In the course of our practice, we’ve been privileged to provide valuation and advisory services to a wide variety of golf facilities, including a variety of private clubs, including upscale and affordable, member-owned and investor-owned and all types of daily-fee, semi-private and resort courses. Counted among these clubs are some of the most prestigious clubs in the nation, along with many lesser-known clubs, especially beyond their communities. One thing I’ve always been intrigued by is how even successful clubs, often generating substantial revenues, frequently lose money in the Food & Beverage (F & B) operations. Accordingly, I inquired of several industry professionals why this occurs to better understand club F & B.
According to a whitepaper by Ray Cronin of Club Benchmarking, there were many euphemisms such as “clubs are in the dues business,” or “F&B is an amenity, not a profit center,” the data did not (pre 2009) exist to quantify exactly what those statements meant or how they should be embraced in terms of governance in the club boardroom. Data they’ve collected for over a decade shows exactly how the financial outcomes in food and beverage relate to and impact a club’s overall financial success (or lack thereof). The fact-based insight runs completely counter to the intuitive dialogue on F&B in nearly every club boardroom and Grille room. The whitepaper says that 80% of private clubs lose money in F & B, and that the median club loses about 12% of total F&B revenue. WHY?
Cronin maintains that this is not necessarily a bad thing and suggests that the strongest, and sometimes the most desirable clubs choose to lose money on F&B as an impetus to higher member satisfaction which leads to a willingness to pay higher dues and higher entrance fees with a higher level of membership stability. He (and others) cites the following as having significant impact on the financial fortunes of a club’s F & B operations:
- Number of Venues
- Number of Meal Periods & Service Hours
- Quality of F & B Served
- Service Levels – # of F & B personnel available to serve members
- Pricing
- Revenue Mix between A La Carte & Banquets
Troon Golf’s Ricardo Catarino mentioned that some of the most common issues they face when engaging with a new club center on outdated pricing, inventory size and controls, spoilage, extensive menu offerings, poor internal controls and more. This could mean choosing between profitability and an expected level of quality and service. Some clubs have a culture of “spare no expense” while others are more fiscally focused. Some memberships have a culture of “ownership” in the club while others see themselves more as “customers”. Everybody likes to show off their club and claim it has “the best food in town.” Which culture a club becomes is often dictated by the atmosphere cultivated by leadership and can make a big difference in members’ enthusiasm to support the club. Regardless of the club’s culture, there needs to be a value proposition. When the food becomes mediocre, too costly or both, members will go somewhere else to dine.
Most clubs have a limited number of scratch golfers but everyone considers themselves a “scratch eater”. Catarino (much like Cronin) says that club members need to make a choice as to the level of dining experience they want and how much they’re willing to subsidize that operation. Like I always say to my kids, “every decision has a price”.
Among the strategies to bridge any gap in operations is the use of technology to control inventory, minimizing hand-counting and more frequent inventory reviews. Landscapes Management’s Mark Mattingly says that they strive to maintain only 14-21 days of perishable items on hand versus the many clubs they see that carry 45-90 days of inventory. Some clubs also join purchasing groups to enhance their purchasing power or employ consultants to assist in purchasing. Unlike many, Mattingly strongly believes that all club F & B should strive for and be able to achieve profitability.
Kemper Sports’ COO Jeremy Goldblatt, a former F & B industry specialist agrees that member-owned private clubs focus on access rather than profitability and thus can lose money. He rejects the proposition that F & B should lose money, even at private clubs. However, he feels private clubs miss an opportunity to do better with outside events. He sees more efficiencies in F & B operations as a result of the pandemic with “smarter” menus and staffing. He sees “big” menus as a real challenge for many clubs. With labor more difficult to find, efficiency is key in the kitchen. Goldblatt also mentioned that many private clubs dining facilities are open at times when there’s very limited demand and that hours should be geared toward member habits, especially in the off-season. Buying and Inventory management is an area he emphasizes where professional management can be most helpful.
A big issue people are reluctant to discuss is fraud and theft. Unfortunately, clubs are not immune to this from a variety of sources. Whether from staff, club leadership, membership, suppliers or consultants, theft and fraud exists at clubs. There are “bad eggs” in every lot. While much goes undetected, it has an impact on the club’s bottom line if it exists. I’ve heard of incidents as brazen as stealing liquor and provisions to supplier kickbacks or a member sticking a candy bar in their pocket. Theft comes from a variety of sources and often goes undetected when either nobody’s watching, or the people watching are the people stealing. Kemper’s Goldblatt says that he sees less fraud/theft in the club world than in the other F & B venues and having monitored storage areas for liquor and other items can prevent considerable risk of theft. To quote ClubCorp founder Robert Dedman, “Clubs are run like nobody’s business because they are nobody’s business.” Many member-owned clubs have this problem, sometimes with club leadership positions becoming a “hobby” for some, who either seek the authority that comes with the “fiefdom” or are simply those willing to take the job but are unaware of how to do it. Neither case is desirable. Clubs, like any organization require capable leadership that realizes clubs are a substantial hospitality enterprise reliant on happy members committed to that one goal.
The “moral” of this story is that there are lots of legitimate reasons why clubs fail to be profitable with F&B. In reality, some are and some aren’t. About half the clubs we’ve examined of late (exclusive of 2020 #’s) either broke even or generated positive cash flow in F & B. There are those who insist that clubs cannot be profitable with F&B and others who resist that notion. We have found that it’s unlikely for well-managed, investor-owned clubs to lose money, because they have a profit motive and are operated as businesses. Member-owned clubs can be quite different. As Ray Cronin suggested, some clubs choose to lose money while others focus on profitability. There are numerous variables that can be adjusted to find the right mix to establish the desired levels of quality and service while maintaining profitability.