During last month’s PGA Merchandising Show in Orlando an eclectic group of industry participants and followers gathered for a provocative discussion of the golf industry’s key measures past, present and future. The panel discussion and debate was organized and hosted by the principals of three independent information and industry service providers: Jim Koppenhaver of Pellucid Corp., Colin Hegarty of Golf Research Group and Dr. John Rooney of LONGITUDES group.
Away from the glare of the PGA Show spotlight and without any need for “message control” by any of the parties, the session produced what one participant summarized as “the best discussion of industry trends and data that I have heard.” The panel was the brainchild of Colin Hegarty whose organization has built a 15-year history of tracking golf supply globally as well as consumer fundamentals outside the US. In prior discussions with Jim Koppenhaver, the blend of Pellucid’s independent US golf consumer work as well as initial work in accurately quantifying annual rounds demand created a more complete picture of golf industry trends than either single party.
Completing the mix was the addition of Dr. John Rooney and his historical perspective on previous industry initiatives and, more importantly, his organization’s work on the travel golf component of the industry. Below is a summary of the key discussion points.
Player retention is the real challenge
The golf consumer base saw rapid growth in the 1980s (5.4% Compound Annual Growth Rate or CAGR), which flattened during the 1990s (0.6% CAGR) and has been declining in the current decade (-4.7% CAGR). This contradicts current industry assertions that the golf consumer base continues to grow in the post-2000 period. The most significant challenge for growing the golfer base is not player development, again contrary to industry assertions and spending, but rather player retention. The industry historically has attracted roughly 2 million golfers each year (or roughly 10% of the existing golfer base, quite healthy attraction), but in 2002 there was a net loss of almost 1 million golfers meaning an exodus of roughly 3 million existing players from the game. The ray of opportunity in the consumer portion of the discussion is that there are a sizeable number of non-golfers (between 6-26 million depending on which level of stated interest one chooses) who express interest (but obviously not motivation) to join the game.
Supply growth will lead to demand growth – eventually
On the supply side, the 1980s were marked by steady growth of just over 1% annually and accompanied by the golfer growth described above. The 1990s saw a dramatic jump in the rate of supply growth (doubling to over 2% annually) which, combined with the slowing growth of the consumer franchise during this decade, produced the seeds of the industry’s current oversupply situation. While a sizeable part of the supply build has been real estate-related (roughly 41% in the current decade), over half the new supply historically continues to be pure plays in golf. The real estate component will not go away until the economics of selling golf lots at a premium and the ability to sell the golf course upon completion of build out at a reasonable price exist (there are signs however that these two tenets are beginning to strain). The net industry result is we are on the tail end of one of the largest supply expansions in history that the panellists believed would eventually pave the way for future growth in golfers and rounds looking back at previous supply expansions. The challenge is that this “absorption period” will not be immediate (rough projections would be in the 5-10 year period range) and it will continue to be detrimental to existing operators in the interim on both a rounds and pricing front.
‘Velocity‘ is a key market statistic
Looking at annual rounds demand, the pattern is consistent with both golfer and supply growth. The 1980s saw healthy growth in annual rounds demand (3.0% CAGR) flattening in the 1990s (1.3% CAGR) and declining in the current decade (1.6% CAGR). When juxtaposed to against the supply build in the 1990s, the key measure of velocity (measured in annual rounds per 18-hole equivalent) reflects the current operators pain having dropped from an average of roughly 36,000 rounds in 2000 to just over 32,000 rounds projected in 2003. Given the abrupt falloff in supply build since 2000, this number is expected to stabilize somewhat, however there are currently no good indicators that suggest a rapid return in velocity to 2000 levels.
Golf travel prospects seem positive
In the travel component of golf it was outlined that there has been a similar expansion in the supply of destination golf facilities and holes over the period of 1930 to the present. While no exact figures are available on the amount of incremental annual rounds demand that can be attributed to travel golf, it was suggested that travel golf today accounts for roughly 15% of rounds in the US (that would equate to roughly 83 million rounds in 2002 terms). While the travel golf component was significantly impacted by 9/11, indicators from 2003 and especially the latter half of the year seem positive for a continued rebound of this segment. This could also potentially provide some relief for local operators who have faced increased competition during the travel lull as the destination golf facilities had to turn to increasing local play to stabilize both rounds and revenue numbers.
Summary
The short-term outlook of the discussion can be characterized as “more of the same” (it has stabilized and should gradually improve).
- Golfer retention issues rest squarely on the shoulders of existing operators who need to increase their efforts in developing relationships with their customers and leveraging their unique behaviour and spending patterns.
- The healthy downturn in the rate of new supply appears to be the first indicator of stabilization however certain components of the supply growth (real estate and to a lesser extent additions) will continue based on their individual economic value.
- There are signs of hope that the travel golf component will return to a “contributory” vs. “cannibalistic” role in rounds demand generation.
- Finally, there continues to exist a healthy number of non-golfers who would like to join the ranks but with whom the industry as a whole has not been able to connect.
A big part of the golf industry’s future rests in independent unbiased collection, reporting and analysis of key facts such as were presented here. What started as an obscure discussion among knowledgeable people and industry knowledge-seekers may hopefully evolve into the expected standard from which more intelligent business strategies and decisions can be made.
A more complete summary of the discussion or the complete PowerPoint presentation is available for a fee by contacting either of the following parties:
Jim Koppenhaver, President, Pellucid Corp., jimk@pellucidcorp.com
Colin Hegarty, President, Golf Research Group, colin@golf-research.com