Golf course restructuring: A return to profitability

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Canadian golf lovers and golf course owners breathed a collective sigh of relief when the sport was provided with reopening status relatively early in the easing of lockdown measures across the country. And while the disruption of business has been minimal compared to the economic crisis seen in other industries like hospitality and retail, the situation hasn’t been without its challenges.

Social distancing measures have resulted in restrictions on the number of guests allowed on the course. Many large tournaments have been postponed or altogether cancelled. Regulations pertaining to masks and sanitization take some getting used to, especially for long-time players who are accustomed to a deeply engrained routine. Certainly the bleak outlook on the country’s employment, and the associated decline in recreational spending is a realistic concern.

Though the first quarter started off strong, regulatory measures introduced across the world substantially slowed retail sales and created a variety of operational challenges. Given the uncertainty of the future, companies like Callaway Golf[1] have begun focusing on cost reduction and increasing liquidity. Some of their efforts include reducing operating expenses and capital expenditures, and conducting proactive inventory reduction measures.

The National Golf Foundation[2] reported a 42% drop in rounds in April, with as many as 20 million rounds lost to the virus. All this has resulted in approximately $1 billion lost in golf course revenues, not including losses in food and beverage sales, retail, and conferences. It’s not all bad news though. Regions that have faced golf restrictions have seen a resurgence in sales, a sign of pent up demand during the mandated closures.

The COVID-19 pandemic isn’t anything we could have predicted. But there are ways that golf courses can make changes that will enable them to gain more predictable results in the face of such uncertainty. Measures taken to tighten up expenditures and place focus on the clear “win” areas can make the most of current revenues and still nurture momentum until the end of the season. Let’s take a closer look:

Marketing
It’s not uncommon for golf courses to be operated by individuals with no background in marketing. This may be because the course is managed by a land developer, or by an individual who came to golf through the use of land that was already in their possession. But the needs of the golf market segmentation are unique and it pays to have an understanding of the expectations of the customer base.

In the past, the expectation was that word-of-mouth would do the heavy lifting in selling club memberships. Often, new members were brought in by friends who were already members. In the current environment, we cannot rely solely on this tactic.

Canada’s first professional golf marketers, ClubLink, spent a significant amount on their marketing budgets. This included advertising in upscale magazines, developing professional materials like brochures, and creating the concept of portability, where members can play at different golf courses in the same package. They were clear on who their clientele was (upper scale courses), and chose their pricing based on serving clients with disposable income and higher end economic conditions.

One lesson to take here is the idea of affiliation with other clubs. This can be helpful especially for cottage area clubs, who can partner with a city club in order to extend their membership season. Reciprocal club benefits between marinas and golf courses can be of benefit as well.

Free play and low financing payments are another option to increase traffic. Research into the demographics of the region will allow you to identify a target area for market penetration. An example here would be that senior citizens tend to be unlikely to pay a substantial fee towards equity membership, but may be willing to pay an annual fee instead of a green fee. Since they are likely to use the clubs frequently, they can utilize the benefit of a one-time fee. That being said, this same demographic is unlikely to spend substantial sums of money in the dining room or clubhouse, and thus courses with these facilities should seek another market niche.

Conferences and tournaments
It has been the case for some time now that the difference between viability and insolvency for many courses has been the ability to book corporate groups for low use periods. Unlike the frequently playing member base, corporate groups will spend extensive time in the dining room facilities and pay a substantial markup on food cost.

Sadly, given the uncertainty of the COVID-19 pandemic, many tournaments and conferences have been cancelled or postponed, meaning that this very important income source has been drained for the unforeseeable future. Despite the setback, focus should remain on securing future dates for such conferences. Sales staff should remain in communication with these contacts to ensure that they are aware of updates to health and safety precautions that the course is taking.

The downtime associated with this complication could be utilized by bridging ties with local hotels and developing cross-promotional relationships that can be leveraged once social distancing measures are fully lifted.

Beverage and dining
Few golf courses make money on food and beverage (F&B). The exceptions to this rule tend to be those that focus on corporate tournaments. Golf course operators often do not have expertise in the area of F&B and thus we commonly see improper pricing of food items, poor menu selection (in terms of cost and profitability), food wastage and lack of portion control. But F&B is as critical to golf course revenue as green fees and course maintenance costs.

While smaller courses may only need a part-time cook, larger courses are wise to hire full-time chefs and dining room managers with expertise in food cost and menu selection. Certainly those courses who plan to double down on corporate bookings next season should consider bringing in staff with experience in this regard.

Pro shop
Pro shops are a money-loser. They have to be staffed full-time even though volume of use is peaked. Margins have been dropping at pro shops ever since the increase in discount equipment operators. To avoid losses, many courses will turn over operation of a pro shop to the golf pros as part of their compensation package.

The hiring of professionals at a fixed salary is a common occurrence, conducted to benefit members. The golf professionals enjoy the arrangement because they can earn a salary while also charging members for classes. Arguably, the status and expertise of the golf pros can be leveraged in marketing the course. Educational videos of the pros explaining tips and tricks make fantastic content for social media platforms. The pro will also generally be hired based on their contacts in the community, and therefore can attract new members.

An aggressive pro has the potential to contribute significantly to course revenues. In today’s current economic climate, it is advised that pro salaries be changed to minimal salary plus incentive based on new business acquired for the course. Harnessing the power of social media to draw new members in is an excellent strategy for pros eager to earn more cash.

Cost of acquisition
Construction is the single most variable factor to losses incurred by golf courses. Cost of construction depends on a variety of factors, most importantly the cost of land and the extent of the facilities. An elaborate clubhouse obviously costs substantially more than a casual dining area. Materials like rooflines, glass, and interior woods such as cedar factor into a significant increase in costs.

Operating costs
Operating costs include maintenance of golf course lands, and administration. The cost of fertilizers and outdoor maintenance products, as well as labour have risen dramatically in recent years. Labour expenses are the largest category, typically sitting between 52% and 58% of total expenses[3].

In trying economic times, it is recommended that some full-time staff be shifted to part time, or laid off altogether. In some cases, this will have already been conducted given the social distancing regulations and their impact on number of staff on site.

Looking forward
There’s no denying that the future of the 2020 season is plagued by uncertainty. While golf is a healthy pastime during the pandemic, it remains to be seen how the reduction in traffic will impact long-term revenues. Moving forward, it’s recommended that owners, operators, and receivers consider demographics in their strategy for future growth. Factors like population growth, wealth, competition, and recreational trends will play a large role in performance.

If you’re concerned about the profitability of your golf course amidst the current economic conditions, reach out to our team today. At Zeifmans, we have decades of experience assisting clients in navigating trying times and emerging triumphant. Call us at 416.256.4000 to get the ball rolling.

[1] PR Newswire, “Callaway Golf Company Announces Preliminary Financial Results for First Quarter 2020 and Provides a COVID-19 Business Update”, https://www.prnewswire.com/news-releases/callaway-golf-company-announces-preliminary-financial-results-for-first-quarter-2020-and-provides-a-covid-19-business-update-301047325.html

[2] National Golf Foundation, “COVID-19 Update”, https://www.thengfq.com/covid-19/

[3] GGA Partners, “Key Benchmarking Standards in the Golf Industry”, https://ggapartners.com/2018/11/golf-benchmarking-standards/

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