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Sample Case for Video
Storyboarding Exercise

Backgrounder


The background information relating to the Case Examination (Backgrounder) is
provided to candidates in advance of the examination date. The Backgrounder contains
information about both the company and the industry involved in the case. Candidates
are expected to familiarize themselves with this information in preparation for the
analysis that will be required during the Case Examination.

Candidates should note that they will not be allowed to bring any written material,
including the advance copy of this Backgrounder, into the examination centre. A
new copy of this Backgrounder, together with additional information about the
company and a supplement of formulae and tables, will be provided at the writing
centre for the Case Examination. Only the following models of calculators are
authorized for use on the Case Examination:

1. Texas Instruments TI BA II Plus (including the professional model)
2. Hewlett Packard HP 10bII (or HP 10Bii)
3. Sharp EL-738C (or EL-738)

Candidates are reminded that no outside research on the industry related to this case is
required. Examination responses will be evaluated on the basis of the industry
information provided in the Backgrounder and the question paper (Additional
Information).

Backgrounder Sample Case for Video Storyboarding Exercise
2 CMA Canada
GR Hotels Corporation (GR)
Backgrounder
Company History (1991 to 2007)
GR Hotels Corporation (GR) is a privately-owned corporation that operates two large
mid-scale hotels, one in Montreal and one in Toronto. The corporation was founded by
the Gemron family in the late 1980s. The companys first hotel was built near the
Toronto international airport and opened in early 1991.
GR expanded quickly, opening a hotel in downtown Montreal in 1992. The hotels are
branded as GR Hotels, e.g. GR Toronto Hotel. Each hotel has 280 or more guest
rooms and three banquet rooms. The banquet rooms are used for special events with
50-300 attendees, such as conferences, wedding receptions, and seminars. Small
meetings can be accommodated by removing bedroom furniture from a guest room and
adding tables and chairs.
Until 1997, Arthur Gemron managed the company. Satisfied with the operations of the
hotels, Gemron retired and Andrew Mayd was hired in 1997 to manage GR. The hotels
developed a good reputation for service and have been reasonably successful for the
past 10 years.
The GR Montreal Hotel has benefited from the popularity of Montreal as a conference
and tourist centre. Montreal is close to several major U.S. cities and costs are
reasonable. As well, travellers regard Montreal as a little foreign and exotic, but safer
than many other major cities. In 2004, the Montreal Tourist Magazine bestowed the best
mid-scale independent hotel award to the GR Montreal Hotel.
Toronto, which is Canadas most populous city and Ontarios economic centre, has
seen significant growth since 1990. GRs head office and central booking centre is
located in the Toronto hotel building. In 2003, business at the Toronto hotel suffered
significantly as a result of the SARS outbreak in Toronto. Over the past four years,
business has returned to previous levels.
The Industry
The accommodation industry thrives on strategically located and efficiently managed
establishments, as well as the tourism industry in general. Worldwide, the industry is
huge, with estimated annual revenues in excess of $124 billion.
In Canada, many municipal and provincial tourism agencies promote Canadian cities as
attractive travel destinations and thus provide business to the local accommodation
industry. World events (e.g. terrorist attacks, SARS outbreak) caused the Canadian
tourism industry to decline from 2001 to 2003, and the occupancy rate of hotels in
Sample Case for Video Storyboarding Exercise Backgrounder
CMA Canada 3
Canada reached an all-time low. In 2004, the industry rebounded and tourism grew at a
faster rate than the rest of the economy.
By the end of 2007, there were more than 15,000 travel accommodation establishments
in Canada, generating in excess of $13 billion in operating revenues (see Exhibit 1).
Airport hotels experienced the largest gains in demand, followed closely by downtown
hotels. The average occupancy rate for large hotels (i.e. those with more than 200 guest
rooms) reached 70% in 2007 and the average daily room rate for these hotels reached
$138 (see Exhibit 2).
A four-scale system is used to classify hotels:
1. Economy Basic accommodation provided with few or no amenities and guest
services, and the only facility provided is usually a swimming pool.
2. Mid-scale Basic accommodation provided with some amenities, but limited guest
services and facilities (e.g. breakfast service, selected business services, fitness
centre).
3. Upscale More comfortable and attractive accommodations provided with a broad
range of facilities, amenities, and services (e.g. spa, business centre, concierge,
recreational facilities).
4. Luxury Highest standard of accommodation that offers an extensive range of
amenities, guest services, and facilities (e.g. first-class restaurant, extensive
entertainment facilities).
In general, business travellers tend to stay at upscale and luxury hotels, as well as the
better mid-scale hotels. Leisure travellers tend to stay mainly at mid-scale and economy
hotels.
The Internets increased popularity has had a major impact on the tourism and
accommodation industry over a relatively short period of time. Major on-line travel sites
(e.g. Expedia.com, Travelocity.com) offer Internet-savvy consumers booking options
that go beyond simple transactions such as point-to-point air and hotel reservations.
The book-it-yourself traveller is becoming more prevalent. Consumers are taking
greater control over their travel plans by using the Internet to not only gather
information, but also to compare prices and options to locate the best deals available,
make reservations directly, and arrange for payment directly.
Another industry trend is the increase in hotels that are associated with a brand name
chain (e.g. franchises). Industry reports show that these hotels perform better than
hotels that are not part of a chain. Associated hotel chains generally have more rooms,
charge higher daily room rates, and have higher occupancy rates than independently
owned hotels. A major contributing factor for this superior performance is the use of a
central reservation system (i.e. a guest booking system using a centralized computer
and/or telephone answering service). As well, many hotel chains of all sizes offer
frequent guest or other points programs to generate repeat business.
Backgrounder Sample Case for Video Storyboarding Exercise
4 CMA Canada
Certain government regulations impact hotels in Canada. These regulations cover such
areas as real estate zoning, food preparation, liquor licensing, elevator safety, and
property taxes.
GR Hotels Corporation 2007
Management and Organizational Structure
The companys current summarized organizational chart is found in Exhibit 3. The
structure involves a head office management group and the management of each hotel.
The President and CEO of GR is Andrew Mayd. He was hired in 1997 by the board of
directors to replace Arthur Gemron after an extensive search by a well known executive
recruitment firm. Mayd is a hotel industry veteran. After graduating from college with a
major in hospitality management 29 years ago, he gained experience working for three
major hotel chains and one independent hotel, beginning at the front desk and working
his way up to his current position with GR.
Walter Rames is the companys Vice-President, Bookings and Promotion. He worked in
sales and marketing with several different organizations before joining GR last year. His
responsibilities include promotion and advertising for all GR hotels, as well as the
central booking system.
Caly Leblanc is the Vice-President, Services and People. She holds an MBA from a
prestigious university and has worked her entire career in the hotel industry. Leblanc is
responsible for overseeing the service levels at both hotels, focussing on generating
and implementing new ideas for improvement. She also provides overall human
resource management.
Matt Gleeson is the Vice-President, Facilities. He held positions with a number of
property management companies before joining GR in 1991. Gleeson is in charge of
maintenance and improvements of the two hotel buildings, properties, and facilities. As
well, he is responsible for the purchasing function for both hotels.
Manny Bluenose, Vice-President, Finance, joined GR in 2001 as the controller and was
promoted to the vice-president position in 2006. He has a B.Comm. with an accounting
major. Prior to joining GR, Bluenose worked for four years as a senior financial analyst
with a community college. His current responsibilities at GR include overseeing both the
finance and information technology functions.
Each of the vice-presidents is paid a base salary of $100,000 plus a bonus if corporate
pre-tax income exceeds $2 million. They also receive other incentive benefits if personal
objectives for the year are met.
The other key people in GRs management structure are the two hotel general
managers: Luc Lavioli Montreal hotel; and Sue Sutton Toronto hotel. The hotel
general managers are responsible for all hotel operations, including the front desk,
Sample Case for Video Storyboarding Exercise Backgrounder
CMA Canada 5
housekeeping services, banquet services, restaurant, gift shop, and facilities. Lavioli
started working at the GR Montreal Hotel in 1993 as a general labourer in the restaurant
while he was attending college. After graduating with a three-year business
administration diploma, he worked his way up through almost every department of the
hotel until he was promoted to his current position in 2007. Sutton is a hotel industry
veteran who joined GR in 1999.
Each hotel general manager receives the same base salary of $85,000, plus a bonus
equal to 0.3% of the pre-tax income of their respective hotel.
Central functions, such as purchasing and bookings, require the hotel general
managers and their staff to work closely with the head office staff. For example, the
hotel general managers work together with the booking department staff to set the hotel
rates for their individual hotels.
At each hotel, all hotel staff report directly to the hotel general manager for on-site
accountability and indirectly to the respective functional vice-president at the head
office. For example, the head chef at the Toronto hotel restaurant reports directly to
Sutton and indirectly to Leblanc, and the facilities manager reports indirectly to Gleeson.
Promotion and Booking
GR advertises in the Montreal and Toronto telephone directory yellow pages and
airports, as well as in certain national tourist magazines. GR also purchases pop-up
advertising on the Internet with google.com at a cost of pennies per view, where the
GR advertisement pops up when a person uses the Google
TM
search engine to find a
hotel in Montreal or Toronto. These advertisements are capped, so that once the
authorized limit for the month is reached, GR advertisements stop.
Some billboard advertising is used within two kilometres of the hotels, each of which
has good highway access. The company maintains a simple, user-friendly website,
which allows online bookings at a small discount, as well as a central booking phone
line at the head office.
Table 1 describes the various modes that guests at GR hotels use to make bookings:
Table 1
Mode of Booking
% of
Bookings
Directly through the GR website 37%
Directly through the GR 1-888 central booking phone line 24%
Indirectly through travel agents who receive a small commission 22%
Directly at the hotel front desk, i.e. walk-ins with no prior reservation 8%
Indirectly through third party websites 4%
Indirectly through third party convention organizers 5%
Backgrounder Sample Case for Video Storyboarding Exercise
6 CMA Canada
In 2007, GR polled all guests with regard to their purpose of travelling and staying at GR
hotels. The poll revealed that approximately 65% of guests were staying at the hotel for
pleasure and 35% for business. Of the business guests, 3% were attending
conferences held in the hotel. The poll also revealed that the average length of stay of
all guests was three days.
Board of Directors and Shareholders
The board of directors of GR is comprised of five individuals. Three are Gemron family
members: Arthur (who founded the company), his eldest son Arthur Jr., and his eldest
daughter Genevieve. The other two members of the board are Mark Welly and Julie
Saab.
Arthur Gemron is a wealthy individual who owns a number of commercial and
residential real estate properties through various corporations, in addition to the GR
hotels. He serves on the boards of directors of the companies but is no longer directly
involved in their operations. Both Arthur Jr. and Genevieve Gemron were active in
running GR from its inception until 1997, when they retired at the same time as their
father. Arthur Jr. currently enjoys a life of leisure and Genevieve is a philanthropist in
the area of childrens learning disabilities. Mark Welly, who retired in 1999, was the first
general manager for the GR Toronto Hotel. Julie Saab is a long-time friend of the
Gemron family and a lawyer.
The board meets at least every second month to review progress reports, financial
results, and major proposals presented by Mayd and selected members of the
management group. In early 2007, the board prepared the following formal vision and
mission statements:
Vision: GR Hotels are the hotels of choice for travellers in Canadian cities.
Mission: GR Hotels provide clean, comfortable rooms and good quality services
to business and pleasure travellers in Toronto and Montreal at competitive prices.
Table 2 provides a list of the shareholders, who are all members or friends of the
Gemron family:
Sample Case for Video Storyboarding Exercise Backgrounder
CMA Canada 7
Table 2
Shareholder
Number of
Common Shares
Price Paid
per Share Total
Arthur Gemron 5,000 $4.00 $ 20,000
Arthur Gemron, Jr. 5,000 $4.00 20,000
Gemron family trust 5,000 $4.00 20,000
J.E.C.B. Gemron 5,000 $4.00 20,000
Genevieve Gemron 5,000 $4.00 20,000
Julie Saab 5,000 $4.00 20,000
Eileen Poltski 5,000 $4.00 20,000
Total 35,000 140,000
Less issue costs 5,890
Recorded on financial statements $134,110
Description of Operations
The company has a December 31 fiscal year end. The first quarter of the year is the
weakest and the third quarter is the strongest.
GR hotels strive to provide guests with as many small customer touches that a mid-
scale hotel can afford. Although valet parking is not provided, each hotel has ample
guest parking and bell staff are available to help carry luggage. Upon checking in at the
front desk, each guest is asked for their preferences in terms of such things as room
location relative to elevators and floor, room dcor, and smoking versus non-smoking
(smoking is permitted on a few designated floors in each hotel). When possible, such
preferences are accommodated.
In addition to standard hotel room furnishings (bed, desk, chairs, television, clock-radio,
etc.), each guest room has a coffee maker, free coffee and related supplies, a hair
dryer, an iron, and an ironing board. In each bathroom, complimentary soap, shampoo,
and hair conditioner are provided. Each evening, two complimentary fresh cookies from
the hotels restaurant are placed in each occupied guest room.
GR hotels do not have a concierge, but special inquiries (e.g. recommendations for
nearby restaurants, shows, etc.) can be made at the front desk. Although dry cleaning
services are not offered by GR hotels, guests who require dry cleaning are directed to a
local dry cleaning depot located within two blocks of the hotel.
Express checkout service is provided, whereby the guests invoice/receipt is placed
under the guest room door at 2 a.m. on the last day of the guests stay. The total
invoiced amount is automatically charged to the guests credit card, removing the need
for the guest to check out at the busy front desk in the morning. If the guest does not
Backgrounder Sample Case for Video Storyboarding Exercise
8 CMA Canada
agree with any of the itemized charges on the invoice, the guest must visit the front
desk where hotel staff will make the appropriate inquiries and adjustments.
Each hotel has one restaurant and a very small gift shop. Approximately 80% of the
revenues generated at the restaurants and stores are from hotel guests and 20% from
local walk-in customers. The restaurants, like the hotel, are value-oriented, providing
basic family-style meals of good quality from 6:30 a.m. to 9:00 p.m. at reasonable
prices. Although they do not provide room service for the guest rooms, the restaurants
offer catering services for the events held in the banquet rooms.
The purchasing department negotiates bulk purchases of supplies (e.g. hotel
furnishings, linens, towels, toiletries, stationery, room card keys, maintenance, food, and
other supplies) for both hotels and the head office. Occasionally, mutually beneficial
special arrangements are made with suppliers. For example, in early 2007, an
arrangement was made with a foreign consumer products manufacturer that was
introducing its inexpensive products in the Canadian market. The foreign company
would supply GR with free soap, shampoo, and hair conditioner for the guest rooms
and, in return, GR hotels would provide free advertising for these products by placing a
flyer in the guest rooms that would indicate where these items could be purchased (e.g.
Wal-Mart) and their retail prices. This arrangement worked successfully in 2007 and
negotiations are taking place for a similar arrangement for 2008.
Competition
The Canadian and international hotel industries are very competitive. Competition within
each of the four classes is based on numerous factors, such as ease of booking, room
rates, location, room quality, housekeeping services, food and beverage quality and
service, availability of additional facilities and services, and attitude of the hotel staff.
The first quarter of the calendar year is generally the weakest across the industry in
North America.
Toronto and Montreal have a plethora of competing accommodation alternatives in all
four hotel classes. Some of the mid-range hotel chains that compete directly with GR
are Wonderful Inns, Budget Hotels, and Home-Away-From-Home Hotels.
Human Resources
GR has at total of 221 full-time equivalent employees. Many are long-term, loyal staff
and the average length of service is 12 years. GR management has always followed the
philosophy that keeping employees happy will result in their providing better service to
guests. One practice used is to automatically give employees raises of 2.5% to 3% per
year. Another is to use mainly full-time staff and limited part-time staff. As a result of
these factors, employee turnover is lower than the industry norm.
Total salaries and benefits in 2007 are approximately $7.3 million, by far the largest
operating cost. Employees have various backgrounds, with those in higher positions
holding diplomas in hospitality disciplines from community colleges. Salaries are higher
Sample Case for Video Storyboarding Exercise Backgrounder
CMA Canada 9
in Toronto than Montreal due to market factors and the cost of living. All staff, including
the executives, take vacations only during the slow periods of the year.
The breakdown of the number of full-time equivalent employees in the two hotels is set
out in Table 3:
Table 3
Function
Number of
Employees
Executives and head office 33
Restaurant 60
Front desk, including bell staff 34
Housekeeping 39
Gift shop 6
Facilities 12
Banquet services 20
Other 17
Total employees 221
Gratuities are an important part of the remuneration of many hotel employees, such as
the restaurant, housekeeping, and bell staff. Consistent with industry practice, wages of
employees who receive gratuities are lower than wages of other employees in the
hotels.
Finance, Information Technology, and Financial Reporting
Manny Bluenose directs the finance, accounting, and information technology functions
of GR. The company uses the ENN accounting system and processes payroll in-
house using the payroll module of that system. All cheque processing and accounting
are performed in the Toronto head office. The companys financial statements are
audited each year and have always been unqualified. Exhibit 4 provides summary
financial information for 2005, 2006, and 2007.
For simplicity, the amortization rates used by the company for accounting purposes are
the same as the capital cost allowance (CCA) rates used for tax purposes.
Consequently, GR has no timing differences between accounting and taxable income.
The CCA rates used by GR are as follows:
Backgrounder Sample Case for Video Storyboarding Exercise
10 CMA Canada
Hotel buildings 4%
Furniture, fixtures, and equipment 20%
Vehicles 30%
Computer application software, tools, tableware, kitchen utensils,
and other small assets 100%
Computer hardware and systems software 45%
Parking lots 8%
Leasehold improvements straight-line
Historically, the company has paid out most of its profits in the form of dividends to the
shareholders, shortly after the year end.
A detailed line-by-line operating budget is prepared annually. Historically, the forecasted
revenues and expenses used in the budgets have been fairly accurate in relation to the
actual revenues and expenses. The budgeted amounts are entered into the accounting
system and reports showing favourable and unfavourable variances are generated for
management review each period.
Banking
GR has two chequing accounts and all its property mortgages with the Bank of
Newfoundland. Over the past 16 years, GR has developed a good relationship with the
bank. Currently, the bank has only one restrictive covenant on the financial
arrangements with GR the companys operating profit (i.e. earnings before interest,
taxes, and amortization) must be at least 11% of revenues each year.
Sample Case for Video Storyboarding Exercise Backgrounder
CMA Canada 11
Exhibit 1
Selected Statistics for Accommodation Industry in Canada 2007


Number of
Establishments
Operating
Revenue
(millions)
Operating
Expenses*
(millions)
Operating
Margin % of
Sales**
Newfoundland 425 $ 164.7 $ 138.7 15.8%
Prince Edward Island 220 84.6 74.3 12.2%
Nova Scotia 571 327.9 279.2 14.9%
New Brunswick 487 221.8 185.3 16.5%
Quebec 2,965 2,346.2 2,025.5 13.7%
Ontario 4,302 3,986.9 3,437.0 13.8%
Manitoba 664 647.8 570.4 11.9%
Saskatchewan 831 489.6 420.2 14.2%
Alberta 1,569 2,214.4 1,791.5 19.1%
British Columbia 3,277 2,591.1 2,215.0 14.5%
Yukon 167 73.1 66.3 9.3%
Northwest Territories 99 53.4 44.9 15.9%
Nunavut 37 32.6 28.2 13.5%
Canada 15,614 $13,234.1 $11,276.5 14.8%
* Operating expenses exclude interest, amortization, and income taxes
** Operating margin percentage of sales
= (Operating revenue - Operating expenses) / Operating revenue


Distribution of Revenue by Type of Service

Rooms
Meals and
Alcohol Merchandise Service
Newfoundland 62% 29% 1% 8%
Prince Edward Island 73% 22% 0% 5%
Nova Scotia 69% 22% 1% 8%
New Brunswick 68% 27% 0% 5%
Quebec 62% 29% 1% 8%
Ontario 63% 25% 0% 12%
Manitoba 36% 52% 3% 9%
Saskatchewan 52% 39% 2% 7%
Alberta 57% 33% 1% 9%
British Columbia 61% 30% 1% 8%
Territories/Nunavut 51% 39% 3% 7%
Canada 60% 30% 1% 9%
Backgrounder Sample Case for Video Storyboarding Exercise
12 CMA Canada
Exhibit 2
Performance Metrics for Selected Hotel Groups in Canada for 2007


Average
Number of
Rooms
Average
Occupancy
Rate
Average Daily
Room Rate*
Revenue per
Available
Room**
All hotels 148 66% $120 $79
Associated chain hotels 191 69% $125 $86
Independent hotels 92 62% $105 $65
Large hotels (> 200 rooms) 350 70% $138 $97
Airport hotels 195 70% $110 $77
Downtown hotels 189 68% $130 $88
Upscale hotels 240 73% $160 $117
Mid-scale hotels 145 62% $105 $65
Economy hotels 100 54% $78 $42
Mid-scale hotels Montreal 150 65% $91 $59
Mid-scale hotels Toronto 155 64% $100 $64

* Average daily room rate = Accommodation revenue per day divided by the total number of
rooms sold
** Revenue per available room = Average occupancy rate x Average daily room rate
Sample Case for Video Storyboarding Exercise Backgrounder
CMA Canada 13
Exhibit 3
GR Hotels Corporation
Organizational Chart

















Board of Directors
President and CEO
Andrew Mayd
Human
Resources
Service
Restaurants
Finance and
Accounting
Information
Technology
General Manager,
Toronto Hotel
Sue Sutton
Vice-President,
Finance
Manny Bluenose
Vice-President,
Services & People
Caly Leblanc
Advertising
Vice-President,
Bookings & Promotion
Walter Rames
Booking Centre
Vice-President,
Facilities
Matt Gleeson
Repairs and
Maintenance
Purchasing
General Manager,
Montreal Hotel
Luc Lavioli
Front Desk
Housekeeping
Service
Banquet Service
Facilities
Restaurant
Gift Shop
Front Desk
Housekeeping
Service
Banquet Service
Facilities
Restaurant
Gift Shop
Backgrounder Sample Case for Video Storyboarding Exercise
14 CMA Canada
Exhibit 4
GR Hotels Corporation
Financial Statements (in 000s)

Balance Sheets as at December 31 2007 2006 2005
Assets:
Cash $ 1,101 $ 991 $ 852
Accounts receivable 440 432 396
Inventory 52 52 33
Prepaid expenses 59 58 52
1,552 1,533 1,333
Capital assets (net) 9,849 10,101 10,343
Total assets $11,401 $11,634 $11,676

Liabilities:
Accounts payable $ 1,127 $ 1,074 $ 953
Income taxes payable 54 46 34
Current portion of long-term debt 342 342 342
1,523 1,462 1,329
Mortgages payable 8,556 8,898 9,240
Shareholders equity:
Common shares 134 134 134
Retained earnings 1,188 1,140 973
1,322 1,274 1,107
Total liabilities and shareholders equity $11,401 $11,634 $11,676



Income Statements for the Years Ended Dec. 31 2007 2006 2005
Revenues $21,993 $21,595 $19,798
Expenses:
Service delivery 15,967 15,814 15,123
Promotion and booking 1,124 1,098 710
General and administration 2,268 2,267 1,932
Interest 586 598 610
Amortization 430 428 418
20,375 20,205 18,793
Income before taxes 1,618 1,390 1,005
Income taxes 647 556 402
Net income $ 971 $ 834 $ 603