The Survival Case Study of the Raintree Club of Kuala Lumpur

THE RAINTREE CLUB OF KUALA LUMPUR

A CASE STUDY OF THE BUSINESS TURNAROUND OF THE RAINTREE CLUB OF KUALA LUMPUR, MALAYSIA; A ‘NOT-FOR-PROFIT’ PRIVATE CLUB REGISTERED UNDER THE MALAYSIAN GOVERNMENT’S SOCIETIES ACT

 

The Raintree Club of Kuala Lumpur is a Malaysian not-for-profit private sporting, recreational and family club that is registered under the Malaysian Government’s Societies Act. Its services and facilities command a 4 to 5 star rating based on international hospitality industry standards.

Warning: This webpage guide contains information about Graham’s role in the business turnaround of the Raintree Club of Kuala Lumpur, Malaysia. I understand how important this information is to you when making up your mind as to who can best help you if you are faced with a distress situation. Consequently, as the guide covers a lot of ground, expect a long read  

The Raintree Club of Kuala Lumpur: the story starts here

Appointment as General Manager. I was appointed to the position of General Manager in February 1992 under a three-year contract. Under the then existing regulations issued by the Malaysian Department of Immigration concerning the employment of expatriates by Malaysian organisations, it was not possible for me to be offered a long-term permanent tenure position, The terms of my Work Permit required me and the Club to train a replacement to take over from me at the conclusion of my contract.

Situation on Appointment. At the point of my engagement, the Club was experiencing serious cash flow and cash management difficulties. Additionally, since its formation eight years earlier, the club had never posted an annual operating profit, and its cash reserves were significantly depleted covering these losses. In turn, this situation had led to relationship difficulties within the elected Management Committee that in turn contributed to low staff motivation and high staff turnover.

Consequently, the level of service to Members was below that expected as standard in an organisation that hitherto had been independently rated as being of 4 to 5 star standard.

The Raintree Club of Kuala Lumpur: background & history 

Status. The Raintree Club of Kuala Lumpur is a prestigious not-for-profit private club registered under the Societies’ Act of Malaysia. It is a club that prides itself on its 4 to 5 star service as measured by commercial hospitality industry standards. The club is very well-appointed and has a paid-up capital of nearly $MYR 50 million ringgit. The Club has a constitutionally limited membership of 2000 shareowner members drawn from the higher stratas of Malaysian society.

Memberships. In that respect, original club memberships were sold for between $MYR 18,000 and $MYR 24,000 on a fully transferable basis, subject only to club Management Committee approval. In addition to the shareowner members, the Club has a number of non-shareowner members who are expatriate executives of foreign and local companies resident in Kuala Lumpur with Malaysian Government work permits.

Gaming. As a club formally registered under the Societies Act with a gaming room, it was continually subject to stringent governmental inspection, reporting and audit requirements, a consequence of the fact that the official religion of the country, Islam, does not sanction gambling.

The club’s wide range of recreational, leisure and sporting facilities:

Leisure facilities and activities:

  • 100 seat traditional western-style gourmet restaurant
  • 100 seat traditional Chinese gourmet restaurant
  • 90 seat ‘Brasserie’-style coffee shop with quick meals
  • Poolside bar with snack meal facilities
  • 100 seat traditional ‘Olde-Worlde’-style club bar
  • Karaoke lounge and bar
  • Gaming room (poker machines)
  • Card room/Mah Jong room
  • Video games room
  • Children’s library
  • Children’s playground
  • Banqueting and conference facilities for a maximum of 750 guests or 500 guests formally seated
  • Franchised specialty shops: sports/recreational equipment, beautician, unisex hairdresser, newsagent & confectioner.

Sporting facilities and activities:

  • 3 indoor and 6 outdoor tennis courts
  • 50 metre competition standard 8 lane swimming pool
  • children’s wading pool
  • 15 lanes ten-pin bowling alley
  • fully-equipped gymnasium
  • 7 squash courts
  • 3 badminton courts
  • 3 billiards & snooker tables
  • golf enthusiasts teams
  • masseur services
  • sauna facilities

Unexpected Consequences Related to the Club’s Membership Profile

Inactive members. One of the first discoveries I made concerning the cash flow difficulties was that about one third of the shareowner members did not visit the Club. Not ever! That meant that although these members continued to pay the regular monthly subscription applicable to all members, the Club had no opportunity to obtain any additional revenue from these members’ use of the restaurants and other ‘pay as you use’ facilities.

Fiscal disadvantage. This was a distinct financial disadvantage; the Club could simply not afford to have 35% of its members financially silent. Research into the reason that this situation had developed revealed that the problem was an unintended consequence of marketing activities undertaken to sell memberships in the early stages of the Club’s construction.

How Did This Situation Arise?

Membership classes. The Club has two classes of membership: personal and corporate. When the memberships were marketed for sale, they commanded premium prices. As already mentioned, original club personal memberships were sold for $MYR 18,000 and club corporate memberships were sold for $MYR 24,000.

Marketing based on investment, not clubbing. Unfortunately, and it is easy to use that term with hindsight, the marketing of the memberships focused on the fact that the purchase of a membership was an investment; the purchaser was in fact buying shares in the Club’s management company and these shares were expected to increase in value with the success of the club (a capital gain). The shares were also expected to realise the payment of a dividend each financial year.

This emphasis on marketing memberships as a financial investment at the expense of marketing memberships for Club participation reasons meant that many purchasers were persons who had no interest at all in participating in Club activities. 35% of the purchasers of a membership fell into this category.

Redress Attempts Fail

No redress. Despite attempts to get these members to use the Club, they refused all enticements, steadfastly refusing to attend the club. Consequently, I proposed the idea of introducing a $100 per month levy to be applied to those members who spent less than $MYR 100 in the club in any month. Such a decision however, required the agreement of members at an Annual General Meeting. The proposition was put before the next scheduled Annual General Meeting held and, after a heated debate, approved.

Financial Analysis and Human Resources Audit

Club audit. Soon after I took office, in company with the Chairman of the Finance Committee, I conducted a  full evaluation of the Club through the mechanism of a profit & cost centre financial analysis and human resources audit. The results disclosed many areas for improvement. The major problem area was the Food & Beverage Department. The difficulties and problems uncovered in the Food & Beverage Department were manifold and endemic.

Problems & solutions. They ranged from an acute over-staffing level to a lack of quality control and cost containment for the purchase of meat, vegetables, fruit, grocery items and beverages to the use of inappropriate pricing methods to determine restaurant dishes sale prices. For example, I discovered that the western-style restaurant signature dish, a 400 gram New York cut steak was being sold for $MYR 40, while its actual cost of production was in excess of $MYR 47! This goes a long way to explaining why the Club had such a long succession of annual losses.

Without specifying any particular order of priority or importance, the following list sets out the major difficulties and problems discovered within the Food & Beverage Department:

  • the department was overstaffed by 40 personnel,
  • quality checks carried out on perishable goods at point of delivery and acceptance were inadequate,
  • there were no price checks carried out before purchase orders were issued for perishable and grocery items,
  • controls on the usage of perishable and grocery items were inadequate leading to overuse and emergency purchases at higher than normal prices,
  • no cutting or cleaning of meat and fish occurred in-house; all meat and fish was purchased by specific cut or fillet, thus incurring high purchase prices,
  • clients booking function rooms were not required to place a substantial deposit, thus incurring a Club loss when scheduled functions were cancelled, and
  •  the formula that was used for many years to price restaurant items for sale was not an industry standard formula, and did not take into account all factors necessary to cost a restaurant dish.

Difficulties and problems discovered within other Departments were not as serious as those discovered in the Food & Beverage Department. They consisted of marginal over-staffing levels and the manner in which departmental purchases were made.

Action Taken to Restore Profitability

My tasks therefore were, within broad guidelines set by the elected Committee of Management, to recommend and implement strategies and policies to turn the club around, and undertake team building as a basis for higher levels of staff commitment and professionalism. In that respect, the specific activities undertaken to address the sources of the club’s difficulties resulted in the achievements set out below. I am therefore, modestly proud that the case study in survival of the Raintree Club of Kuala Lumpur shows my participation in a favourable light:

  • The club achieved its’ first ever annual operating profit, after a succession of eight years of annual losses.
  • I conducted a comprehensive profit and cost centre financial analysis & human resources audit that led to major cost savings which exceeded $MYR 1 million ringgit per annum, based on, inter alia,  staff reductions of 30% made without adversely affecting service levels and outsourcing certain functions provided more cheaply by contractors,
  • the significant reform of food & beverage pricing methodology,
  • a restructuring of the food & beverage department’s functional management, 
  • a restructuring of the gaming room operations resulting in greatly increased patronage.
  • I personally implemented a major staff reduction program that reduced staff from 211 personnel to 135. This program also reduced executive staff from 27 managers to 10. The staff reduction program was sensitively managed, and kept a balance between the necessity for the club to return to profitability, the obligation to provide an acceptable level of member services, and the need to treat staff fairly, while at the same time limiting adverse publicity and trade union industrial action. All redundant staff were found ongoing employment through Club assistance.
  • I appointed a Food & Beverage Cost Controller to apply price controls across all products required by the Food & Beverage Department and ensure that quality checks were carried out on perishable goods at point of delivery and acceptance.
  • I appointed a Butcher to prepare cuts of meat and fish required for restaurant operations and to control the use of perishable items. This appointment alone saved the club about $MYR 350,000 ringgit pa.
  •  identified and corrected weaknesses in the Club’s operational management and accounting systems to ensure that a high level of fiduciary responsibility was imposed to improve departmental administrative and financial accountability; this included executive training in budget analysis, budget preparation, and budget management, thus leading to the achievement of more effective budget compliance and more competent departmental administration.
  • I supervised the implementation of a proactive marketing and promotions program that resulted in both greater member participation in club activities, and greater business and community use of the conference and banqueting facilities, thus substantially improving cash flows.

This status quo was maintained until my employment contract was completed and I left the club to join another company.

Yours sincerely,

Graham  Segal

Chiron! the business doctor.™ ... relieves business pain!™ 

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© Graham Segal, Author. March 2013. All Rights Reserved

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This website and the associated webpages content are produced by Graham Segal trading as Chiron! the business doctor.™. They are licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License based on Graham's work at http://chironthebusinessdoctor.com.

Date this webpage last reviewed/updated: 7 May 2013

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