Food and beverages: outsourced or in-house?

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Many golf clubs outsource their catering operations to an external contractor but, according to industry expert Steven Brown, these are often bad deals for the club that can be significantly improved.

If you owned a family business, would you consider giving it to a complete stranger for little in return? You wouldn’t.

So why did so many golf clubs, which owned and operated their own restaurant businesses, give away the family money?

When I first came to the world of golf clubs, I was unfamiliar with the business model called ‘franchising’ (external operation). This was a system whereby golf clubs reallocated ‘ownership’ of their bar or catering units (or both) to an outside agent in exchange for – well, nothing!

As a businessman, I could not grasp the concept, introduced more than 60 years ago, of entrusting these services to people who could benefit from the generosity of the club and who, at the beginning certainly, received nothing in return for their generosity.

In many cases, the first so-called franchisees were club stewards and hostesses, who previously handled operations on behalf of the club, but were then approached by well-meaning club officials to assume self-serve status. – employees, with little or no understanding of what it meant to them or the club.

The question is – why did this happen then, and more importantly, why are some clubs still doing it today?

It never ceases to amaze me why golf clubs go against all accepted economic and business ethics and continue to allow these outside agents to “abuse” this privilege.

Is the word “abuse” too strong? Consider the evidence.

Where else in the UK business sector would you find a business opportunity that provided you with the following as part of the deal:

• Free rent agreement

• Low rental level

• Free use of public services

• free laundry service

• Free hosting

• Free use of club bar or catering staff

• Complimentary use of club administrative staff and office supplies

• free use of cash desks and card machines

• Freedom to play golf whenever you want

• Free disposal of the waste they generate

• free maintenance of kitchen equipment

• Free marketing support to promote their business

• Free cleaning service (restaurant).

Now, if you’re reading this and you’re about to pick up the phone to scold me for not doing any of these things, then let me tell you, I can only applaud your approach to this thorny issue, but you will be one of the very few clubs in the UK to have achieved this admired status.

I have just finished writing a report for a golf club that is about to decide whether or not to franchise part of its restaurant operations. I have outlined the options available, and at no point have I suggested that the club adopt any of the archaic business practices currently still used in the industry by some of its colleagues.

Why are golf clubs even considering such a move to franchise, let alone such disadvantageous terms?

My experience tells me that this is primarily, but not solely, for the following reasons.

1. Their bar or restaurant business (or both) are losing money.

2. The club has no practical experience of operating and managing either type of service and is at its wit’s end trying to fill in any gaps (generally and primarily with the service of restoration).

3. If key catering staff leave, they cannot find a suitable replacement to manage the unit who has all the necessary skills. (I totally accept that by now this is becoming a major issue – for more details on the staff crisis, please refer to my article in the April issue).

4. The club does not want to take the risk, or simply wants to abdicate the responsibility of food service to focus on other golf club issues.

There may be other mitigating circumstances, but these are, for the most part, the reasons given to me during my visits to clubs as an external consultant advising them on which option to take. .

Regardless of the considerations, if your club has made the decision to consider the services of an outside agent to provide the club with a food or beverage service (or both), here are the criteria you should consider: account :

1. Rental fees.

In purely commercial terms, if the proposed external agent were to set up a business on the high street, providing the same service that they provide to you, they would have to pay a flat fee of around 12-20% of projected VAT. an exclusive turnover, part of which would most likely be required in advance.

Golf clubs, or those that charge fees, generally receive less than the rental fee.

At least it recovers some or all of the cost of utilities used in their clubs and for the other services I mentioned that clubs usually provide for free.

2. Selection of the right external supplier.

The most obvious criteria is that they have restaurant/bar experience at the same level as your own services require. Make sure their “aspirations” match the needs of the club. Make sure they understand the food and drink culture that exists in the golf industry. This culture is unique! Trust me.

I have worked in many different outlets in the food and drink industry in the UK, and the golf club food and drink industry offers a unique experience that is unlike to any other food and beverage company I have ever come across. Why?

They are about to discover that they have 750 “bosses”, all of whom have different and personal requirements that must be met by their catering department!

Establish that they have sufficient business acumen to understand the intricacies of self-employment in all its forms. (The minus of which is the ability to cost a plate of food to give them the gross margin they need to make a profit and pay commercial rent!)

Obtain copies of all statutory notices relating to a catering service. (Like basic food hygiene certificates for all food handlers and possibly their own personal license if the club has a premises license.)

Ask for a three-year business plan outlining how they intend to conduct business in your club to achieve your goals and maximize the opportunities available to them. (In the reports I generate for my clients, I expand on each of these points with specific recommendations on how to achieve these goals).

3. The agreement.

At INN-FORMATION we have generated the only golf industry specific franchise agreement in the UK, using many examples I have seen at golf clubs across the UK, to identify all the “to do” criteria, to ensure that the agreement you are using is watertight and practical – this is a must.

Too many clubs are disadvantaged or put at risk in their restaurant operations by failing to adopt a strong working agreement.
Make sure your deal is fair and flexible yet commercially valid.

One piece of advice I would most definitely give to the golf club is to never abdicate responsibility for overseeing these operations, once franchised, even remotely.

Too many times I’ve had to write in my client’s reports that “you have a bad case of a tail wagging dog” in franchisee and club business, meaning the club has lost control of its franchisee!

Too often, clubs have become so dependent on the franchisee to provide a service at all costs that they then avoid any confrontation with them to remedy unacceptable behavior. You must not allow this. If you do, you open the door to a myriad of “abuses” from franchisees who then start dictating menu choices, hours of operation, and staffing levels to name a few- one.

I’ve talked before about being fair and flexible – it works both ways, so don’t let these people take advantage of the club by threatening to leave if their ‘demands’ aren’t met. They need to better appreciate the unique business opportunity available to them.

Another key point of the fair and flexible approach is this – I have, on several occasions, identified excellent external providers who, perhaps due to circumstances beyond their control, have encountered financial difficulties (Covid is the perfect example).

In such cases, I have recommended that clubs implement a rental fee suspension.

Now, I know that goes against everything I just wrote about commerciality, but it’s not always all about the money.

If the external provider can prove that the financial difficulties they are suffering from are beyond their control, but you agree that the service they provide is more than acceptable, the quality of the food is excellent and they are generally well respected and appreciated by the general public the majority of members and visitors, then loosen them up a bit at short notice to retain their service – think of the big picture, ie what is best for the club and your sometimes demanding customers!

Given all of these issues, should your golf club seriously consider the franchise route as an option?

Most certainly, but only if you have a viable business model in place that protects the interests of the club and those of its members.

Every effort should be made to pass on all costs incurred by the club which are directly related to the service provided by the franchisee.

Your members will not be satisfied if their annual dues have to increase due to the club’s inability to properly allocate these food and beverage costs, leading the club to effectively subsidize units.

People often ask me what my favorite choice is to operate a food and beverage outlet at a golf club.

I am not a fan of giving family money, it is true, but I fully accept that there are times in the life of a golf club when it will be necessary to use the service of an external agent.

That’s fine – just do it right. Don’t just give away the family silverware for expediency or convenience, and always work diligently to find the right business partner on the right terms.

Steven Brown FBIIt.p. is the manager of Inn-Formation and can be contacted on 07785 276320 or by e-mail via herinn@aol.com

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