Merlin Entertainments - a company in trouble?

[Inferno]

Considering I haven’t really gone out of my way to research it, I’ve read & watched a few things this week that has made me realise how much trouble Merlin seem to actually be in.

 

With a large restructure going on across the business in the coming months, redundancies in Merlin Magic Making which is confirmed to be shutting down soon, the closure of Bear Grills, new projects shelved, 2 brand new Legoland parks having devastating low attendances, the operational cuts we have seen in the UK this season, and multiple midway attractions closing their doors around the world, Merlin seems to have found itself in some trouble.

 

Clearly I am absolutely not a business expert of any sort - but honestly I have to say I am not surprised in the slightest that it’s come to this.  Many years of short term decisions, lack of sensible large scale preventative maintenance, and mad decisions to benefit the figures in the immediate short term seem to have left the company in quite a mess.

 

For me one of the biggest and most obvious cock ups has been outsourcing the food to Aramark.

Merlin themselves, for years, have boasted that their profit doesn’t come from admission, but instead comes from additional customer spend - things like fastrack, merch and food… But it seems they have made a bit of a mess of the food part. It’s just become far too expensive, and frankly far too disgusting, to buy food from Merlin parks. It’s at the point where it’s actually cheaper to buy food at Disney in many cases than it is to buy it at a local Merlin park.

 

I think one of the other big problems really was that it was on the stock market, meaning everything they did for years had to be done purely to make money for the share holder, no matter what. This (in my humble and inexperienced opinion at least) has really set the company up poorly for the future, as the money that needed to be invested on the future of the company was instead funnelled off, and decisions were made to improve results in the immediate short term - for example, Aramark 🙄

 

The other thing for me is the bizarre decisions to build Legoland parks around the world in places that there is no audience for them…. I just can’t, and never have been able to, see the sense behind that at all.

 

This is such a shame.   I feel terrible for the staff who have been or will be affected by the poor decisions of the execs who have brought the company to this state - many of whom have since retired of course.. I do hope that there aren’t too many redundancies, and that anyone who is going to be out of work will be snapped up very quickly by another large operator who will hopefully be needing experienced and talented people in the UK very soon.

 

Speaking of which - Universal are very much a company on the climb, while Merlin appear to be in a well established decline… these are interesting times for the industry, especially in the UK. 

 

I’d be interested to hear everyone’s thoughts on what you think went wrong, and what you think the future might hold for Merlin?

[JoshC.]

This is a very interesting topic, which has many layers and many moving parts.

 

In short though, I don't think Merlin is a company in trouble. I do think it's a company which is going through many changes, though.

 

Merlin Magic Making

18 hours ago, Inferno said:

redundancies in Merlin Magic Making which is confirmed to be shutting down soon

There's been a lot of misunderstanding going on about the MMM redundancies going around. 

 

What is happening is that Merlin Magic Making Studio North is closing down. Studios North is a studio which produces / builds things for Merlin, located by Alton Towers. It was effectively Merlin's own theming production company. But...Merlin don't use them much. For whatever reasons, it would regularly be cheaper to hire and work with external companies for those things. I don't really understand why. But it's been that way for years.

 

But from small scale things (Alton Towers using Leek Signs to print larger signs) to medium things (Thorpe work with UVE to build Fright Nights mazes) to larger things (the Wicker Man statue for example), Merlin were using their own design studio less and less. There had to come a point where it became questionable for it to exist.

 

It's of course incredibly sad for the staff involved. 

 

However, it should be stressed that Merlin Magic Making continues to exist, being the team that is involved in designing new rides for the parks, new experiences for the smaller attractions, etc. Those redundancies aren't making "creatives" (people who design rides) redundant. 

 

Another thing: very few theme parks have large dedicated teams to producing theming internally. It's almost always done externally for larger things, or done only for smaller things. Merlin was pretty unique in that. So it's not like they are falling behind or becoming worse compared to other parks / companies.

 

Bear Grylls Adventure

18 hours ago, Inferno said:

the closure of Bear Grills

 

Bear Grylls Adventure is an interesting one.

 

It had a good hook and idea, and when I went shortly after it opened, I was impressed with the experience. I do think it struggled to be marketed correctly though.

 

Another thing, which most are likely unaware: Bear Grylls is incredibly popular in China. His 'brand', for lack of a better word, is huge. And, as we know, 10 years ago, Merlin was significantly interested in the Chinese market.

In short, Bear Grylls Adventure opened in Birmingham as a tester attraction, so Merlin could learn how to operate it and maximise money in the Chinese market. The UK is a safer bet for the company to test things out, and easy for them to get people through the door (thanks to the Merlin Annual Pass). They did similar with Shrek's Adventure in London, and the Peter Rabbit Play experience in Blackpool.

 

That does mean, however, the Merlin experiments with their "Gateway" (new name for "Midway") Attractions are clear to see for the UK market, including the associated failures.

 

Gateway Closures

In terms of closures of other Gateway Attractions, I'm aware of the following:

-Little Big City Berlin and SeaLife Berlin

-Madame Tussauds San Francisco

 

I can offer a little bit of insight here.

Little Big City is in a prime real estate position, located at the Berlin TV Tower. The rent is astronomical. It has done well for a number of years. However, it will struggle in Berlin in the current economic climate (where people are spending less). Berlin has lots of free sight-seeing things you can do, and many people will visit for the historical value of the city, or for the nightlife. With people spending less, LBC is a lot lower down on people's lists. 

 

Sea Life is located just round the corner, so again, hugely expensive, and again, will suffer the same issues as Little Big City.

 

Berlin Dungeons will be attractive to people who visit Berlin, though, so that should be safe.

 

San Francisco is a difficult market, and was interested at a time when Merlin were really pushing their expansion plans. It was seen as a risk, in the sense of "let's try, and if we fail, oh well, at least we've tried". That's the level of power and money Merlin have to play with.

 

It should be said as well that there have been new Gateway Attractions that have opened in recent years too. Peppa Pig Theme Parks (which are more like big theme park areas) are doing well. Legoland Discovery Centre Brussels opened in 2022 and has been one of the most successful LDCs to date (possibly the most successful, I'm a little out of the loop there).

 

Of course, the closures of attractions are awful for the staff that work there, but on the topic of Merlin as a company, I don't think it's as bad as it sounds when you just list out all the closures.

 

Sea Lifes

There are rumours - and I stress, just rumours - that the new CEO of Merlin is not a fan of zoos and aquaria. Those rumours don't make it clear whether that's from a business standpoint or a personal/moral standpoint. Regardless of the reason why, if that rumour is true, we could well see more Sea Life Centres close / be sold out of the Merlin estate.

 

Two Big Issues

This ramble about closing attractions has highlighted two major points which are very relevant to why Merlin are in the position they are currently in:

1. The economic landscape / the cost of living crisis, giving people much less disposable income 

2. Merlin's shift in strategy and having to make large changes

 

To address the second point first: as said, Merlin wanted to become the most visited theme park company in the world. To do that, they were expanding and expanding, and trying new markets, seeing what was happening and what would work. Inevitably, some would work, some wouldn't. And the ones that wouldn't, would have to close. San Francisco is a key example. Some of their Chinese ventures is another.

 

But of course, dealing with those closures has financial implications which will be felt.

 

On top of that, Merlin spent a long time looking into expanding in China. The Covid pandemic put a huge dent into those plans actually. On top of that, some of their early ventures out there stumbled through, meaning they had to spend longer sorting that out. However, they still have Legoland parks opening out there, with Legoland Shanghai opening next year

 

Legolands

The Legolands around the world have had mixed success.

-Legoland Malaysia (opened in 2012) has done pretty well

-Legoland Dubai (2016) does well in context of the UAE (and is technically owned by another company)

-Legoland Japan (2017) opened in a poor location and has struggled.

-Legoland New York (2021) was another poor location, and opening post-Covid and in a cost of living crisis has meant it's done poorly.

-Legoland South Korea (2022) I know the least about, but again I imagine struggles right now because of the worldwide landscape.

 

The Chinese Legolands (Shanghai and Sichuan) have been under development for a long time, and are in good locations. There's been a thirst and demand for Legolands in the country for a long time, and I believe Merlin learnt many lessons from Japan and New York, along with their previous ventures in China. From my understanding of those projects, I genuinely believe they have a huge chance of being very successful.

 

But, there is a chance that the theme park boat has sailed in China now...certainly the expansion of parks, and attractions within parks, has slowed post-Covid. We will see.

 

Cost of Living

This is the big kicker. The entertainment and visitor attraction industry is being hit hard right now. Some parks are doing better than others, of course. But everywhere is feeling the squeeze. That should be acknowledged.

 

 

Aramark

19 hours ago, Inferno said:

Merlin themselves, for years, have boasted that their profit doesn’t come from admission, but instead comes from additional customer spend - things like fastrack, merch and food… But it seems they have made a bit of a mess of the food part. It’s just become far too expensive, and frankly far too disgusting, to buy food from Merlin parks. It’s at the point where it’s actually cheaper to buy food at Disney in many cases than it is to buy it at a local Merlin park.

 

I obviously can't provide any evidence, but I am under the impression that despite Aramark being a thing, Merlin are still very happy with the amount of money they get via Aramark. And it comes at the added convenience of not having to deal with that industry directly, so I think it is a win-win in their eyes.

 

I completely agree that the price of food has spiralled and is too much in many - but not all - instances. At the same time, many theme parks have very expensive food options (Plopsaland and the Plopsa parks have more expensive and worse quality food than anything I've had at Merlin parks, for example). Compaigne des Alpes parks (Walibi and Parc Asterix) are quite expensive too, but broadly has the quality to much. 

 

The quality is a mixed bag. Thorpe's food offering is, in my opinion, better and more diverse now than it was in the years preceding Aramark coming in. Towers has gotten noticeably worse. Chessington and Legoland roughly the same. I'd say they're mostly all worse than, say, 15 years, but I wonder if that's a general industry trend.

 

I do hope that Merlin/Aramark can address the cost of food. I appreciate it is hard to do so when prices are going up everywhere, but it is too much now, and I know plenty of people who bring their own food to parks these days.

 

Universal

19 hours ago, Inferno said:

Speaking of which - Universal are very much a company on the climb, while Merlin appear to be in a well established decline… these are interesting times for the industry, especially in the UK. 

 

 

I think I'm in a minority with this opinion, but I think that Universal coming to the UK will do nothing but good things for Merlin. I think that Legoland Windsor and Thorpe in particular will reap the most benefits.

 

Universal, in all of its locations, is a premium product. As such, it comes at a premium price. Day tickets in the triple digits. I wouldn't be surprised if Universal GB has an Annual Pass costing £700. Compare that to Merlin's Annual Pass costing £200ish for multiple parks and loads of other attractions, and people will go "well, that's not bad". People will still visit Universal, of course, but they will see the value in Merlin when they can get an Annual Pass for the same price as a 2-3 day ticket.

 

Yes, Universal's premium product will outshine Merlin's products. But people maybe won't mind that if the price is noticeably cheaper?

 

And, plenty of people will come from abroad for Universal. Europeans will rather go to the UK than Orlando I'm sure. Plenty will fly into Heathrow and travel from there. I can certainly see people be happy to "add on" a day or two into London/Windsor, and potentially Legoland as a result. Those interested in theme parks more particularly will see Thorpe and consider that too. Obviously, that depends on how Thorpe play their cards with marketing, but they can definitely try and capitalise.

 

I think the biggest issue will be in the short term when Universal look to hire staff. Not necessarily Creatives / Directors, as they'll come from people within the company already, but your Upper Managers, Engineers, Department Managers Team Leaders, etc. Heck, even your hosts. I'm sure there's plenty of staff within Merlin who are looking at Universal and going "I'd be happy to move towards Bedford and work for Universal. Even if I get paid the same, I'll get free tickets to Universal". And Universal will be happy to have people from within the UK with that experience come work for them.

 

It will balance out, but could hit hard as it opens up.

 

I'm making an assumption here that Universal will be a premium park with a premium price tag. Maybe they'll change for the UK market and offer something more in line with Merlin parks in terms of price. But when they've got a huge name to uphold, maybe not.

 

But yeah, I genuinely think that Universal opening in the UK will offer nothing but good things for the UK theme park industry and for Merlin.

 

Are Merlin in trouble?

I think Merlin are going through many changes and have issues. That comes from the economic climate, the recent changes at the top and more. And there are a lot of changes behind the scenes (I'm aware of some redundancies that happened at a corporate level over the summer). I don't think it spells bad news for the wider company right now though. 

[Vinlarr89]

Firstly you make some really good points, and a well thought out discussion starter. 
 

I was surprised to find out quite how many operations Merlin had. 
 

As Josh has said there are so many layers and moving parts to an organisation the scale of Merlin, that we must be very careful to understand that at times decisions can be made to move in another direction which can be seen as negative, when in reality it’s simply a reaction to the market or an adjustment. 
 

I will try to summarise all my thoughts in a more detailed response but for now I broadly agree with what Josh has said. 
 

Aramark joint venture will have been set up with Merlin taking a percentage and an annual fee, and the arrangement is probably very risk free from Merlin’s perspective, although I agree the standard of service is poor and should be carefully monitored by Merlin. 
 

MMM is an interesting one. As Josh points out it is studios north that is closing. Now my suspicions are that Merlin are starting to show their hand on the moves they will make to react to Universal. And for me that is a focus shifting to the south parks that stand to benefit from universal. 
 

What does that mean? Time will of course tell, but the recent applications for Chessington suggest a shift towards harnessing the family market that Universal will pull to the UK shores, and the hints of the Thorpe hotel and project pivot suggests the park moving to start harnessing the enthusiasts and teen market that universal will create. 
 

All of that coupled with project horizon seemingly slipping further to the right suggests a smaller budget being spent in the north, and when you think of universal as a threat or opportunity, geographically it’s probably more of a threat to towers than it is an opportunity. 
 

As I’ve said, probably more to add to this tomorrow, but that’s what’s top of my head RN