Stop the Ridiculous Practice of Food & Beverage Minimums

By Steve GravesCreative Golf Marketing

“You can’t die by one pin prick but you can die by a thousand”

• CGM has been recognized for being “ahead of the curve” in offering recommendations and implementing solutions for our private club clients.

• We enjoy effectuating change for the private club industry, not just presenting fluff!

• More than 50% of private club membership rosters are comprised of “at risk members” looking for a reason to quit the club.

• Don’t keep sticking them with a pin!

Learning Objectives• Sound reasons for considering the total elimination of Food &

Beverage minimums

• Present alternative strategies for immediate implementation

• Provide practical, workable solutions for improved financial performance

• Discuss how change can improve member retention and recruitment

Food & Beverage MinimumsIn an ideal world, all clubs would not contemplate forcing members to spend money on specific areas of the Club because the members were engaging, spending and participating in club concessions (F&B operation).

For some, unbelievable reason, private clubs determined, in the “Golden Era” of the private club industry, that it was a good idea to impose the obligation to spend a certain amount on Food and Beverage (and with many club allowing Food only).

And, regardless of how the private club industry has changed, the consumer has changed or the economy has changed the practice has NOT changed!

$50,000Annual median of un-used and/or un-spent food and beverage revenue.

Club Benchmarking

Bad PolicyPrivate club leaders have become addicted to the idea that Food & Beverage minimums are perceived to guarantee:

• Members utilizing the F&B operations more often

• A more profitable (or less losses) F&B operation

• The “budgeted” profits produced by un-used and/or un-spent Food & Beverage minimum obligations

Bad Profits(n.) profits that come at customers’ expense and drain the value out of customer relationships.

Fred Reichheld

The Ultimate Question

Bad ProfitsWhenever a customer feels misled, mistreated, ignored or coerced, profits from that consumer are ‘bad’.

Bad profits arise when companies save money by delivering a lousy customer experience (think about your “change ticket fees”).

Bad profits, for a private club, arise when the club derives income from not providing a utilized service.

Remember, you start every month with a profit. Members pay you their dues in advance and should have a reasonable expectation of a quality experience with each and every aspect of the club experience.

Classic quote from one of the best!

“We run a $9,000,000 food and beverage operation………….unfortunately we only charge $5,000,000”.

Michael McCarthy, General Manager Addison Reserve Country Club

Brilliant!

Overdraft Fees- Bad ProfitsWhen your account balance is low, the last thing you need are extra fees. Many fees are marked up exponentially and do not reflect the true cost of providing a certain service.

$6,000,000,000America’s three biggest banks – JPMorgan Chase, Bank of America and Wells Fargo – earned more than $6 billion just from ATM and overdraft fees in 2015.

- SNL Financial and CNNMoney

Resort Fees – Bad ProfitsDaily mandatory additional charge that the hotel separates out from the advertised price. Consumer advocates equate this to paying a second room rate.

$150

$50

$200

$175

$0

$175

Advertised Price

Honest Price

Resort Fee

Customer Loyalty – Good Profits

Customer Loyalty – Good ProfitsConsumers have flocked to Southwest Airlines

• NO Check Bag Fees

• NO Change Ticket Fees

No longer the “discount priced” airline! They make their money off their core business…..running a good airline!

• Why can’t the private club industry follow this fundamental business practice?

Make your money off dues income! Make your money off your core business…..running a good private club!

Alternative SolutionsIt is, in fact, possible to offer a strategy that is a winning proposition for all members of your club.

Private club leaders are so afraid of the wrong decision they are making no decisions.

Not today! Not in my session! Let’s find better ways to bring your club “good revenue” and “good profits”!

Alternative Solutions

#1Hospitality Premium

Fixed Gratuity

#2Annual

Spending Minimum

#3Capital

Improvement Fee

Hospitality Premium

Or Fixed Gratuity Totally eliminate the Food & Beverage Minimum and 18% Service Charge on all food and beverage purchases.

Public Relations Coup!

Hospitality Premium/Fixed GratuityCharge a monthly ‘fixed gratuity’ hospitality premium. This policy allows for all members to win by spending on food and beverage at their club. The more they spend the more they win! Currently, the less they spend the more they lose!

How do you calculate this fixed monthly fee?:

• Annual Food & Beverage revenue: $1,000,000

• $1,000,000 x 18% = $180,000 in revenue (“plus, plus”!)

• $180,000 + $50,000 un-used minimums = $230,000 in revenue

• $230,000 / 400 members = $575 per member annually

• $575 / 12 months = $47 per month, per member

How does a member win?Finally, spending on food and beverage at your club will allow a member to spend less, in total, than previously.

Current Club Policy (with a $100 F& B Minimum):

• $300 in monthly food and beverage purchases

• 300 x 18% = $54 in service charges ($354 in total expense)

With the Fixed Gratuity/Hospitality Premium:

• $300 in monthly food and beverage purchases

• $300 + $47 fixed gratuity = $347 (no “plus-plus”)

• $354 - $347 = $7 in savings

Annual Spending MinimumUtilize the Club with an expectation of a minimum requirement of annual expenditures.

Annual Spending MinimumIt is fair to assume and require members to utilize the club with an expectation of a minimum amount of annual expenditures. However, the club should not dictate on what or how this minimum requirement is spent.

• Determine a fair and logical annual amount This amount will have regional influences

Make your “snowbirds” happy

• Annual spending may be made on anything at the club Does not include dues and/or assessments

• Aggressive Strategy: Charge the amount at the first of the year in full. All expenditures will be deducted from the credit balance.

Give a % bonus for the upfront payment (5-10-20%)

Influences more spending – purchases seem free!

Capital Improvement FeePrivate clubs have not been spending enough on the continued investment in capital improvement projects.

Capital Improvement FeeClubs must be vigilant in the continued investment in capital improvement projects. Forced and consistent savings rather than a large assessment.

• Everyone Participates Proportional amounts for each membership classification

• Segregated Funds The excitement of knowing there are capital funds available for capital

projects!

• Retention and Recruitment People want to be members of an ever improving private club. A club that

has a well conceived, funded and executed strategic plan.

Capital Improvement Fee

• Swap the food and beverage minimum for a capital improvement fee

Example: $100 monthly food and beverage minimum

Replace with a $40 monthly capital improvement fee

Public relations coup!

• Capital Improvement Fees are 100% profit

Food & Beverage profits are negligible, even with un-used/un-spent profits

In ConclusionPrivate club leaders have become addicted to bad profits and should consider investing in more ‘member friendly’ strategies which are more financially beneficial to the club.

Don’t think about it do it! Which option will you choose and take home to implement?

Thank You. Questions?

Session #1714For a copy of this presentation, please go to our new blog, Club Connection, visit us at booth #1022 or email me at steve@creativegolfmarketing.com.