Executive Summary of A Strategic Perspective on the Future of Golf

INTRODUCTION

Published in 1999, A Strategic Perspective on the Future of Golf represents the culmination of a yearlong collaborative effort between the National Golf Foundation (NGF) and the international management consulting firm, McKinsey & Company.

The purpose of this study is to provide information and insights about the opportunities for the continued growth and vitality of golf.

MAJOR CONCLUSIONS/FINDINGS

Golf has enjoyed explosive growth. Over the last 50 years the game and business of golf have grown enormously. The game has been transformed from a sport enjoyed by few, to one enjoyed by a broad cross section of society. Over the more recent past, there has been strong growth in industry revenues. There are some recent factors hindering the growth.

Although the industry has gained 1.5 to 3 million new golfers per year, it has also lost nearly an equal number through a failure to convert interest into commitment. This implies that the industry has not been able to effectively deliver an "experience" that stimulates more golfers to stay with the game, nor has the industry provided an "experience" that motivates the average golfer to play more often. The strong economic growth in the business of golf over the past decade has been driven by increases in per capita spending. As important as they have been to the economic growth of the industry, future increases will be difficult to sustain in the absence of growth in the number of golfers and rounds played. Though there are wide variances by locale, on balance, the recent explosive growth of new golf courses has outpaced the growth of new golfers resulting in fewer golfers per course. From a business standpoint, this excess supply has meant declining utilization rates for golf courses. The future of golf is healthy but can be even stronger.

Over the next decade, the combination of both natural population growth and favorable demographic changes almost ensures that the number of golfers and rounds played will continue to grow at steady rates of 1% to 2% per year. This is healthy growth, though not meteoric. There exists, though, a huge latent demand of 41 million Americans who want to play or play more. The stimulation of even a small portion of this demand reservoir could translate to growth rates in rounds played of 3% to 4% per year. Tapping into these 41 million people will require more effective programs (e.g., for women and juniors), targeted products (e.g., more and better learning and practice facilities), dynamic pricing (e.g., by time of day, frequent player programs, etc.), improved instruction and greater reinforcement of golf's traditions and etiquette. Achieving 3% to 4% annual growth rates in rounds played will require that industry stakeholders, especially golf facilities, undertake aggressive individual efforts to address barriers to more play and grow the ranks of committed golfers.

THE GROWTH OF GOLF

As the oldest organized sport in the world, golf is an exciting preoccupation for over 26 million Americans. The game's ongoing vitality is evidenced by its ability to attract participants regardless of demographic strata and skill groups.

Growth in the Number of Golfers and Facilities

The vitality of golf is seen in the growth of the number of players over the last 50 years, increasing from but 3.5 million in 1950 to fully 26.4 million in 1998. Though this growth has come in waves, the game has grown more than seven-fold in terms of participants since 1950, making it one of the most widely enjoyed leisure pastimes in the United States.

The growth of public access golf facilities is another success story of the last 50 years. In 1950 nearly two out of three golf courses were restricted to members and their guests. Today, that ratio has reversed as public access golf courses now represent over 70% of all golf facilities in the United States.

Unfortunately, golfers and golf facilities are not perfectly distributed throughout the United States. Some parts of the country may be oversupplied while others may be undersupplied.

Golf's Growth in Context with Other Leisure Activities

Compared with other recreational activities such as tennis, bowling, fishing, downhill skiing and sailing, golf is more than holding its own in terms of growth in participation.

SOURCE OF GROWTH OVER THE LAST DECADE

Over the past decade, golf industry revenue growth (estimated at 7.5% per year) has come primarily from increases in spending and pricing rather than from growth in golfers.

Equipment. The growth in equipment spending has come from both pricing and volume increases. From 1986 to 1998, the golf equipment sector enjoyed dramatic growth. In 1986, about 10 million units were sold at wholesale, growing to 22 million units in 1998. During this time, the average wholesale price paid per club doubled.

Golf Course Fees. Adjusting for inflation, fee revenue doubled from $7 billion to $14 billion over the past 11 years. About one-third of the increase ($2.4 billion) came from new players and two-thirds ($4.7 billion) came from increases in price per round. Thus, the growth in greens fee revenue has come mostly from real pricing increases on a per-round basis, and only to a much lesser extent from new players.

The per capita spending increases (fees and equipment) experienced in the 1990s are likely not sustainable indefinitely. Underlying industry fundamentals - the number of golfers and rounds played - are key to future growth.

DEMAND AND SUPPLY ISSUES

In 1986 the average number of golfers per course (18-hole equivalent) was about 1,900. This ratio grew to a high of about 2,250 in 1990 and has declined to today's level of approximately 1,970 golfers per course. Since 1990, additions to supply (number of courses) have been outpacing growth in demand (number of golfers). Recently, due to supply outpacing demand, the earnings of the average golf facility have decreased slightly.

ATTRITION AND RETENTION

Over the last decade, golf has been very successful in attracting new participants, ranging from 1.5 to 3 million per year. The problem though, has been one of retention. As many are leaving as are entering the game. The industry has not been able to deliver an "experience" that stimulates more golfers to stay with the game nor has the industry been able to provide an "experience" that motivates the average golfer to play more often.

FUTURE GROWTH PROSPECTS

Supported by favorable demographics (aging of the Baby Boomers), the golf industry can expect a "natural" addition of approximately 3 to 4 million golfers and 100 million rounds over the next decade. This translates into a growth rate of 1% to 2% per year.

Also, the number of golf courses will likely grow at 2% to 3% per year, outstripping the expected growth in demand. If this supply/demand imbalance continues, then the operating performance of the average golf facility can be expected to erode.

If the "natural" trend continues, the numbers of golfers will grow to 29 million and rounds played to approximately 630 million by the year 2010. Under this scenario, the business of the game may not live up to the current expectations, hopes and plans of many industry stakeholders.

To ensure a more prosperous future, one more in line with expectations and plans, an additional 100 million rounds (beyond the "natural" growth) must be created.

If industry stakeholders stimulate only a small portion (20% to 30% over 12 years) of an estimated 41 million highly interested players and potential players, then rounds played could grow at 3% to 4% per year, or twice the rate of the "natural" growth scenario. Golfers could grow to 34 million and rounds played to 780 million.

The latent demand of 41 million includes people who are highly interested in golf and expect to play or play more frequently in the future. These "high-potential" candidates are the best opportunity for golf to grow its ranks of committed golfers.

There are four groups of candidates:

Current Players

The largest opportunity for growth rests among those presently playing less than 25 rounds per year. The potential of this group can be realized by retaining and migrating them to more committed levels. There are over 14 million current golfers who have a high interest in the game and desire to play more.

Former Golfers

Twelve million former golfers (out of a total of 42 million adult former golfers) indicate that they have a high interest in becoming committed golfers. These people though, have specific barriers inhibiting their return to the game (e.g. intimidating environment, cost of play, difficulty learning the game and no one to play with).

Non-golfers

Only about 7 million (representing about 5%) of the 130 million non-golfers, are highly interested in the game. Golf is doing a good job in offering opportunities for those interested in trying the game. Many of the "triers" though, quickly exit the game, having had an early experience insufficient to justify the time and expense involved. Interestingly, 60% of the non-golfer opportunity group are women (versus being only 20% of the overall golf population). For golf to become a more satisfying experience among a wider range of people, particularly women, golf will need to enhance and strengthen people's early experiences.

Junior Golf Opportunity

Juniors represent another opportunity for the industry. There are 51 million juniors in the US age 5 to 17. Fifteen to eighteen percent of these juniors would like to play more. Less than 10% presently play golf. Encouraging for the industry is the fact that juniors who presently play golf really enjoy the game. Juniors who play golf like it nearly as much as team sports and more than other individual sports.

KEYS TO TAPPING INTO LATENT DEMAND

The barriers inhibiting the 41 million high potential golfers from playing or playing more often are all addressable at the course level. Course operators, for the most part, currently focus their attention on creating the best possible experience for the avid player. Services must be created to address the needs of a wider range of existing and potential players.

For instance, the NGF/McKinsey team suggests five actions facility owners and operators might consider in an effort to enhance the golf experience:

Targeted Programs

Create a wider variety of programs designed to ease the entry and development of high-potential target groups (e.g. programs designed for women, mixed singles, parent/child, married couples etc.).

Tailored Products

Develop products that appeal to a broader spectrum of golfers and that ease the transition from ranges to courses (e.g. better utilization and marketing of existing par 3, executive, and 9-hole courses; and more and better practice facilities).

Dynamic Pricing

Provide special pricing in much the same way as an airline. The golf product can be priced in many ways (e.g., by time of day, day of week, group discounts, and frequent player programs) to create value for both customer and owner.

Skills Training

Make learning the game more fun and inviting. Golfers want to learn in a user-friendly and non-intimidating environment. Golf instruction must become more than just swing mechanics; it should encompass strategy, course management, short game, and other important aspects of playing that a golfer must learn to become a genuinely committed player.

Enriched Understanding of Golf. Provide a stronger connection to golf's traditions and values. A valuable part of the golfing experience involves the history, traditions, etiquette, and other nuances of the game about which committed players are so passionate. Teaching these values will enrich the golf experience and help to increase commitment among new players. Developing facility-level marketing plans that attract the "high potential" candidates will also be an important key to success. Each facility must develop a successful marketing strategy given their target customer and the skills and assets that are available to them.

It is important to remember that EVERY industry stakeholder benefits from more players, more rounds, and more spending. Facilities alone cannot achieve this goal without industry help and cooperative efforts. Creating a better experience for more people more often will require golf facilities and golf companies to work together more effectively than ever before (e.g. form more strategic partnerships, advertising cooperatives, share information, etc.).

THE WAY FORWARD

The golf industry is at a crossroads. We may continue to grow at a slow but steady rate, or we may take advantage of a very large and addressable opportunity to increase participation. Over 40 million people say they want to play or play more. Awareness and trial are at an all-time high. Most macro-trends are favorable. Now is an excellent time to take advantage of golf's growth opportunities.

A more successful future will require that industry stakeholders make concerted efforts to grow the ranks of committed golfers. This will happen by focusing on barriers to play and improving the golfing experience for occasional and new players.

Actions must take place primarily at the facility level. But facility owners and operators cannot be expected to do all this on their own. Maximizing the future will depend on how well industry stakeholders can work individually and collectively for the growth of golf.

To obtain a copy of the complete Strategic Perspective report, please call the NGF Membership Services staff at 1-888-NGF-2500 or email National Golf Foundation.

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