14 February, 2006
JAPAN GOLF - THE STATE OF THE GAME
Over the past 5 years significant changes have occurred within the Japanese Golf Industry. In this article we take a look at the state of the game, what exactly has happened, what is likely to happen and what is required to improve the state of the game.
The state of the Game
As Japans economy grew during the 70`s, 80`s and 90`s, so did the number of courses. Many of the existing courses were built primarily to cater for a demand that seemed never ending at the time.
The result is some 2400 courses and 3000 driving ranges which currently serve the estimated 9-10 million golfers here in Japan. In addition the common data available states that the average golfer will play 10-12 rounds a year and visit a driving range 18-20 times a year. Thus the question has to be asked - why are many facilities unable to capture significant rounds to be financially viable based on these encouraging statistics?
The answer to this is quite simple, the market information is inflated. This fact has always been a contentious issue in the Japanese Golf market with many facilities having claimed stronger performances in order to entice new members. However as times change many of the facilities with poor operations, poor locations, and poor image make the reality of achieving this actual data hard to believe.
So what do we know about the average golfer here in Japan? Based on a sample of 10,000 golfers taken in 2005. Age 58, male, lives within 50 minutes of the facility of choice, spends approx 480,000 yen (4,500 usd) per year to play the game, plays 6.8 times a year, practices 9.5 times a year and has and average disposable income of 5 million yen ( 45,000 usd). Based on this information developing a product and service range is quite simple. So what is happening?
What exactly has happened?
Firstly, to understand what is happening we must understand what happened.
In recent years many of the 2400 courses have either filed or been forced into bankruptcy.
Mainly due to the fact that many have outstanding member deposits coupled with accumulated losses that can not be re-paid by the owning company.
Over 300 courses have been bought by foreign investment companies (10% of the market) and a further 200 courses by Japanese investment companies. Many industry sources believe it is only a matter of time before at least 50% of the remaining 1900 courses are either declared bankrupt, purchased, restructured or seek the immediate support of 3 rd party management firms to turn around these non-profitable facilities.
In recent years we have seen international firms Goldman Sachs (Accordia Golf) and Lone Star (Pacific Golf) create successful and credible golf course ownership and operation companies. They have developed new operational, financial and quality standards that otherwise had been overlooked by Japanese owners. The encouraging aspect of all these acquisitions has been the action taken by Japanese firms such as Taiheiyo and Seibu in following the successful business model of Accordia Golf and Pacific Golf and ultimately creating more stability and success in there own portfolio of golf courses.
Japan has also seen the emergence of 3rd party management firms. These firms have been instructed by either current or new owners to operate facilities with the key objective of turning around performances and increasing the value of the facility. The number of these firms has increased dramatically over the past 3 years as many like firms both in Japan and abroad major see the opportunities available. In addition has been the acknowledgment of major Japanese golf course owners in creating a separate golf operational division simply for golf course management.
Troon Golf the global leader in 3rd party management has been one of the major players in encouraging this type of operation. Its success here in Japan and around the world is unparalleled by any other firm (195 facilities worldwide). The key objective of Troon being to provide the best experience for the golfer i.e. service standards, course maintenance, food and beverage, retail, miscellaneous services as well as efficient operations which in turn provide the owner with the best performance possible.
What is likely to happen?
The most significant factor determining golf futures may not actually be the game or the facilities which allow the game to be played; it could well be the aging population. Forecasts project Japan in 2007 may see negative population growth for the first time in its history. This key point is a result of a country that was in and economic slump for 15 years. A time in which disposable income (wages and benefits) did not increase, all products and services depreciated accordingly, birth rates decreased dramatically and the game of golf has lost a lot of its appeal due to the fact many people directly or indirectly suffered significant financial losses from the boom of the 80`s and early 90`s
Rates for golf have dropped considerably in recent years with averages across Japan ranging from 6,000 to 9,000 yen for a round of golf as opposed to the rates double and triple this some 15 years ago. A key note is that with and ageing population the younger population is being asked to work harder and longer to support a population that will requires significant support. The "new" or "prospective" market will have less disposable income and time to play golf based on the current offerings.
Therefore as the major golf bodies recognize the need to promote a game that is both enjoyable and affordable the market continues to decrease. The reality is that Japan has a limited population to promote and appeal towards based on the current trends. Therefore they must strike a balance between nurturing the game, keeping the existing market satisfied and ultimately growing the games numbers. In addition the game and facilities have to be promoted in such a way that golf has differing levels of participation so as to entice all types of users.
The positives for the user are that rates have dropped considerably and the current golfers are starting to play more frequently, however the capture rates have decreased and therefore facilities are continually looking at better ways of controlling expenses control and at the same time developing key revenue management schemes that keep the facilities viable and at the same time delivering a range of products and services required by the Japanese Golfer.
One thing is clear; unless Japanese Golf develops a clearer long term strategy then the game will only continue to lose the participation it once had and develop even more serious long term problems.
What is required to improve?
It is not rocket science. Fortunately all of the industry realizes what needs to be done but its sense of urgency and actual execution of the improvements are far too slow. Again we can look at the performance of the newly formed golf companies and perhaps see a different sense of urgency, one that combines professional business standards that identify and deliver the key products and services for the market.
Golf Courses are here to stay; they provide the land owners and government with significant returns in leasing, sale and taxes. Therefore at what stage will these key returns be identified as the key constraints for the success of a game that requires more than just declaring bankruptcy and key management?
Continual expense reductions of golf courses will occur and in turn the product, services being delivered will come at lower price, noting that this point based on present fixed costs is not that far away. Therefore the impact of time constraints i.e. leisure time and time to access facilities is key, disposable income, access costs i.e. tolls, passion for the game as well as image will become even more stronger influences on the games longevity and success..
Development of the game. Unlike never before is there a need to nurture the game. This needs to start in key potential markets such as the "grass roots" and "niche" markets that have been overlooked to date. These markets will in time deliver the required support to the game. A key point to note is that in other countries such as USA, Europe and Australia golfers under 18 years of age make up 6-8% of the total market where as here in Japan it is less than 1%. The games success in Korea and Australia over the past 20 years has been because of key grass roots programs
"Perception is reality", this is a significant point here in Japan. The game of golf has a perception problem, or some may say a stigma that many find discouraging for new markets. However it is the emergence of players such as Ai Miyazoto that bring incredible appeal to all markets both current and potential. Japanese golf requires role models and a lot of the current players need to give more back to the game that requires the support.
In time those with the correct thinking and forsyth will enjoy the benefits of this great game in more ways than others. The recent success of Pacific Golf's IPO, the strength of the Ladies Professional Tour is evidence of the industry's potential. It is a very important time for Japanese Golf lets just hope the resources available whether it be on or off the golf course, are used effectively in the next 5 years.
For more information on this article and information pertaining to the Japanese Golf Industry please feel free to contacting Paul Jones at - firstname.lastname@example.org
Paul Jones, 14 February 2006
Paul Jones is based in Tokyo and is currently both principal and managing partner for several projects in the development of the game here in Japan and Asia. Paul has held roles in all facets of the sport and hospitality industry including operations, assett acquisitions, assett management, PR and postioning, branding, retail and education.
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