Topgolf Fore the Win

Topgolf circumvents the declining trend of the golf industry by effectively aligning its business and operating models.

While the golf industry in the United States enjoyed tremendous growth in the 1990s and early 2000s as it rode the success of superstar Tiger Woods, participation in the sport has declined in recent years. According to a study by the National Golf Foundation, the number of golfers has dropped from 30 million in 2005 to 24.7 million in 2014 (1). While the economic recession certainly played a role in this decline, a shift in consumer behavior is also responsible as today’s consumers demand more value out of their golfing experience than offered by the traditional golf infrastructure.

Business Model

A Topgolf driving range leverages technology to create a game out of the experience. Its golf balls contain microchips that can track the precise outcome of a player’s shot, allowing golfers to keep score and compete against one another as they aim for targets much like a game of darts. While the driving range is a key piece of Topgolf’s business model, the company differentiates itself from the incumbent driving ranges and golf courses by positioning itself as “a global sports entertainment community creating the best times of your life” (company website). Topgolf has been able to fight the overall downward trend of the golf industry by effectively aligning its operating model with its business model.

Operating Model

Facility Design 

While the size and specs of Topgolf facilities vary slightly by location, a facility will typically include pool tables, shuffleboard, flat screen TVs, bar tables, couches, fireplaces, private event rooms, a rooftop terrace bar, and of course a 3-story driving range (5). While wait time for driving range bays can sometimes be as long as 3-4 hours, Topgolf is able to create and abstract value from customers who are waiting in line (much like Benihana’s) through these various other entertainment outlets. This strategy seems to be paying off as over 60% of its customers are not prior golfers (4).

Topgolf 3Topgolf 4topgolf 5

Hiring Process

In order to deliver on its claim to offer its customers an end-to-end experience as opposed to merely a place to hit golf balls, Topgolf must ensure it is hiring the right people. In order to accomplish this goal, Topgolf utilizes a unique hiring process that encourages candidates to show their creativity, passion, and ability to entertain. Applicants are asked to brainstorm ideas for events, come up with unique business plans, or even sing and dance on the spot (4). Employees at a Topgolf facility are constantly interacting with customers in order to create an entertainment community, making its people a key ingredient in the business model.  

Food & Drink

95% of all food at a Topgolf is made in-house from scratch. Each kitchen is led by an experienced executive chef who coordinates with corporate to determine a menu. Even the hiring process for the executive chefs aligns with the business model, as Topgolf hosts a Chopped-style competition in order to screen candidates (2). As a result of a focused effort on its operating processes within the kitchen, 60% of Topgolf’s revenue now comes from food and beverages (4).

Growth Strategy

Topgolf’s decision to engage in strategic partnerships to fuel growth has allowed the company to benefit from economies of scale. For example, Topgolf commonly works with the same 3 companies when opening a new location:

  1. real estate investment trust EPR to secure financing for new properties (3)
  2. Aria Group Architects as architect with specialties in entertainment, restaurant, and hospitality (3)
  3. ARCO/Murray National Construction Co. as general contractor (3)

While the high fixed costs associated with this business already serve as a barrier to entry, these strategic partnerships give Topgolf an even greater advantage over potential new-comers to the market. Through these partnerships Topgolf has been able to create a streamlined design template that can be used for its new openings. However, in order to continue to align on its promise to deliver the best experience to the customer, Topgolf also engages with local partners to customize the look and feel of each location to match the culture of the local market (3).

https://www.youtube.com/watch?v=90TP1btBAbc

SOURCES:

(1) http://www.golfdigest.com/story/number-of-golfers-steady-more

(2) http://www.atlantamagazine.com/dining-news/alpharettas-newest-entertainment-complex-topgolf-revs-up-its-menu/

(3) http://urbanland.uli.org/development-business/traditional-golf-fades-hybrid-sports-life-topgolf-tee/

(4) http://www.golfdigest.com/story/topgolf-luke-kerr-dineen

(5) http://klnbretail.com/topgolf-ashburn-opening-tomorrow/

 

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Student comments on Topgolf Fore the Win

  1. Great post David. I had my first Top Golf experience over the summer at home in Florida as they recently opened one in Tampa. It was a fantastic experience and I would definitely go back again. It was interesting learning about their operations. I had no idea most of their food was made from scratch! Or that they took hiring so seriously. I think it definitely shows, as I was impressed with how great the service was despite the crazy amounts of people there. I couldn’t tell if Top Golf was just a new fad or if this place was actually going to maintain this level of business. It was all the buzz when I was at home so I had to check it out. I think they definitely do a great job of getting people in and providing them other avenues of entertainment as they wait to golf (which can be long, as you mentioned). However, the wait is still fun and I didn’t mind it. And even while you golf I thought it was great that we got to eat and drink by our bay. The whole experience reminded me of those eat, drink and bowl type of places – except for golf. They translated that concept well. The only thing that concerns me is that the investment required to build a Top Golf is clearly high. Do you think they will have the strong consistent user base required to get returns on this investment? Or is this just a fad?

  2. I love this idea! I want to visit one!
    As you mention, they are positioned as an entertainment alternative rather than a practice alternative. This struggles me, because (I think) it does not align to the causes of the downward trend on the number of golfers.
    Practicing golf is expensive and time consuming, so I would imagine Topgolf as a great alternative for amateur golfers. I can imagine executives practicing after their long workday or during lunch hours… That would lead to more loyal customers while not forgetting the customer base that they are currently serving. While doing so, I think that some changes of their operating model might be necessary, such as confirmed reservation and personalized service.

    1. Hey Arturo – thanks for the feedback! I completely agree that Topgolf needs to strike a balance between attracting new customers (non-golfers) to the game without simultaneously neglecting its customer base comprised of true golf aficionados (myself included). They do currently offer membership options with varying benefits, most notably of which is the ability for cardholders to skip the line upon arrival. While these membership options have sufficed to date, it will be interesting to see if Topgolf finds a need to further differentiate its operating model in order to cater towards its different customer segments as the user base continues to expand.

  3. Great post, David. Topgolf is a such a fantastic idea, and it’s amazing how quickly it has grown and been successful in each new market. However, I am curious as to it’s ability to maintain it’s current growth trajectory and how rapidly it will try to expand given the large amount of remaining market white space (it’d be great if they put one in Boston already…). Likewise, it’s brand name and some of the key aspects of it business model you highlighted such as the strategic partnerships give it a great head start, but I wonder how long the model can remain unique and if a well capitalized and aggressive competitor could quickly start challenging.

  4. Hi David, enjoyed reading this and am certainly keen to try one of these if they ever set one up in Boston! I usually end up playing competitive mini-games when I’m on a driving range, but the lack of microchip-enabled balls means there’s invariably a lot of arguing about who actually got closer to the pin…

    I like how they’ve designed the facilities so as to encourage new golfers but I do wonder whether the business will stand the test of time. People have combined casual sports entertainment with good food and cold beer on tap for years (bowling alleys, pool or ping-pong bars etc.) but I can’t think of many off the top of my head that have managed to be consistently successful over the long haul. Perhaps there is a risk that more casual golfers flock to Topgolf as a fad of current times before moving on to something else? Topgolf might need to keep innovating its offering to keep them coming back, but like Arturo above, I do wonder whether the business is doing enough to retain serious golfers. While it can try to balance its offering somewhat, at the end of the day it might need to make call on whether its core target market is serious golfers looking to hone the specifics of their swing or groups of amateur golfers looking for something other than just going to their local bar.

  5. David – very interesting post. While I’ve never been, it sounds like something I’d love to do.

    My only concern is the major capital investment needed and whether they need a big box location to delivery a cool/new golf experience, especially in the broader context of other cheap/accessible golf experiences coming to market. Golf simulators that allow you to play famous courses have plummeted in price and space requirement Lately. You have apartment buildings and offices installing them in 100-200 square foot locations and give the virtual experience of playing the premier golf courses in the world. Is this a threat? Or can they find a way to leverage this as add an additional product to their portfolio without cannibalizing the core. Maybe they offer the “lite” experience in airports, office buildings and other short-attention span locations and use them as a hook to draw additional traffic to their bigbox locations.

    Cary

  6. David, I’ve never heard of Topgolf but it sounds awesome! It’s fascinating that 60% of its customers are not prior golfers – that has to be in stark contrast to other driving ranges and golf courses. It leads me to wonder, is Topgolf’s target consumer someone that has never played golf but always wanted to try? Or is it someone looking for a fun, activity-based experience like a bowling alley, etc, and Topgolf fits into that entertainment category? If it really is the former, then perhaps Topgolf should consider partnering with nearby courses and golf professionals. By making the introductory experience more comfortable to new players, it would definitely be a valuable service for the sport!

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