Page 14 - GBC winter 2016 Eng

CASE THREE
FACTS
The golf facility is a fully private 18-hole golf club with 550 golfing members and 150 social members. The club is a ‘not for profit’ entity owned by the members.
The club does 27,000 rounds and has a mixed lounge, a men’s lounge, a casual/formal dining room and a banquet hall which seats 200 individuals and an outdoor pool area which seats 75 patrons.
The club is located in a city of 500,000 people and is known for its golf course. It is a competitive marketplace with too many private clubs. This competition has caused entrance fees to be reduced to $10,000 from $18,000 and constant pressure to not increase annual dues. In order to support the food and beverage operation, the club has had to host non-member tournaments and weddings.
The food and beverage operation has been the Achilles Heel of the club’s operations. The food and beverage operation remains open all year round; however, even with food and beverage revenue of $1,500,000, loses approximately $75,000 before overhead costs.
In addition, the club recently completed a Satisfaction Survey, and this part of the operation received the lowest score for service. Also, the club recently hired an Executive Chef who wants a more upscale menu; however, members are unwilling to pay appropriate pricing for the product. Should the club consider a lease?
PROS
Since it is a private club, no non-members allowed. As such, no concern about availability.
The club has been losing $75,000 each year. A lease would guarantee a small profit and as a result allow the club to not increase annual dues in a competitive market.
The club is a not-for-profit club. There is speculation that private clubs will have similar tax rules as the USA whereby only 15%
of gross revenue can be from non-member events. The lease arrangement should eliminate this challenge.
The lessee – an expert in food and beverage operations – should supply food quality and service at a higher level which should improve member experience.
The food menu should be priced similar to outside restaurants; as such, members should concur with value for money.
The number of full-time senior managers is eliminated and the lessee coordinates directly with the General Manager of the club.
The lessee may agree to provide some funds for restaurant improvements; however, these costs are recovered with a longer term lease.
There are no concerns about managing staff turnover or employee costs regarding turnover.
CONS
The most significant concern is the loss of control over service and ‘brand’ impact. Members expect more for less, and a lessee has experience operating restaurants with set hours and staff being tipped competitively. The lessee may underestimate service levels (although could be outlined as an addendum to the lease) and cause higher operating costs, which makes it difficult to make a profit after paying for the lease.
In a private club, recording of purchases can be difficult since members are more accustomed to making a verbal order or writing a chit and then leaving after being served. Greater controls will be required by the lessee and may frustrate members.
The lessee will want to generate more weddings and banquets and members will want fewer events since they detract from their experience and may even cause parking issues.
Although the lease agreement can be very detailed, it becomes difficult to monitor and make corrections. Terminating a lease during the season is disruptive and costly – not only from a cash perspective – but from a ‘brand’ viewpoint.
Control of the liquor license will need to be evaluated.
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Golf Business Canada