Air University Review , January-February 1979

What About The Club?

Are Officers’ and noncommissioned officers' (NCO) clubs in our Air Force future? Can the open messes afford to remain relatively static in an ever changing environment? Will members continue to pay increasing dues to subsidize operating losses? Are the major commands (MAJCOMs) going to allow clubs to operate even if monthly losses continue? This article deals with the difficult question concerning club operations of the future and suggests one long-term solution. The question is, "Can the clubs survive?" My answer provides an affirmative response and seemingly achieves the statistical impossibility of gaining more for less.

During the past few years, we have been experiencing a less for more malignancy in clubs at many Air Force bases. Members continue to pay more in dues, and prices increase, while the quantity and quality of the services deteriorate. At overseas bases, the loss of slot machines was a severe blow to the financial stability of clubs. Pay comparability and continuing increases in wages have also increased operating expenses. Complex operations require extensive accounting systems, which are labor intensive or involve costly mechanization and computer time.

Entertainment is usually the first thing to go. It is a very visible expense that may not seem to have a significant impact on club participation. Next, the cost of labor must also be reduced. As in all sectors of the economy, labor is becoming the most expensive input to club operation. So now we have one bartender instead of two or fewer waiters in the dining room on a Saturday night. Customers become dissatisfied with the poor service and eventually take their business elsewhere. The club responds by continued work force reductions until reaching the logical conclusion of no customers and no employees. Meanwhile, dues are increasing to offset operating losses.

This is an oversimplified, possibly exaggerated, view of clubs. However, the hard realities of clubs at one typical small base suggest some disturbing predictions for the future. Except for an occasional small profit in the NCO club, neither club has enjoyed a monthly profit for the past two years. During some months, the losses were as much as $2.00 per member in the NCO club and $10.00 per officers' club member. New requirements have increased accounting costs by 100 percent since December 1975. Hourly wages increased approximately 8 percent during a recent six-month period. Labor costs also increased as a result of the requirement for local wage comparability, evening and night shift differentials, holiday and Sunday premiums, retirement and leave programs, and severance pay accruals.

These factors led to continued centralization of common club activities until a recent decision combined the dining operations of both clubs into the NCO club facility. This joining of facilities changes the traditional concept of a self-sustained, two-club operation; however, its effect seems to be only short term. Even if the predicted small profit is realized, the black totals at the end of the financial statements will soon turn red with the next increase in labor costs. Nevertheless, we are still talking about less for more, whereas I promised a reversal to more for less.

A quick review of a typical open mess operation usually shows that the dining room is, at best, breaking even but usually experiencing a continuing monthly loss. At the same time, lounge operations are enjoying sizable monthly profits. At one club, located on an overseas base with a relatively small military and civilian population, the dining room lost over $1000 per month in FY76, while the NCO club experienced a $1500 monthly loss. During FY76, the monthly lounge profit averaged approximately $1400 in the officers' club and $5000 in the NCO club. Some traditional reasons for this dichotomy are the following; (1) higher gross profits from liquor and beverage sales, while dining rooms must operate on a much tighter profit margin to remain competitive; (2) dining rooms are labor intensive, but the labor costs in the lounges are minimal; (3) inventory control costs are high in the dining room, while lounge inventory is relatively easy to manage; (4) kitchen equipment is expensive to procure and maintain, but bar equipment requirements are insignificant by comparison.

To achieve long-term improvement, the focus of our problem-solving attention should be directed to the club dining facilities because these are the traditional losers, particularly at small bases. Then we must broaden our perspective and look at all factors in the environment, not just specific aspects of club operation. The environment includes the base population, all dining facilities on base, the surrounding community, and restaurants off-base. By identifying and addressing only club dining room problems such as labor costs, cost of goods, and gross sales, our managers have overlooked one significant factor in the environment. That factor is competition!

At the same small base referred to previously, there are 4500 possible dining room customers, including all assigned military, civilians, and their dependents. At the same time, three major nonappropriated fund food-serving facilities--the officers' club, the NCO club, and the Army & Air Force Exchange Service (AAFES) cafeteria--compete for business. In addition, there are appropriated fund dining facilities for enlisted personnel and numerous restaurants in the civilian community.

The clubs have not been effectively competitive. The AAFES cafeteria was getting about 80 percent of the food sales business while the clubs were splitting the remaining 20 percent. A closer look revealed that the competition really was not fair. While the AAFES cafeteria can draw its business from the whole base population, the clubs must restrict their sales to members only. In our example, officers' club membership ranged from 175 to 185. Virtually, all officers were members, while approximately 50 percent of the eligible U.S. civilians joined the club. The NCO club membership was significantly higher; however, only 55 percent of the enlisted population were club members.

The average number of dependents per assigned military member and employed U.S. civilian is 1.5. Assuming that this average also applies to the club membership, the total of 1000 members of both clubs have 1500 dependents. As a result, the possible customers for both club dining rooms are about 2500 people, as opposed to the 4500 that the AAFES cafeteria draws from. The officers' club with a full dining room staff of eight employees, operating six days a week, obtained food sales business from an approximate total of 440 potential customers

A simple break-even analysis clearly points out the problem. We can establish a typical labor cost and cost of goods sold from past experience and determine the amount of sales necessary to break even during a one-month period. The calculation includes the sum of both club dining room operations. According to the preceding computation, it requires combined monthly sales of $18,085 to break even in the dining rooms. An average of last year's actual total dining room sales for both clubs was $14,084, $4000 less than the amount required to break even.

A skeptic may say, "That's an easy problem to solve--just cut labor or raise prices or both!" Probably both would be necessary to make up the $4000. But how high can prices go before you price yourself out of the market? On the other hand, the number of employees seemed to be at a minimum to operate two dining facilities for six days a week. A reduction in labor below the undefinable magic minimum reduces service and sales. So the cutback in employees becomes counterproductive.

An answer to the problem seems to be in gross sales; however, competition is also a major factor. If we include the gross sales of just the AAFES cafeteria in our model, we find that the clubs have not been very competitive. As previously mentioned, the cafeteria has been claiming about 80 percent of the monthly food sales, while the clubs split the remainder. The cafeteria income averages approximately $55,000 on a monthly basis. Moreover, the cafeteria makes approximately 5 percent to 10 percent profit from their sales, while the clubs lose money each month.

I propose to solve the problem by eliminating the competition! First, close the AAFES cafeteria at its present location. Then convert the dining room in the NCO club to an AAFES cafeteria, and establish a more formal AAFES dining operation, such as a "steak house," in the officers' club facility.

Of course, these changes will require some structural redesign in the officers' and NCO clubs. A partition must be constructed in each club facility to enable AAFES and the club to share the same building. The partition must clearly separate food service from liquor sales because all base personnel and dependents would be eligible to use the AAFES dining rooms, while the "club" lounges would be restricted to members only. Separate entrances are also desirable; however, some club layouts may require joint use portions of the building. For example, both AAFES and club customers may be required to share a common entrance to the building, latrines, and coat closets.

The cost of partitioning the facilities to separate club and AAFES operations should not be excessive. Usually, it would require construction of a sound resistant wall and some doors; however, the AAFES renovation could be more extensive. Internal remodeling would probably be necessary to comply with AAFES requirements for a cafeteria or steak house operation. Responsibility for funding the partition may be established through mutual agreement, but cafeteria and steak dining room remodeling should be funded by AAFES.

The impact of this proposal affects numerous base activities. It addresses problems that have been unresolved for years and provides many advantages to AAFESI officers 'IN CO clubs and the base community. Some of the many potential advantages of this proposal are as follows.

Competition is limited. Now AAFES will be the sole provider of prepared foods through major nonappropriated fund food serving facilities and will generate business among the total population of possible customers. Some may say that this is a disadvantage because monopoly means price fixing, price escalation, and poor service. This may be true under normal circumstances; however, the AAFES organization will still be competing with on-base appropriated fund and off-base food service establishments. As a result, AAFES prices and customer service will be driven by this competition. If they are not competitive, customers will be lost to other establishments. AAFES can also adjust its operating hours to take advantage of business peaks at either of two different types of food serving facilities. For instance, the cafeteria would probably stay open extended hours while the steak house operation may be profitable only on a three- or four-day-a-week-type plan. Regardless, there are no longer three completely separate operations trying to compete for business within a very limited population of possible customers.

Club lounges equal profit. When AAFES begins to operate food service, the clubs will be reduced to a lounge only operation. Traditionally, dining rooms have been losing operations in open messes, while the lounges have either completely or partially subsidized the dining rooms to reduce the amount of total loss or to allow the club to make a profit. With the lounge only operation, the clubs will be in a continuing profitable position and, as a result, can start providing more services to members, rather than the traditional raising of dues while cutting services and entertainment.

• The officers'/ NCO club consolidation trend is reversed. Besides allowing AAFES to be sole provider of nonappropriated fund food on base, this proposal is advantageous because lounges and food serving facilities will be collocated. Recent discussions on open mess operations point to the possibility of consolidating clubs that are not making profits. In some cases, consolidation of dining rooms leaving lounges operating at separate locations results in liquor service without a collocated food operation. Although this possibility has the advantage of consolidation while still providing separate facilities for both officers and NCOs, it leaves one open mess or the other without a dining room. Now there is another problem because members are not given the opportunity to purchase food with liquor. My proposal maintains the traditional concept of separate clubs for officers and NCOs while providing food service in each facility.
• Administrative charges. Many administrative expenses associated with operating an open mess are directly related to the dining room and kitchen. For instance, depreciation and other dining facility support expenses are normally charged as administrative costs. With a lounge only operation in the club, these expenses will be eliminated and administrative charges should be significantly reduced.
• Labor costs. The dining operation in the open mess is normally labor intensive because waiter service is usually provided. The cost of this labor is one of the factors that usually makes the dining room a losing activity. With the implementation of my proposal, labor costs will be significantly reduced because a lounge operation is not labor intensive.
• Accounting costs. An analysis of the clubs previously used as examples indicated that the joint officers' and NCO club accounting costs ranged between $3000 to $3500 per month. A review of the support provided by the Nonappropriated Fund Financial Management Branch (NAFFMB) indicated that a lounge only operation in both open messes would enable NAFFMB management to release as many as three employees. In addition, the accounting costs for NAFFMB would be reapportioned among all service activities. A realistic analysis showed that the portion of the accounting costs shared by the clubs would be reduced from 37.5 percent to approximately 10 percent.
• Catering. This factor is an advantage or disadvantage, depending on the relationship between base representatives and AAFES management. In the past, catering for parties has not enabled the clubs to generate profits; however, it is a lucrative aspect of this proposal for AAFES. They will be obtaining a monopoly in an area that has traditionally been closed.

With any new concept, there are disadvantages along with the advantages; however, an analysis of this proposal indicates that the benefits significantly outweigh the drawbacks. Inasmuch as a realistic approach must evaluate the disadvantages, the following factors are considered negative aspects of the proposal:

• Loss of control. Control of club dining operations by the commander would be reduced while control by the membership would be eliminated. This disadvantage requires extensive investigation because the degree of control over the traditional club operation is questionable now that MAJCOMS and the Air Staff have directed that open mess operations must be financially self-sustaining. The membership has lost control to a great extent, while the commander is tied to the bottom line of the financial statement. From one perspective, the implementation of this proposal could provide more alternatives to the commander. If the clubs operate lounges only, the profits will enable commanders and members to have more influence because decisions will not be based on the fear of experiencing a loss at the end of the month.
• Employee placement. In some overseas areas, appropriated and nonappropriated fund activities must operate within no reduction in force (RIF) environment. As a result, the employees in the dining operations cannot be casually discharged. Instead, similar positions at the same pay rate must be found for these employees in either the AAFES operation, appropriated fund organization, or other Morale, Welfare, and Recreation (MWR) Division activities. Although a problem, it is manageable and jobs can be found for these employees.
• Wine and beer sales. AAFES would be allowed to continue beer sales in the cafeteria and beer and wine sales in the more formal steak house operation; however, the sale of mixed drinks would be limited to the club activities. This arrangement is necessary because the AAFES operated portion of the facility must maintain its individual integrity, and the normal products sold by AAFES should not be restricted. The procedure is not viewed as a serious disadvantage to the club operations because business in the lounge would continue and probably increase with the collocated dining facilities.

This Proposal has many advantages and some disadvantages; however, it seems to be a desirable alternative to either consolidating open mess operations or closing the facilities completely. On small bases, consolidation is only the first step toward at least elimination of the dining operation. An analysis of a plan for consolidation indicated that even with optimistic income projections, the club would hardly be able to maintain a meager monthly profit. This profitable position would be quickly changed with the next pay increase or employee benefit.

By reducing competition through this proposal, the AAFES organization will be able to increase its business significantly, and we will enter a new era of prepared food service at Air Force bases. For the club member, this proposal changes the past trends and starts providing more for less rather than vice versa.

The big benefit is observed in the following projected financial statement of actual officers' and NCO clubs with consolidated administration and no dining rooms. This conservative projection shows a net profit of about $5000 before any dues are collected. Rather than requiring the high dues rates common in recent years, a nominal charge of$2.00 for enlisted personnel and $3.00 for officers would bring the profit to more than $7000. With this type of operation, more benefits could be returned to the members. Entertainment could become a new attraction, and money would be available for club facility renovations and nice-to-have items.

The Air Force Military Personnel Center made these comments regarding Major Guyse's article, "What about the Club?"

The article paints a generally bleak picture of escalating dues, higher prices, declining financial health, and poor customer service in the open mess program. It is true that dues and prices have increased somewhat over the past few years and will probably creep upward in the future, but this cannot be avoided completely. Open messes are not immune to the inflationary trends being experienced by commercial enterprises--and the Exchange Service. Costs to club members are still very reasonable. For example, monthly dues for NCOs and officers average $2.93 and $9.54, respectively.

Viewed as a whole, Air Force open messes have about $3.30 in current assets for each $1.00 of current liabilities, which indicates their financial solvency is healthy. Furthermore, total earnings were approximately $2.8 million in FY77, and dining room sales increased by $2.5 million over the prior year. While some of these gains represent increases in costs to patrons, they also reflect customer acceptance and satisfaction with services and products offered.

The open mess program has as its objective more than just providing a food outlet. Food is offered, but its presentation is not restricted to cafeteria or the standup counter service normally found in Exchange Service outlets. On the contrary, open messes provide a wide range of food activities, from snack bars, to cafeterias, to elegant dining rooms (with full table service). More important, open messes exist to provide an integrated program of food service, beverage service, and membership activities, including entertainment and social events. Unit esprit de corps is fostered through open mess dining and other social experiences. Open messes are also focal points for base/community relations activities. In short, open messes are the "social institutions" of the Air Force community and demonstrate that the Air Force is a total way of life.

Major Barry D. Guyse (M.S., University of Southern California) is the Deputy Commander for Resource Management at Aviano Air Base, Italy. Except for a tour with an IG team, most of his service has been in the resource management field. Other assignments include accounting and finance officer at Clark AB, Philippines, and RAF Bentwaters, England. A lieutenant colonel selectee, Major Guyse is a graduate of Squadron Officer School, the Industrial College of the Armed Forces, and a Distinguished Graduate of Air Command and Staff College and the Professional Military Comptroller School at Air University (ATC).

Disclaimer

The conclusions and opinions expressed in this document are those of the author cultivated in the freedom of expression, academic environment of Air University. They do not reflect the official position of the U.S. Government, Department of Defense, the United States Air Force or the Air University.

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