Club News
Dues Increase Q&A (Expired)
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Q&A
1. Question: Can the problem be addressed by increasing the limit on the maximum number of Members, thereby generating more Membership revenue?
Answer: First, this does not fix the problem and would only defer the problem until we reached a new membership limit. Secondly, we already have significant compaction in a number of areas particularly during the weekends (parking, tennis, swimming pool, and the Terrace). Increasing the cap will further compromise the compaction problem, significantly inconveniencing Member access to the Club.
1a. Given the Club has realized a net increase of approximately 200 Members over the last 4 years, why don’t the additional net dues from these Members offset this loss in net Membership fees?
It may come as a surprise, but practically all of the expenses in the Club are variable, including payroll and utilities. With proportional increasing use of all the Club facilities, the expenses and the “wear and tear” are also increasing proportional to Membership growth. In addition, raising the standards and making the Club more appealing which has likely contributed to this large influx of Members has also increased the operating costs in the Club. In combination to this, it has been almost 6 years since our last due increase and during that time, all expenses within the Club have been steadily increasing due to inflation. Approximately 1/3 of these expenses can be offset with F&B revenue but the other 2/3rd which is slightly over NT$100 million (not including depreciation) are increasing anywhere from NT$1 – 2 million per year from inflation alone. The net increase in expenses from inflation alone pretty much absorbed this additional dues income. This doesn’t even include the increase in utility rates last year of approximately 20% which translates into an over NT$2 million increase in utility cost per year by itself.
Actually, if it wasn’t for the improved performance of the Club, a dues increase would have been necessary sooner.
2. Question: What is the actual decrease in annual resignations and resulting decrease in Membership fees?
Answer:
The reduction in membership resignations from 2010 to 2013 was 65 Members. At the current joining fee of NT$156,000, that is a reduction of NT$10,140,000.
3. Question: Is the reduction in resignations a permanent trend?
To the contrary, the reduction in resignations, currently about 130 in this fiscal year does not yet seem to have bottomed out. Given that the economy in Taiwan has been rather weak during this same time period, further indicates this is a long-term change.
4. Question: Can the gap be addressed by increasing the joining fees and transfer fees to generate more membership fee revenue?
The Board has already identified this as an opportunity to mitigate the gap by increasing the joining fee in 2012 and again in July 2013 to the current level of NT$238k, an overall increase of 44% from the rate. But due to the reduction in annual resignations, this change has only provided a diminishing benefit. Further, increasing the membership fees too high may well price the Club out of the international market (for which the Club was established) especially given that expatriates are now on much more localized compensation packages.
5. Question: Can the gap be addressed by increasing food and beverage revenue in the dining outlets?
The F&B dining outlets total revenues have grown steadily at just over 4% per year since 2010 without any pricing increases, and this trend is expected to continue. However, in order to generate an additional NT$10million net gain to offset the cash flow gap, we would have to double our F&B sales, which understandably is not possible.
Of note, we are indeed fortunate that our F&B department is able to operate at breakeven to a slight profit; as worldwide 85% of similar Club F&B departments actually lose money.
5a. Question: Can the gap be addressed by increasing the minimum spend rather than increasing the dues?
The incremental margins on F&B are very small due to both the nature of the F&B industry and our desire (the expectation within the Club industry) to provide Members with better value for money by offering higher quality products at low prices which reflected in a higher food cost than what is found in most hotels and restaurants. Coupled with the fact that all expenses in F&B are variable costs related to sales, including payroll, improved margins through improved sales are minimal. Thus, as indicated in Question 5, the sales necessary to generate the necessary net funds would be double our total current sales or slightly over NT$5,500 / family which would be impossible for the outlets to handle due to compaction / capacity.
6. Question: Can the gap be addressed through increasing banquet sales?
The Club has been and will continue to focus on banquet revenues as an opportunity to minimize this gap. Since 2009, the Club has increased banquet sales by 52% (or approximately 13% per annum). Nevertheless, and as with F&B sales, the margins are minimal after factoring out the cost of food and the higher labor costs, so the net impact to fill the cash flow gap is very small. In reality, F&B can only do so much to help support and subsidize the Club overall. Considering that most Clubs F&B operations lose money, ACC is doing better than most.
In summary, the small margins in F&B make it impossible to generate sufficient revenue to offset a NT$10 million cash flow gap; this would require doubling our F&B sales to generate an additional NT$10million net gain.
7. Question: Can the gap be addressed through increased efficiencies and better controlling the product cost of F&B?
The Club’s continuing focus on operating efficiency and control of product costs has already generated significant savings in food cost, thereby keeping the increase in net cost less than the increase in product cost. Again, these savings while significant, marginally contribute to reducing the cash flow gap. Nevertheless, we will continue our efforts to improve efficiency in all areas, but realistically future savings are anticipated to be relatively small.
To illustrate our attention to product control; in 2010 we started tracking approximately 200 of our most frequently ordered main products and compared them year-on-year. Since then, the Club has incurred steady price increases in the cost of these food items by 4.6%, 5.6% and 6.2% respectively per year. Without improved efficiencies and economies of scale, this increase in cost would have translated directly to an increase in food cost of 5.3%. We have been able absorb these product cost increases and to maintain a food cost that has been extremely well controlled from 41% in 2009 to only 43% in 2013, while keeping menu prices flat with constant portions and improved quality.
In any event, the Board wishes to assure our Members that food and beverage product quality will not be compromised to resolve financial issues.
8. Question: Can the gap be addressed by reducing labor cost and operating expenses?
The Club, over the past four years has substantially improved and will continue to improve operating systems and procedures in all departments. Since 2009, the Club’s labor cost as a percentage of revenue improved to 66% to 60.8% in 2013 and overall operating expenses dropped from 22.9% to 19.9%. However, these incremental improvements will not significantly influence the cash flow gap.
9. Question: Can the gap be addressed by reducing the amount of funds used for capital improvements of the existing Club facilities?
Simply put…. No. I have heard some Members comment that perhaps this problem with our existing business-operating model could be addressed by not implementing some of the necessary facility improvements – this raises two points to consider. First is that deferring these facility improvements only buys us a little time, as the problem in the operating model is an issue year after year. So deferring a project may buy at best us one year.
Secondly, and most importantly, keeping the Club’s facilities current is paramount to prevent a declining membership in addition to potentially jeopardizing the Club’s future. Given the subsequent increase in membership, the Club’s investment into the current renovations is clearly both a successful endeavor, and a sound financial investment.