Letter #4

Merry Christmas everyone,

In last week’s letter we learned that Brick & Bottle pulled up stakes and we heard from many members about what they want from their Café in the future. Thank you all who commented. Given the nature of the new letter writing campaign and the accompanying outreach for member input, I was somewhat relieved not to see too much I TOLD YOU SO – much obliged. There was one comment that leaned a little surly which landed that member immediately onto the Café committee – how cool is that? Actually, the cool part is that the member embraced the invitation and will probably be incredibly helpful to the effort.

There were two almost universal themes that came through member comments: B&B – good riddance and bring the P&L back in-house. Let’s focus on the latter and examine the consequences of bringing the P&L back home.

When the new financial model for the Club was first introduced in 2007, we were solving for a model against two primary operating constraints: first, the TPC is a multi-activity club, split almost equally in terms of member usage patterns between the 3 main activities; swim, tennis and fitness. The second major constraint is the Club’s Conditional Use Permit issued by the Town of Tiburon; it limits the membership to 700 regular members and 175 senior members. Consequently, the new model was designed to address the reality of not being able to offer activity specific membership classifications (as for-profit clubs do) and limiting the financial burden each member carries for activities they don’t use. Hence, as covered in the second letter two weeks ago, the model calls for dues payments to pay for anything necessary for the member to come down and use any part of the club. Income from dues is allocated toward utilities and management expenses mostly. The activities were set up as separate business units and unit directors were tasked to staff their units to the Club’s demand, operate a profitable unit and keep the profits as compensation up to an agreed upon limit (so as not to fleece the membership). This way, the members who use the activity services pay for the activity staff. For the activity units, it was an entrepreneurial arrangement. Swim, tennis, fitness, youth and the Café were all put on that model. In 2007, this was a radically different approach from what had been occurring and, like all significant changes, it was met with some resistance; we lost the directors of Swim, Tennis and Fitness (all right, it was more than some).

While the initial transition to the new model was bumpy, the Club has picked itself up from the brink, looking into the financial abyss (the Treasurer at that time lent the Club $50k to make payroll at one point) to a club operating on a firm financial footing with a quite affordable mortgage (half of what it was at the peak) and $1.7 million in the coffers today.

You thought this letter was about the Café? – I’m getting there. The original thinking regarding the Café was: of course it should be an eat-what-you-kill model. Actually I think the words went something like this: “wait a minute, you’re asking a food service team to come in here with no overhead (rent, utilities, furniture, etc), simply buy food, prepare it, sell it to a captive audience and they get to keep the profits – are you crazy, that’s a no brainer”. Sound familiar? Yep, I said it – looks like I was the one with no brain.

Why? Why did something that looked so easy, so self evident, be anything but. When Jerry arrived in 2008 we talked about the model and he loved it – all but the Café part. When it came to the Café he looked at me with raised eyebrows and said – “you are aware that 90% of all Food & Beverage operations at private clubs lose money aren’t you?” Ah … yeah … sure … of course …

The industry problem: staffing costs against an irregular pattern of demand; the constant cost of staffing against a completely inconsistent, somewhat unpredictable, revenue stream. It puts the best operators on razor’s edge and it’s only a matter of time until the operation suffers a slash – from then on its death by endless slashes. Here’s the industry constant – Food & Beverage in the Private Club Industry is a member service supported by dues. This even applies to the big clubs with multiple dining rooms and meaningful catering capabilities. Catering in the private club world is a bona fide profit center – it’s the one area in F&B where there isn’t a staff (fixed cost) mismatch with revenues. The only profitable F&B operations in the private club world are the less than 10% of the clubs with meaningful catering facilities (weekly weddings on one side of the property simultaneous to member dining on the other side of the property) – the polar opposite of TPC.


Perhaps it’s time to make an alteration to the Club’s operating model: run the Café as a service to the members, not as an activity. Consider the Café a core club experience to all members and not a specific activity. Target financial breakeven each year for the Café; food is priced at cost plus a thin margin and the margin is sized to offset staffing costs, any shortfall is made up by dues. The grand plan of this proposal: the Food & Beverage operation at TPC would become a service, the cost of which would be spread more broadly across all the regular, dues paying membership.

There is a common misperception within our membership; B&B was too expensive. Too expensive is a relative term, comparing the 2012 menu to 2011’s, B&B’s food offering was priced at or below the 2011 menu in every comparable category (although the offensive service charge was 2½% higher). Alcohol was more expensive. Perhaps this explains why 2012 food sales exceeded 2011 while alcohol sales lagged behind comparatively. Austin ran at a loss for the vast majority of time 2007-2011. B&B bounced back and forth above and below breakeven each of the 7 months they operated depending on the weather more than anything else. The point is, it’s tough to cover staffing costs with food margin. Let’s not understate this – labor is the big nut. Your expectations should be properly set. The gross revenue run rate for the past few years in the Café is $600k in round numbers, a third of which is cost of goods. That leaves something on the order of $400k-ish in annual staffing costs.

There’s plenty of food for thought here; do we produce a simple menu in the Café, charge very reasonable prices, offering a blend of the popular club staples with a small selection of healthy, regularly changing, alternatives? Extend the hours so that it can service the membership most of the time the Club is open for operation? Should we consider two modes of operation with full staff only during peak usage periods and light staff for the majority of other hours? Do we outfit the eating area, inside and out, with comfortable inviting furnishings that promote relaxation and group interaction? Do we institute a food minimum (a dues equivalent by the way)? There’s much to think about here and your comments are more important than ever – Okay TPC, what say thee? (You can leave your comments below)

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Next week – the Café mission statement, and a layout of a longer term grand plan. Your responses this week will shape these items next week.

All the best,

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