Ascertaining the correct market for a mini golf facility

 Arne  Landmark  concludes  his  discussions   with  Bill Haralson on various aspects of miniature golf.

AL: Indoor facilities are definitely on many drawing boards.  Indoor miniature golf can range from a very simple portable course that might cost $15,000 to $30,000 or more to very elaborate themed adventure style course which can cost between $200,000 and $500,000. Let's assume you could build a fairly nice themed course for $200,000 in a 4,200 square foot indoor area.  What factors would determine the amount of rent you would be willing to pay?

 

WH: I would look at the financial analysis to tell me how much income I have compared to total development costs. Again, return on investment is the major criterion.

 

AL: I assume my concept of a 15-mile market goes out the window once you place miniature golf in a mall or any environment which has a much larger drawing power. Does this also apply to a freestanding family entertainment centre as well? What are the market perimeters?

 

WH: If a facility's business is dependent upon a larger attraction, then they share the same major area. However, my retail experience has revealed that most major shopping centres draw from the same 10 to 15 miles as a fun centre.

 

AL:  Let’s assume that the principal costs of operating a facility are labour, maintenance, utilities, insurance, advertising and golf supplies.  On a shared basis in a family entertainment are these costs are substantially less than a free standing miniature golf facility.  For discussion purposes in an entertainment centre you might be able to operate the miniature golf for $30,000 to $35,000 not including rent on an annual basis.  The same course on a free-standing  basis might cost close to $100,000 or more under year around operating conditions such indoors or in the south.  There are many cost benefits to the miniature golf facility who shares these overhead costs with other elements of the family entertainment centre.  Does this cost reduction, by adding more activities, make a project more feasible even though the entry cost is larger? If so how?

 

WH: Depending on the mix and design of facilities, there is some degree of cost savings when miniature golf is added to other elements. For example, some of the operating expenses that you cited will not increase on a linear basis. Also, as mentioned, revenue potential should increase as a result of higher attendance and per capita spending.

 

AL: Let's move to southern outdoor, residential markets which can be open virtually year around. I am interested to see if you agree with this thought. I believe that every market is seasonal.   Much of it is based on school year but even in Florida there are low periods between several seasons.  Is this true and how do you account for this in your analyses?

 

WH: You are correct in your assessment of seasonality, even in southern markets. I think there are several factors that explain that seasonality. Certainly, the school year is a significant factor. Not only does class time take away from leisure time, extra curricular activities compete for much of the balance of it. Other factors that I can think of include weather (most southern markets have their version of winter), fluctuations in the tourist market and a general mind set among the population that recreation is predominantly a summer pursuit. We try to take seasonality into account in deriving "design day" for our projects. Generally, that can be accomplished by looking at the seasonality of comparable facilities.

 

AL: Here is a trick question. I know part of the answer but I want to hear your thoughts.  This also relates to a common question I am asked. Many persons believe miniature golf in a seasonal market is risky. Is this true? Taking the same size city as in the north, will the one in the south automatically be more successful? Be careful with this one, remember that operating costs are substantially higher for a year-round course.

 

WH: One of the reasons that I recommend miniature golf to some of my clients is that I know it works in northern climates. It is true that a course will generate more attendance in a southern climate, all other things equal;  however, like most recreation attractions, miniature golf generates the largest share of its attendance during the warmer months, while, as you point out, operating expenses are much the same each month that the facility is open.  In fact, I suspect that many courses and fun centres in the south stay open year-round for the sake of continuity of staff and maintenance.

 

AL: Here is another tricky set of questions. We are talking here about market penetration, repeat play, the viability of the stand-alone unit and when does it need other activities or upgrades.  How do you view the sales of a stand-alone miniature golf course in residential as compared to tourist markets over a span of three to five years from opening.  Will it go up?  Will it drop?  Will it stay the same?  If it is predicted to drop, what plans need to be made to make it go up in the future?  If it is predicted to go up what needs to be done to keep it there?  If it is going to stay the same and it is a healthy return on investment or even if it drops and maintains a good return on investment, should the owner be concerned?

 

WH: It is difficult to give a single answer that would cover all situations, but let me try. I would say that a well-designed, free-standing miniature golf course in a tourist market should be capable of reaching its potential and staying there in a shorter time than could be expected of the same facility in a residential market. The problems inherent with a tourist market setting are: (1) the volume of tourists can fluctuate from year to year; and (2) competing courses can pop up overnight. A resident market presents a different situation. The size of the market is not likely to fluctuate significantly and competition is usually not as keen. However, if a course in a resident market is to optimise its opportunity, it must do two things. First, repeat visits are essential, so it is critical that the facility be properly priced and patrons must thoroughly enjoy their visits. Secondly, the facility should be marketed on a broad front. This implies a strategy that includes group sales, promotions and maybe even some type of season pass.

 

AL: In our last interview we spoke about feasibility of the miniature golf facility; let’s talk about the customer, who he or she is and how that affects investment and location decisions. I have spoken with a number of industry leaders who seem to agree that miniature golf crosses over the age groups fairly easily.  What is your opinion about the distribution of miniature golf play among age groups and how it affects development decisions?

 

WH: Our research shows that miniature golf players are as close to a mirror image of the community as any recreation facility might be. This psychogram goes to the nature of the experience, which is family orientated and something that family members of all ages can do. Very few recreation activities can make this claim. Having said this, I still would prefer to locate a facility in an area with a high percentage of young people.

 

AL: We have conducted a number of polls and found that miniature golf also seems to appeal to a wide variety of group dynamics. We know that it is good for young groups of friends just out looking for something to do. We know that young people on dates find miniature golf to be attractive. We have noticed a high number of single parent type situations with young children. Persons in their twenties and thirties either as a couple or in a group are frequent players and senior citizens are coming out with other senior citizens and with grandchildren. Is there any way that you quantify these for a given market? And what other group dynamics might affect the amount of play to be expected from a given market?

 

WH: We have witnessed the same group dynamics of which you speak. However, I am of the opinion that much more could be done to develop group business. It's just a case of marketing.

 

AL: This discussion of who plays miniature golf must consider the entertainment value of the product both free-standing and as part of a larger complex. I know entertainment value relates to length of stay. Can you elaborate on this for miniature golf? Also, I have another trick question. If a very elaborate miniature golf can support admission prices of $4.50 to $6.50 how does the entertainment value of this relate to a pay-one-price multiple attraction facility which only charges $6 to $10 entry?

 

WH: As we have both indicated, miniature golf requires about one hour to play. Adding other elements would simply extend the length of stay.  I have been asked many times to comment on the merits of a pay-one-price admission system for a fun centre. My position is that a POP is not appropriate for a fun centre. My concern would be that a few patrons could abuse the system and cripple the capacity of the fun centre during busy periods. Also, some elements like go-karts and bumper boats can very quickly lose their value if patrons are allowed to ride them until they experience "burn out". The only type of admission policy that I would recommend other than separate user fees would be a general admission charge that is redeemable for miniature golf and other elements, once the patron is in the park. This system can be used to screen out loiterers and trouble makers, who are not at the fun centre for legitimate reasons.

 

AL: I have seen some miniature golf courses that at $2 per round were above what I thought the value was and I have seen others at $4 admission that I thought was below the value. Is there some guideline you have on this subject for miniature golf? How does the customer perceive these variations?

 

WH: As you know, pricing is a subjective issue. However, it is also determined by supply and demand. If you have the only miniature golf course in town, you can probably charge more than you could if you have competitors. As for the visitor's perception, we must remember that we are selling entertainment, not athletics. To the extent that you can design a course that offers fantasy and illusion, the visitor will show his appreciation by paying higher user fees.

 

AL: We touched earlier on repeat play. Tell me what that has to do with entertainment experience and please differentiate this from entertainment value?

 

WH: Repeatability is a function of the visitor's experience. An attraction that is participatory is more repeatable than one that is passive or spectative. Entertainment value is that intangible factor that keeps people at an attraction. If miniature golf has one hour's worth of entertainment value, patrons will stay for one hour and then leave unless there is something else to keep them there.

 

AL: You have written about attendance composition and how this affects the attendance potential. Please describe what you mean by this and then I would like to know how you fed about the ability of a miniature golf facility to maintain a good percentage of its sales tied to groups. My experience to that a free-standing facility cannot make a very large gain into group sales as a percentage of business without multiple courses or activities. What would the ideal percentage of group sales be for a family entertainment centre versus a free-standing miniature golf facility. How do you feel the physical size of a miniature golf course affects the percentage of group sates?

 

WH: I'm doing some dead reckoning on this one, since the track record for group sales among fun centres is not that good. If I were to take a page from the water park book, I would say that 35 per cent is a good target number. I think that it would be somewhat more difficult to sell groups on a free-standing 18-hole miniature golf course, if for no other reason than lack of capacity. However, I do think an expanded family entertainment centre could do quite well by marketing church groups, sports teams, scout troops and the like.

 

AL:  How do you go about establishing what the final attendance of a miniature golf project should be?  Also, do you still provide various levels of attendance such as pessimistic, probable and optimistic?

 

WH: In projecting attendance for miniature golf and fun centres, I use the market segmentation approach. By that I mean that I divide the market into several segments or zones. In a resident market, I will have a 0 to 5 mile zone, another of 5 to 10 miles and another of 10 to 15 miles. I may also have a tourist market segment. Based on the proposed concept, market demographics, competition and weather, I estimate a market penetration rate for each segment, apply that rate to the population of that segment and add up the results. I project one set of numbers for a five-year period, which represent my best judgment of the project's attendance potential.

 

AL: Our company has also conducted research into the things that guests do before or after playing miniature golf. The most frequent items associated with the visit to a miniature golf facility are shopping and eating out. This certainly makes a good case for the proper location. Is there any other significance in this?

 

WH: Absolutely. Synergy does not have to be confined on-site. If you can locate a project near other attractions that work in tandem with your project, you should do so.

AL: When you provide a financial analysis for sites how does land ownership versus land lease enter the equation for miniature golf facilities? From a project feasibility point of view are there times when lease is a better way to go?

 

WH. From a cash flow perspective, it does not usually matter whether the land is leased or owned. However, there are reasons to go either direction. If financing is a problem, the lender may want the land as collateral; something that you can't give him if it is leased. On the other hand, there are times when you can get a strategic site on a lease basis that you could never afford to purchase. This situation occurs when a land developer sees that he is better off to derive some lease revenue for a few years until the market is right for the development of a higher and better use.

 

AL: Is there any way to generalize the miniature golf statistics. Can a properly located residential miniature golf course with 100,000, 200,000,300,000 or 400,000 persons within 15 miles expect a specific number of plays? This is the most frequently asked question by potential owners. Do you have any general guidelines or can this not be done except with more study? What about residential markets smaller than 100,000 persons?   

 

WH: As a rule of thumb, a project might expect to achieve a 40 to 50 per cent penetration rate of the residential population within five miles and considerably less out to 15 miles. Of course, we must weigh such factors as weather, competition and market area demographics if we are to make a realistic assessment of the project's potential.

 

AL: I would like to centre our closing  discussions on the tourist market. This is totally different than the residential market. Tourists are actively looking for recreation opportunities and are not as price conscious. I have some specific comments. First I do not feel that the residential population has much relevance except when reaching market saturation for miniature golf development or unless the market is very small. By this I mean that my experience tells me that number of transient accommodations, levels of occupancy, average number of days stayed, number of people per room, reason for trip to the area are critical. What is your feeling on this subject and do you have any thoughts about market saturation?

 

WH: Over the years, I have developed a methodology for projecting attendance at recreation projects that is based on the market segmentation process, which I alluded to previously. Maybe it is just out of habit, but I always account for every available market that I can find. Therefore, even when doing a study in a tourist market, I assess the resident market for that area. Sometimes it is insignificant and others it is worth considering, especially in formulating marketing and pricing strategies for the off-season. However, more often than not, in a tourist area, it is the tourist that must be counted on to support the attraction. Regarding market saturation, I think each project has to be judged on its own merits. For example, I have conducted more than a few studies in which I found a strong tourist market but not for commercial recreation. Las Vegas is a good example. With nearly 20 million visitors per year, a recreation attraction there would be fortunate to achieve a penetration rate of five per cent. On the other hand, tourist areas such as Gatlinburg, Myrtle Beach, Branson and the Wisconsin Dells are fertile grounds for miniature golf and fun centres.

 

AL: Where there are large tourist markets such as Orlando we have now seen a large number of miniature golf courses developed. Some of the early ones have lost attendance. How do you feel we can account for this? I assume some of this relates to building a bigger and better mouse-trap as each new course comes on stream. But some of this has to be attributed to the addition of more larger attractions and entertainment facilties. What are your perceptions?

 

WH: In this regard, I think we can learn a lesson from the lodging industry. Experience has shown that the market is fickle and loyalty is all but non-existent. When a new project opens up with just a little more glitter, the market surges through its doors. I believe this tendency is even stronger in the recreation industry. Remember, we are talking fantasy and illusion. Tourists and residents alike have little loyalty where recreation is concerned. All of this suggests that an established project needs to stay on top of the situation by seeing to maintenance needs and being as ingenious as possible in marketing. I do not know that I am totally convinced that the problem is the larger attractions. This may be true to some extent; however, the larger attractions are also the reason for the growth in the tourist market, at least in Orlando.

 

AL: It seems to me that there are plenty of markets available in these situations but at some point in time there must be an entertainment overload on guests in terms of physical stamina, cost and time that affects potential miniature golf development.  What are your thoughts?