United States

The circle of truth: A club is not a restaurant

INSIGHT ARTICLE

National surveys continue to show that club dining operations represent the most popular member amenity (an important term in this discussion) offered by clubs. This should not be terribly surprising given the simple fact that more people eat than swing a golf club or tennis racket.  Dining operations also, however, remain the most discussed, analyzed, scrutinized, criticized, re-analyzed, controversial and ultimately misunderstood element of club operations.

Therefore, critics of the financial results of private club dining operations are invited to step inside the circle of truth and understand why a private club is a very different model from the steakhouse that made a close, personal friend a millionaire.

Private member club. The clue is in the name. Private clubs, and hence club dining outlets, are not open to the public.  Privacy, or perhaps better expressed as exclusivity, is one of the primary reasons members join in the first place, and that privacy comes at a price.  A club’s customer base is essentially capped by the number of memberships plus members’ guests.  This differs from a restaurant that is open to anyone in the community who is prepared to pay the menu prices. If a club has 750 members, then its customer base is comprised more or less of those 750 families. Given that the number of customers for a club’s dining offering is essentially fixed, at least in the short term, the implications for revenue are fairly obvious. In a recent report of club food and beverage revenues, these were found to have been flat for the past five years.

Repetition.  According to Mark Twain, “History does not repeat itself but it does rhyme.” Clubs are faced with the challenge of having to continuously resell the same dining experience to members. Compare for a moment a fine dining restaurant where approximately 50 percent of customers in a given evening are repeat customers to a club where 100 percent of diners are repeat customers. This helps explain the low capture rate of food expenditure by clubs from their members. Approximately fifty cents of every dollar spent on food and beverage is on product for preparation and consumption in the home (e.g., grocery shopping). Of the other fifty cents, which is spent in various types of restaurants, clubs capture the revenue from fewer than one out of four “dining out” experiences of 80 percent of their members. In other words, only 20 percent of club members eat at their club on more than one out of every four meals out.  If that sounds disheartening, consider that, according to some estimates, a full half of club members eat at their club fewer than one in ten dining out experiences. This is in spite of the increasing prevalence of food and beverage minimums.  

Competitive pricing.  If activity or covers are essentially fixed, can revenue be grown by increasing menu prices? Not really. Clubs do operate in the same competitive marketplace as restaurants, and aggressive menu pricing will likely result in the club hemorrhaging revenue dollars to neighborhood restaurants or, more likely, cause an insurrection among the members.  Like all consumers, even those in upper income brackets, club members tightened their belts throughout the Great Recession of 2007–2009. Furthermore, they are conscious that they already pay sizable membership dues and generally expect the club’s menu prices to represent exceptional value. It is always worthwhile for clubs to compare their menu prices to those of a local restaurant offering a similar dining experience to confirm the value that club dining represents. And don’t forget the greater the number of subsidized members-only events (New Year’s Eve, Valentine’s Day, end of season, beginning of season, President’s Ball, Groundhog Day, etc.), the greater the dues subsidy. Food costs at some of these events can exceed 100 percent...what would your food and beverage results look like without them? Arguably the more important question is how many members would you lose if you didn’t host the event or charged a nondues subsidized price? Member events are a priceless component of member participation at most clubs but their economic realities should not be used to blame management for food and beverage subsidies.

Quality and quantity.  If a simple side-by-side menu comparison of a club dinner to a restaurant equivalent does not point out the value of club dining, then a tasting probably should.  Clubs typically serve better quality products—fresh produce as opposed to frozen, and baked rather than purchased bread—and serve more generous quantities.  The concept of highest quality does not only apply to a la carte dining either.  A typical club’s buffet carries high quality products with a tendency to over prepare. As far as alcohol is concerned, just try to identify the last time a jigger was used in a club bar.  Free-pours from a heavy handed barman are more the norm and often cocktails are served in wine goblets or beer glasses. This situation presents clubs with unique challenges in protecting the bottom line. As mentioned above, aggressive pricing is not really an option and neither are some of the tricks used in the restaurant trade to maintain profitability. Members will be highly resistant to portion control, weaker drinks, cheaper ingredients or low-end consumables.

Capacity.  Clubs tend to have excess capacity for a la carte dining but lack the capacity for large scale member events. Clubs will have multiple and competing dining outlets, such as a formal dining room, grill room and pool café, even though it is only possible for a member to utilize one at a time. Hence fixed revenue dollars are spread across the outlets to cannibalize sales from one venue to another, and remember that each outlet has its own storage area, kitchen and staff which all carry a cost. Restaurants usually have a single dining room and kitchen and, of course, a larger customer base.

Staffing and labor.  Club members expect a “creative kitchen” rather than a “manufacturing” kitchen.  While restaurants tend to use hourly line cooks, clubs frequently employ highly trained executive and sous chefs plus specialized staff, such as sauciers, pastry chefs and sommeliers, all of whom are typically full-time salaried employees who are carried through slower seasons. The staffing situation in the dining room is often challenged by prohibition on cash tipping. Clubs therefore find themselves having to pay a higher hourly rate or offer more overtime than competing restaurants in order to attract and retain service staff to offset the lack of tips. Members are rarely required to make reservations for lunch or dinner and hence the tendency to overstaff—just in case every one turns up for Friday night dinner.

Club policies.  If a member is willing to spend $200 on dinner for two while wearing jeans, he/she had better go to the local restaurant rather than the club. Amending club policies, particularly dress codes, is one of the few items likely to spark move lively debate in a board meeting than the subsidy in the food and beverage operation.  However, in today’s time constrained society, it is worth noting that formal dress codes and prohibitions on electronic devices often discourage members from frequenting the dining room.

In the mix.  Neither the activity nor the product mix at clubs is conducive to turning a profit in the food and beverage department. Clubs do more lunch business than dinner business and lunch menus are always more competitively priced than dinner. Because the mix is so lunch heavy, less beverage is consumed, which is unfortunate from a profitability standpoint as beverage carries a higher profit margin than food. While the most profitable meal for restaurants is breakfast, clubs typically have minimal breakfast traffic. To clarify, minimal breakfast traffic is more accurately described as few breakfast sales, as “gratis” breakfast items are quite common. The mix again also includes member events. As we discussed previously with regards to pricing, if your club hosts a significant number of member events, consider your pricing philosophy with regards to those events and the impact that is has on food and beverage results overall.

So the next time a new candidate for the finance committee introduces himself as the guy who made his fortune owning a restaurant and who will “fix” the club’s food and beverage operation, ask him these five questions:

  1. Did your restaurant only serve 750 families?
  2. Did you regularly throw lavish parties for those families and only charge them a fraction of what market price would be?
  3. Were your alcohol pour sizes often double what other restaurants in your area gave?
  4. Did you accommodate all diners’ requests for menu substitutions and customizations without charging for them for the extra work?
  5. Did you have an executive chef, rather than a line cook, whose payroll you had to carry during the off season just to retain their talent?

If he can answer yes to all five, then he indeed has a unique set of skills.

The reality, however, is still that a club is not a restaurant. Unless critics of club food and beverage results are willing to step inside the circle of truth and accept the realities of the operation before attacking management, they do not deserve a seat at the table. This does not mean that management should not be held accountable for results or for seeking to continually improve. It does, however, mean that the budgets to which management are being held accountable are based in fact, not fiction, and deal with the operational realities of the club’s operation. Budgeting a flat 50 percent blended food cost for every month, when you know you are going to have member events with 80 percent, 90 percent or even higher food costs is, simply, an exercise in futility. In a food and beverage operational audit we found that 20 percent of the club’s food revenue was related to member events and that the “pricing philosophy was to achieve a food cost of 50 percent on those. However when we reviewed ten member events we found an aggregate food cost of 69 percent (19 percent percentage points higher than the documented pricing philosophy). Conclusion? The budget was a flawed, unrealistic fantasy of a document that did nothing more than quantify the wishful thinking of both club leadership and management.

To summarize, the reason clubs “lose” money in food and beverage is because the dining room is a member amenity. Just like the golf course, tennis courts, fitness center and swimming pool. How much money did the club “lose” on its golf course last month?  Probably more than it did on food and beverage.

Rather than explaining why the club is “losing” money on food and beverage, the time has come to question the premise that money is even lost. All club amenities carry a cost, which is why clubs charge dues. On average, 16 cents of every dues dollar goes to subsidize the food and beverage operation. If you want to lower that number, start with taking away member events—that will not only lower your subsidy, but also no doubt the number of members at your club…

Goethe said, “The first sign we don’t know what we are doing is an obsession with numbers.”  Worry less about the numbers and enjoy dinner.

Bon appétit!

AUTHORS


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