Serve All was the guiding gospel at HRC, it was Help Ever Hurt Never at HOB. Tigretts commitment to upholding human values at the workplace resulted from the influence that his spiritual guide, Sri Sathya Sai Baba, exerted on him. Though many criticized Tigretts entrepreneurial style, even his competitors appreciated the way he introduced spirituality into the workplace. (page 2.) HARD ROCK CAFIn the 1960s, there was a deep divide among the social classes in England. The various socialclasses had their own clubs, pubs, etc. There was no place in London where people from different classes could meet. I wanted to break that system, said Tigrett. He wanted to open a classless restaurant. Tigrett was already toying with the idea of creating a forum where music fans could congregate and spend time together. During this period, Tigrett met a fellow American, Morton, who opened a restaurant in London in 1970 called The Great American Disaster. It sold hamburgers, an American specialty. Seeing the business opportunity that existed in London, the two put in $5000 each as start-up capital for opening HRC. Tigrett used his family connections to get a $60,000 loan from hometown bankers in the US, returned to London, and rented space in the posh Mayfair area. The cult figures of the period were musicians. The HRC, which reflected the American rock music culture of the 1960s, was an immediate hit. Suddenly the Beatles were sitting over there and the Stones were over there I thought Id died and gone to heaven, recalled Tigrctt. The presence of Jimi Hcndrix, Cream, etc. at HRC increased the restaurants popularity. HRC soon became a museum for rock n roll memorabilia. (page 3)Over the years, HRC opened several restaurants around the globe. It also diversified intoclothing. In 1982, Tigrett bought out partner Mortons stake in the London outlet for $800,000. In 1983, Tigrctt sold 25% of HRC to the British public for over $1 million. In 1985, Tigrett and Morton divided the geographical area each would operate on, with Morton retaining the Chicago to Hawaii part of the United States and Australia, and Tigrett having rights over the rest of the world. In 1987, Tigrett sold American Depository Receipts (ADR), representing 23% of the company for $54 million. In 1988, after opening six more HRCs around the world, Tigrett and the foundation he chaired, Rama Foundation, sold their 54% share in the company to Pleasurama for $108 million. Tigrett was virtually exhausted from expanding all over the world and though he found it hard to let go, after contemplation, he decided to sell his share. (page 4)CASE STUDY 2Reference:Venkatesh, T., Gopal, B. and Siddhanta, A. (2009). “Hard Rock Cafe On Sale: Rank To Gamble With Its Future?” IBS Research Center, Andhra Pradesh, India.ExcerptsUnder its Hard Rock division, Rank had 120 signature Hard Rock Cafes, and 6 Hard Rock Hotels and Casinos, in more than 40 countries, and the worlds greatest collection of music memorabilia. In 2005 the companys Gaming division represented over 50% of the Groups operating profit. However, the divisions operating profit decreased by 9.6% to 105.8 million (2004 - 117.0 million) whereas Hard Rock generated the strongest performance with operating profit increasing by 24.7% to 34.8 million (2004 - 27.9 million). Despite this, on July 4th, 2006, Rank announced that it would sell its iconic Hard Rock Cafe chain to concentrate on the gaming business as the British Government was expected to relax the strict gambling laws. (page 1)()Hard RockOn June 14th 2006, Hard Rock Caf International (Hard Rock) celebrated its Founders Day to commemorate the first cafs opening 35 years ago in London. England. Started in 1971, Hard Rock grew over the period into a $400 million entertainment company.Hard Rock Caf (HRC) was a chain of casual dining restaurants. It embodied the spirit of rock music though its signature cafes, hotels and casinos; collectible and fashion merchandize; live concerts and performance venues; and the Hard Rock Records music label. Hard Rocks guiding philosphy was Love All, Serve All. It was adopted from one of its founders guru Sathya Sai Baba.The YesteryearsThe first Hard Rock Caf was opened to the public on June 14, 1971. Founded by Isaac Tigrett and Peter Morton, two enterprising and music-loving Americans, HRC was an instant success.Hard Rocks second location opened in downtown Toronto, Canada, in 1978. In 1982, Hard Rock began its global expansion when Tigrett and Morton agreed to develop their own Hard Rock Cafes in various parts of the globe. Morton opened HRCs in Los Angeles, San Francisco, Chicago and Houston. Tigrett opened in New York, Dallas, Boston, Washington D.C., Orlando, Paris and Berlin, eventually selling his interest to Mecca Leisure. In the 1980s Hard Rock became very popular. It became a common hobby for people to visit as many locations as possible and collect a Hard Rock T-shirt bearing its logo and the location name. In 1990, The Rank Group acquired Mecca and thus Hard Rock, and continued to expand the concept in its geographic territory. Rank further purchased Hard Rock America from Peter Morton and Hard Rock Canada from Nick Bitove. And with these acquisitions, the London-based leisure company consolidated worldwide control of the brand.Hard Rock In The New AgeIn 2005, as a wholly-owned subsidiary of The Rank Group Pic, Hard Rock Cafe International had 120 signature cafes of which 67 were company-owned and 53 operated underfranchise arrangements. With activities in 41 countries, it provided over 28 million annualvisitors around the world with a unique experience that combined classic first-ratefood and beverage, but moderately priced casual American fare, warm service, and ever-present rock n roll music, along with the largest collection of rock memorabilia. (page 4)Further. Hard Rock Cafe International entered a new phase of development in 2005 as it decided to expand its business in the restaurant, casino and hotel markets. Hard Rock already had hotel-casinos in London and Manchester, UK, and the Rank Group officials informed at that time that it had more growth opportunities in the UK and elsewhere. Jeffrey Harwood, an analyst at a London-based Oriel Securities remarked, “the brand has the potential to be exploited in a more aggressive way in the US Hotel space.” On February 17, 2005, the company appointed and industry experts from Las Vegas, Michael Soll, to the newly created position of Vice President of casinos. Soll mentioned, “Youre going to see some exciting things from Hard Rock.” He added, “Casinos are not new to Hard Rock, but a lot of what has happened so far has been serendipitous. We want to get some real strategy around it, for increasing opportunities and to leverage the brand.” Soll, along with his team, identified the places where the company wanted to open Hard Rock Hotels and Casinos by summer 2006. Added to that, Hard Rock International announced on March 31, 2006, that it would be constructing Hard Rock Park, a theme park, at Myrtle Beach, South Carolina. It was scheduled to open by spring 2008. (Pages 5 & 6).Hard Rocks Music MemorabiliaHard Rock was better known for its atmosphere then its food. Hard Rock Cafe had an unparalleled music memorabilia collection which consisted of more than 60,000 pieces, rotated from restaurant a restaurant. The collection provided the worlds most comprehensive visual history of rock n roll. The treasure included a compilation of classic guitars and other instruments, posters, costumes, music and lyrics sheets, album art, platinum and gold LPs, photos and much more, mounted on the cafe walls. For instance, Hard Rock had Jimi Hendrixs Flying V guitar, John Lennons handwritten lyrics, Beatless tune Help, and Madonnas classic bustiers. Hard Rock was a living museum. The collection began in 1979 with the gift of an unsigned guitar (a Read Fender Lead II) from Eric Clapton. Eric Clapton was a regular at the first restaurant in London. The memorabilia collection remained very much a work in progress, constantly expanding and depending as new music and new music history were made every day. (page 5).Ranks Plan To Sell Hard Rock CMThe Rank Group Pic appointed Ian Burke (Burke) as the companys new CEO in March, 2006. Burke, after taking up his responsibility, carried out a wide-ranging strategy review. It included a restructuring of the management team in order to transform Rank from a leisure business into a pure gaming company. On July 4th, 2006, the leisure and gaming conglomerate announced that it might give up its Hard Rock Cafe business. The sale of Hard Rock music memorabilia restaurants would leave Rank, which once owned both the Odeon Cinema and the legendary Pinewood Studios, with just its gaming operations in Britain ahead of an anticipated relaxation in the gaming laws there. Rank said it would review the potential strategic options for Hard Rock, to assess whether or not Hard Rock should remain part of the group. (page 6)Hard Rocks Contribution to Its Parent CompanyBy 2005, Hard Rock became a global phenomenon. It opened outlets in London, New York, Los Angeles, Paris and Tokyo, and also on to exotic and far-flung locales such as Kuala Lumpur and Shanghai. Along with the worlds most far-reaching and significant music memorabilia collection, a successful line of branded merchandize and merchandize outlets, food and beverage, Hard Rock Cafe also had a high-traffic music and entertainment portal on the web, a worldwide band of loyal customers, and an extremely motivated and dedicated workforce.Hard Rock had a U.S. icon status though the first restaurant was opened in Londons Piccadilly district. Initially, the restaurant was a trendy spot where rock stars like Eric Clapton and Pete Townshend went for burgers and fries. However, as the chain expanded, it was felt by industry observers that it lost its shine as an exclusive spot for rock and became a tourist magnet. Yet, the cafe chain continued to attract hundreds of people, and showed a sales growth in its U.S. market- over the period 1970-2005, though not consistently. The business suffered after the September 11 attacks. After closing some outlets, Hard Rock appeared to be back on track since the end of 2004. In 2005, with 120 restaurants, and six hotels and casinos in more than 40 countries, the brand had revenue of 250.1 million and operating profit of 34.8 million. Moreover, the brands operating profit grew significantly, at a rate of 24.7% per annum (2004 - 27.9 million) in 2005. On the contrary, the gaming division generated 2.1% growth in revenue in that year, but with high operating costs, this was not translated in higher profits. In 2005, though the division represented over 50% of the Groups operating profit, its operating profit decreased by 9.6% to 105.8 million (2004 - 117 million). And in this scenario, analysts believed that selling the division that was trading strong and was entering a new phase of its development would mean a step backward for Rank. (page 6 & 7).In March 2007, the London-based Rank Group PLC had concluded the sale of its mostfamous business unit, Hard Rock Caf International Inc., to the Native AmericanSeminole Tribe of Florida for $965 million (510 million). The Seminole Nation was nostranger to the Hard Rock Caf brand, as they had already operated Hard Rock resortsand casinos in Florida (in Hollywood and Tampa) under a license agreement. Theacquisition of the Hard Rock Caf business allowed the Seminole Nation to diversifyaway from their core business interests in the gaming industry.Hamish Dodds, President and CEO o