“Why is our food and beverage operation losing money?” “Why are we budgeting to lose money in that area?” “My buddy earns a fortune running his steakhouse so why are we struggling to break even in that department?”
No doubt the above scenario and line of inquiry is one that managers have faced numerous times in dealings with the Board or Committee members. While it might be tempting to retort that, while that steakhouse might be doing well, according to the National Restaurant Association (NRA), 59% of new restaurants close within three years, other answers are clear and apparent to club professionals who have been fighting such misconceptions for many years. However, the Finance Committee, House Committee and the Board spend hours reviewing the results of food and beverage department. The real question is why? Maybe it is because that according to the NRA more than half of all adults have worked in the restaurant industry at some point in their lives and for one-third, it was their first job. Club boards should be focused on the strategic direction of the club, not the minutia of everyday operations. However, it can still be difficult to articulate answers that the Board understands. Clubs face many problems that restaurants simply do not have, but which often are not obvious to a club member.
This article seeks to identify
- some of the reasons that a club’s food and beverage facility is a unique operation
- separate and distinct from a regular restaurant
- provide evidence that your club is not alone in its daily struggle to be profitable in that arena.
We begin with a review of food and beverage trends in the club industry.
PKF published the first edition of Clubs in Town &Country in 1955, a landmark study at the time for the club industry. The commentary noted,
“More and more club officers, as well as managers, have become interested in comparing the operating results of their club with those of others. Clubs are experiencing constantly rising costs of operation and to cope with this situation, management is required to maintain rigid control over multitudinous details.”
That statement is as relevant in the twenty-first century as it was 56 years ago.
Members of a club want to feel part of a family every time they dine in their clubhouse – even if they only walk in once a year! They also expect to find the formal dining room open on a Saturday evening, regardless of the fact they will be the only diners in the room that night. How does a manager create this ambiance? Through hiring and retaining the best service staff they can find. Start your comparison at the front door: does your club member expect to be greeted by a sixteen year old making minimum wage or a fully trained, gracious and mature maître d’? Members can expect to receive their favorite table every time with their favorite waiter while enjoying their favorite wine and menu item prepared in their favorite way. How many restaurants would be able to cope with those demands every night from every patron? How many restaurants would keep their restaurant open on an evening when they have one or few reservations? None? The cost of delivering this level of service is measured by the flow of payroll dollars out of the departmental bottom line.
The provision of expanded employee benefits such as 401(k) retirement plans, increased vacation and sick leave, and of course, healthcare coverage, are all tools general managers have been forced to implement.. Members are accustomed to seeing a waiter work 20 or 30 years at their club, and the general manager must ensure that it is not on his or her watch that such a long-term employee decides he is being underpaid and walks out.
“No problem” your treasurer cries! “There’s no doubt that we need to have the dining room open, regardless of whether we have reservations or not. And ‘Old George’ needs to be kept happy – he’s a great bartender and the members love him. But, we have to pay for it. We don’t want to raise the menu prices, so let’s just focus on the other end of the equation – get more people in the seats! Book a few more weddings!” Wouldn’t it be great if it were that simple?
Restaurants have an open-ended pool of potential customers. By running a promotion in the local, regional, or in the case of the larger chains, national press, a restaurant can hope to immediately attract new customers or remind old customers that they are the “best deal in town” any night of the week. They can usually generate a much higher table turn ratio than a club, thanks to a steady flow of walk-in customers that a private club generally will never have. Due to the strict rules governing tax-exempt clubs, advertising is a delicate matter. Marketing campaigns must be directed to 300 to 750 or so member families in the hope of encouraging them to support their club. Of course, truly private clubs must also be wary of violating their private status by accepting non-member business in the form of weddings or similar functions, and the 15% threshold needs to be regularly monitored. Such temptation can be hard to resist, given the higher margins that can often be realized on banquet functions. But, given the spate of recent privacy cases hitting the law courts, those higher margins could well bring other hidden costs with them. And of course, the members would not start to complain about the large increase in non-members they see strolling through their club – right?
Clubs also have to face another problem that most restaurants do not. No matter how varied a restaurant tries to make its menu, it can never come close to the variety of options that club members expect to be offered every time they dine at their club. Country clubs in particular are faced with the dilemma of staffing and servicing a plethora of F&B outlets: the formal dining room, the casual dining room, the grill, and the halfway house on the golf course. Some of these outlets will never be profitable and are open purely to cater to the members. A typical restaurant can pick its target audience, develop a menu, staff accordingly, and run with the concept. They are not faced with the balancing act that so many managers perform on a daily basis in their food and beverage operation. The sidebar highlights what the National Restaurant Association feels is hot right now. However, while a single restaurant does not provide all of these choices, a club often is expected to by its members.
So, ultimately, the problem boils down to delivering top quality service at a cost the membership and Board can live with and support. Comparisons between private clubs and public restaurants are unfair and generally not useful. Care should be taken even when comparing your club to national and regional averages as presented in Clubs in Town & Country. As the first edition noted back in 1955 “The data are not intended to represent a standard performance for any individual club. No two clubs are so alike in every characteristic that their operations are wholly comparable”. However, that does not mean that a club should not take advantage of every tool at its disposal (including analyzing national trends) to increase the efficiency of its operation.
As Published in The Boardroom Magazine