Page 13 - GBC winter 2016 Eng

CASE TWO
FACTS
A higher end 18-hole public/semi- private facility with green fees in excess of $75. The clubhouse was large enough to have a casual dining area and a banquet hall which could seat 200+ individuals. Golf rounds range from 28,000 to 30,000 and food and beverage revenue ranges from $850,000 to $1,200,000 dependent on the number of tournaments and weddings.
There could be an opportunity to increase sales by a further $750,000 if a self-sustaining restaurant could be established. The facility is located in a city of over 100,000 people and is located in close proximity to high net worth individuals; however, there is a fully private club within five minutes of this facility.
Over the past few years there has been significant staff turnover, with the Chef being replaced three times in the past two years. In light of the above, food costs have increased to 39% and labour costs increased to 54%, even with the tournaments and banquets. During this period the restaurant has remained open for the full year in order to maintain staff and service; however, costs escalated during that period with more shrinkage and higher wage costs.
This facility hosts at least three tournaments per week; however, pricing of the events is competitive as the private club has started to compete in the market. Should the operator consider leasing out the food and beverage operations?
PROS
Staff turnover is managed by the lessee.
With higher sales volumes and greater expertise, there is a guaranteed profit greater than clubhouse overhead costs – potential EBITDA improvement of $50,000.
More high net worth individuals are introduced to the facility with greater opportunity to increase revenue for weddings, banquets and tournaments.
The restaurant will remain open for 12 months, since this would be part of the lease and lease payments cover overhead costs.
The lessee has agreed with funding some capital improvements; however, they are dependent on the term of the lease.
CONS
Patrons expect higher service levels and want to be able to sit together when they finish their round. If restaurant is open to non- patrons, this may become an issue at peak times.
The casual lounge area may not receive the same service if the lessee needs to cut costs.
Although the lessee may consider a food and beverage discount for tournament rounds, this may create less revenue being attributed to green fees and cart revenue in a competitive market.
Liquor license issues must be reviewed to ensure risk is mitigated.
CONCLuSION
In Case Two, a lease alternative becomes attractive from a guaran- teed income perspective and elimi- nation of restaurant issue; however, when discussing the above with owners and operators, the follow- ing comments were made:
1. The opportunity to earn greater returns from banquets and weddings outweighed the guaranteed income since both labour and product costs should be lower.
2. Most agreed that the food and beverage operation was too large to lose control of service and brand. Concern was expressed that the smaller seating areas
and the on-course (beverage cart) service areas would not get enough attention.
3.Although most owners and operators agree with the con- clusion that a lease in this situation may not be the best option, they all agreed that it would depend on the situa- tion and the reputation of the lessee.
4.The opportunity to create a reputable restaurant area, being able to cater to small functions of say 10 to 20 individuals could add significant profit with minimal overhead. This opportunity would need to be explored before considering a lease.
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