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Benchmarking Food and Beverage Profitability

  
  
  

For Better or Worse

The Unromantic Truth About Wedding Business 

Wedding CakeThe spring nuptial season is ramping up and reports from the wedding industry indicate that the average cost for a wedding in the U.S. is nearing $30,000. It’s easy to see why the idea of booking more weddings comes up so frequently in boardroom discussions about boosting club revenue, but club industry data indicates that banquet business is not a financial panacea. A closer look at the realities of high-volume banquet business will help club leaders gain a better understanding of the tradeoffs.

Benchmark Study: Many club boards are keenly focused on generating incremental revenue through banquet business. This study analyzes an actual CB member club and highlights the net impact on a club that, from the outside, appears to have reached banquet nirvana.

Unfortunately, in the quest to increase revenue the true costs associated with high-volume banquet business—financial and otherwise–-are sometimes overlooked. Case in point: A financially healthy high-end country club with positive net available cash and the physical capacity to handle large events. The club has become a popular wedding venue—so much so that they average about 50 weddings per year and the demand shows no sign of slowing down. The for-profit club’s total banquet revenue is in the top 10 percent nationally and makes up 43 percent of their F&B revenue vs. an industry median of 30 percent. While a club in this position might be tempted to look for ways to accommodate additional business, this club’s board and manager recognized the need for a careful cost/benefit analysis using Club Benchmarking data.  

The Downside: One of the most significant areas of concern for this particular club was member displacement. The volume of weddings was impacting members’ access to the clubhouse nearly every weekend. Over time, the members adjusted by packing the club on Friday nights and avoiding it completely on Saturdays. Since a major component of the membership equation is a feeling of privilege and privacy, the club’s leaders recognized the situation as less than ideal in terms of member satisfaction and marketing to prospective members.

Another troubling issue for this club was the amount of management resources and energy consumed by the marketing, booking, and delivery of so many banquets. While the exact costs may be difficult to isolate, increased banquet traffic in the clubhouse does take a toll on the facility itself, increasing housekeeping and maintenance expenses and potentially accelerating replacement cycles for banquet-related furniture, fixtures and equipment. The question this club's leaders were asking themselves was "is it worth it?"

A review of the example club’s F&B Net Income/Loss as a Percentage of Available Cash (found in the Club Benchmarking Food and Beverage Report) was used to determine the significance of the F&B operation in the overall financial health of the club. While we know that 75 percent of clubs lose money in F&B, this particular club is in the 81st percentile and somewhat profitable in F&B. Still, the report revealed that the club’s F&B operation was actually only producing four percent (4%) of its Available Cash. All in, the considerable efforts by staff and management produced just 4 percent of the club’s Available Cash in contrast to 73 percent that comes from dues, 11 percent from golf operations and 11 percent from sports other than golf. For this particular club, that 4 percent equates to about $250,000 which begs the question: What less intensive and invasive methods might be used to generate that $250,000? Possibilities include membership drives, outings, minor price changes, etc.

The chart below shows a national summary of F&B Net Income/Loss as a Percentage of Available Cash for clubs at three different levels of total F&B revenue ($1M-$3M, $3M-$5M and $5M-$10M). It is true that the profit margins are higher on banquet revenue than on a la carte F&B, but when viewed through the lens of the Available Cash Model, the facts are eye-opening.                               *Refresher on Median and Percentiles

Total F&B Revenue

$1M-$3M

$3M-$5M

$5M-$10M

F&B Net income/loss
as a % of Available Cash          Median

-2%

-3%

-4%

F&B Net income/loss
as a % of Available Cash         25th percentile

-6%

-9%

-11%

F&B Net income/loss
as a % of Available Cash         75th percentile

+3%

+1%

-1%

Conclusion:The study above reinforces what the CB data clearly reflects: F&B in the club industry is an important amenity, but it is not a profit center. The benchmark data helped this subject club refine their banquet strategy in terms of “quality vs. quantity.” This club's leaders recognize that lifecycle gatherings such as birthdays, anniversaries and weddings are an amenity their members value and those events will continue to be a key part of the club’s culture. Less emphasis will be placed on driving for more “off the street” banquet revenue and the club's leaders have reached agreement on a more balanced view of other available cash sources such as new member dues or golf operations revenue.

CB Member Resources: This Benchmark Study focuses on “Net F&B Income/Loss as a Percentage of Available Cash.” If you are a CB Member we recommend that you login to your CB account to run the Food and Beverage Report and review your club’s position on that curve. You may also want to run a Summary Revenue & Expense Report and the Available Cash and Key Performance Indicator Report to assess the impact of banquet business on expense ratios related to housekeeping and building maintenance.

 

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