QUESTIONS

Step 1: Introduction

1. Make a short introductory paragraph regarding the case.

Step 2: Issues

1. What are the main issues in the case?

Step 3: Analysis

1. Analyze the current operations of Stone Rock Golf & Country Club.
2. Analyze the Canadian Golf Industry and Canadian Wedding Industry. Note that you can use outside research as support (keep in mind the case takes place in 2016).
3. Suggestion: Conduction some preliminary ratio analysis of Golf & Country Club. Consider different business tools that you may employ.

Step 4: Alternative Evaluation

1. What are the options/alternatives presented in the case?
2. Quantitatively evaluate the financial viability of the alternatives explicitly stated in the case.
3. Suggestion: Employ capital budgeting tools as part of your quantitative analysis.

Step 5: Recommendation

1. What alternatives should Roberts go with?
2. Indicate the impact of your selected alternatives on ratios with a pro forma income statement and balance sheet. List any assumptions.

Step 6: Implementation

1. Based on your recommendation, detail how you will implement the alternative and address any concerns.
2. Develop a simple balanced scorecard for the company to measure its performance (aim for two measures in each perspective).

Step 7: Conclusion

1. Make a short concluding paragraph to end the case.

Step 8: Executive Summary

1. Craft a short one-page maximum executive summary for your answers (i.e., your recommendations, key issues, and key parts of your analysis).

In 2016, Ivey Business School graduate Jordan Roberts, general manager of Stone Rock Golf & Country

Club (SRGCC), recognized a potential opportunity for further growth in the club's weddings and special

events business. He was considering the possibility of subsidizing the SRGCC, which was facing struggles

like others in the golf industry, by setting a goal to become the destination of choice for unique special

events in Southwestern Ontario. Roberts looked around his facility and decided that he had an ideal, rustic,

yet elegant wedding venue opportunity right in the maintenance area of the clubhouse. His quick

calculations indicated a likely capital investment of close to CA$1 million1 for the required renovations.

Roberts knew that he would have to approach his banker for financing as well as convince his board of

directors to take this leap! He began mapping out a plan to build his business case for the new space.

CANADIAN GOLF INDUSTRY

In 1999, the international golf industry saw significant growth due to the popularity of Tiger Woods.

However, the 2008 recession ended the "Tiger-Boom" that the golf industry had been experiencing as

golf?typically driven by membership revenues and green fees?was seen as too expensive, too difficult,

and too time-consuming for the average Canadian.2 Many courses across Ontario and the rest of North

America were forced into bankruptcy and foreclosed on loans due to the rapid decline in the number of

golfers. Over a decade, Canada saw 158 courses closed.3 According to Statistics Canada, Canada had an

estimated 2,400 golf courses and 1.5 million golfers?among the highest per capita numbers globally.4

Many courses in Southwestern Ontario could not survive the recession, and many courses had to close their

doors. However, many survived the recession through a solution that swept the industry: consolidation ofcourses. GolfNorth, for example, purchased numerous mid-tier golf courses that would have otherwise been

forced to close throughout Southern Ontario.5

The golf industry responded to the decline in the number of golfers by reducing green fees, adding more

nine-hole courses, changing the landscape design of holes to reduce play time, and marketing other games

such as footgolf (a combination of soccer and golf).6 Courses also slashed operating expenses by reducing

maintenance and turning off their sprinklers.7 In 2015, the Canadian golf industry was estimated to be worth

more than $14.3 billion and had started to rebound, with Canadians playing more golf than in the years

before8 (see Exhibit 1).

STONE ROCK GOLF & COUNTRY CLUB (SRGCC)

SRGCC, located in the small town of Ainslie, Ontario, began operations in 1931 with a nine-hole golf

course. The course had been privately owned since 1993, and the owners reinvested in meticulous

maintenance. While maintaining the difficulty that had existed in the original course, SRGCC had expanded

to a full 18 holes, taking advantage of the natural landscape, including ponds and creeks. The course was

also upgraded to include cart paths, additional trees, a waterfall, and revitalized sand traps. The course

quickly became one of the most revered semi-private facilities in Southwestern Ontario; it was highly rated

in various articles and hosted many Ontario Golf Association events.

The four local families who owned and operated SRGCC ran the business according to their family values

and their sense of loyalty and pride in their community. As a result, SRGCC was known for its high focus

on customer service and love of golf. The four families were represented on the board of directors, and

many family members had roles within the daily operations of the golf club.

Roberts was a board member and the son of the chair of the board; after completing his honours and master

of business administration degrees at the Ivey Business School and gaining experience in the retail industry,

Roberts joined SRGCC full time as the president and general manager in 2016.

Weddings at SRGCC

Roberts knew that hosting weddings was not a new idea for SRGCC. The club had been hosting weddings

for years; however, these wedding customers were usually children of the golf club's members, and they

had chosen the venue based on convenience rather than elegance. He suspected that the existing banquet

hall in the clubhouse, with its dated dcor and minimal natural light, was more appealing to golfers than to

brides and grooms. However, in 2012, Roberts was surprised to discover that a hotel in Ainslie had been

hosting, on average, 22 weddings annually?significantly more than the six SRGCC typically hosted.

Roberts also knew that the record-breaking numbers in 2012, when SRGCC hosted 12 weddings, had likely

been because superstitious couples wanted to avoid getting married in 2013.

Roberts knew that the board had been reluctant to make the wedding business a priority but had definitely been

swayed by the positive financial results from the 2012 wedding season. In the 20 years prior, the owners had

never drawn a dividend from the company. The venture had clearly become a project of passion rather than

business. Each of the board members, as well as the general manager and superintendent, had worked in the golfindustry for over 30 years; they were worried that shifting the focus away from golf would jeopardize the golf

business. Eventually, the board recognized the financial potential in weddings and special events and drafted a

business plan to request financing for a 2014 renovation project despite knowing that banks had been reluctant

to lend money to the golf industry. SRGCC received the financing and, in spring 2014, completed renovations

to the banquet hall, kitchen, and washrooms and added a bridal suite and an on-site ceremony location. When

the downturn in the golf industry continued into 2014, SRGCC suffered a loss of $60,000 that year, debt

financing became tight, and the bank was questioning SRGCC's future.

Reluctantly, the board realized that pursuing the weddings and special events business was critical to

becoming profitable again. SRGCC shifted its focus away from selling the golf-course to selling "golfcourse

weddings" and built a team dedicated to weddings, including a full-time wedding planner and

manager. Roberts's wife, Anne Kelly, took on the role and quickly focused on building a wedding

website?separate from the golf site?and a marketing plan focused on weddings. After facing considerable

resistance from the board members, Roberts and Kelly, with the rest of the wedding team, led SRGCC to

become a leader in the weddings and special events industry in Southwestern Ontario, particularly in Ainslie

and surrounding area. As word spread about the facilities and customer service provided at SRGCC,

weddings and special events customers came from as far as 100 kilometres away. The wedding numbers

quickly grew to 27 in 2015 and to 29 in 2016. Due to the growth, Kelly was promoted to director of special

events and used her passion for special events, attention to detail, and compassionate personality, to deliver

high-quality events to her clients. As well, she recruited a dedicated weddings and special events manager,

to focus on delivering everything the clients dreamed of, and a highly experienced executive chef and sous

chef, who offered 40 years of combined experience.

Despite the positive financial results that the wedding business brought, golf course revenues continued to

remain stagnant and management was still unsure about the long-term potential of the wedding business

for SRGCC. After joining the company full time in 2016, Roberts had remained focused on his goal to

provide the best golf, wedding, and special event experience. That year, SRGCC increased its revenues to

over $1.4 million?an increase of roughly 30 per cent or $330,000 over fiscal year (FY) 2014. As well,

2016 earnings before interest, taxes, depreciation, and amortization (EBITDA) jumped approximately 500

per cent over FY 2014 (see Exhibits 2 and 3).

To expand SRGCC's reach, Kelly also continued pursuing her goal of attracting customers from outside the

Ainslie area. She focused her efforts on impactful visual branding, estimating that 60 per cent of the SRGCC's

wedding customers found SRGCC through social media marketing. SRGCC also offered competitive pricing

on its wedding packages to attract couples from larger markets who were looking to find the best value. The

venue itself offered views of the lush golf-course property and included separate ceremony and reception spaces,

with large windows in the indoor spaces designed to bring the outside in. The results were positive! The wedding

business continued to grow, and SRGCC anticipated hosting over 30 weddings in 2017. However, with the

increased popularity of the SRGCC brand, Roberts and Kelly observed that they were selling out the prime

wedding dates of June to September 40 per cent earlier than they had for the summer before. By March 2016,

Kelly noted that the prime wedding dates for the summer of 2017 had already sold out; she had no choice but to

turn away potential clients. The special events business grew along with the number of weddings for a combined

70 events overall in 2016, increasing from 35 in 2014.

Impact on Golf at SRGCC

The substantial growth in the weddings and special events side of the business offered an increase in cash

flow for SRGCC, which ameliorated the effects of the decline in the golf industry and allowed Roberts to

continue to invest in maintaining the golf facilities. While the majority of the golf industry cut costs in order

to survive the decline in sales, Roberts focused on revenue growth and concentrated on his core customer.He reinvested in the property, responded to changes in the industry and in technology, and continued to

provide the leading golf experience. Focusing on the core values of SRGCC, he turned the club into a

community asset by providing an enjoyable and fun experience for everyone.

Roberts's revamped focus on the golf business, which targeted the non-avid golfer, increased sales at a time

when the rest of the industry saw a decline. Though golf memberships remained flat between 2015 and

2016, game packs (a pre-purchased set number of rounds for the season), private tournaments with golf and

meal packages, green fees (single-round purchasing), junior golf, and golf lessons saw substantial increases.

THE CANADIAN WEDDING INDUSTRY

According to a 2015 survey, Canadian weddings were anticipated to cost just over $30,000, with an average

of 129 attendees, and three-quarters of brides anticipated spending more than they budgeted.9 Just over

160,000 Canadian weddings were estimated to occur in 2015.10 More than three-quarters of Canadian

weddings occurred in the summer months or peak season?between June and September?with the

majority of weddings occurring in August.11 Of the weddings that occurred outside of peak season, a quarter

of them were destination weddings;12 a total of 14 per cent of all Canadian weddings occurred out of the

country.13 The vast majority of brides claimed that social media platforms such as Facebook, Instagram,

and Pinterest were influential in their wedding planning decisions.14

The 2015 and 2016 wedding seasons saw an increase in demand for unique, industrial, and rustic wedding

venues.15 While traditional spaces such as hotel ballrooms and barns remained popular, many brides and

grooms sought out unique venues that could be decorated either as chic wedding spaces that included

chandeliers or in a minimalistic style that let the exposed brick and rustic wood features shine.16

THE EXPANSION PLAN

In the summer of 2016, Roberts and Kelly were considering an indoor ceremony option for days with

unfavourable weather. While the couple led their architect on a tour through the club's facilities, he pointed

out the unique beauty of the exposed wood-beam ceiling in the golf maintenance shop. Recognizing the

opportunity this venue presented, Roberts and Kelly realized that the current maintenance shop in the

clubhouse could be the perfect new space for weddings and special events.

The golf maintenance space, part of the original clubhouse, was built in 1963 and had a rustic, industrial

atmosphere, with the original, exposed wood ceilings; rustic wood beams and trusses; various wood

features; exposed brick; and industrial-style cement floors. The space aligned perfectly with the current

trends in event and restaurant spaces, which favoured rustic-elegant design. The couple's vision was to add

large glass garage doors to increase natural light and airflow in the space while giving guests views of the

golf course. Through the addition of elegant decorations and lighting, such as large chandeliers and stylish

furniture, Roberts and Kelly felt they could create the perfect new space. They knew that SRGCC had toinvest in a second, complementary wedding facility to sustain the business in the long-term and that a

second venue would provide financial benefits for the club.

The Hideaway

Roberts and Kelly named the converted maintenance facility?the potential new venue space?the

Hideaway to differentiate it from the existing Ballroom. In order to operate both spaces at the same time,

Roberts knew they needed to expand the existing kitchen and create access from the kitchen to both spaces

and purchase an additional $100,000 in kitchen equipment. Further, a grand entrance to the space was

needed as well as outdoor space for cocktail receptions overlooking the golf course. Other renovations to

the current space included washroom additions, a bridal suite, and a generator to provide back-up power

for both the Ballroom and the Hideaway (see Exhibit 4). Roberts estimated that the renovations to transform

the maintenance facility into the Hideaway would be $445,000.

To keep the renovation and operating costs of the space lower and to add to the industrial feel, the Hideaway

renovations would not include insulating or heating the space for winter use. Therefore, Roberts and Kelly

planned to host weddings in the space during the peak wedding season and the warmer months?from May

through to October. Estimated sales per wedding would be slightly higher than the current averages for the

Ballroom at $13,500 for Saturday weddings and $10,500 for Sunday to Friday weddings, as the Hideaway

would have a capacity of 210 guests for a seated meal or 250 guests for a standing cocktail reception; the

Ballroom had a capacity of 180 guests seated and 200 standing. Kelly estimated that 65 per cent of the

weddings and special events would be seated meals and the remaining 35 per cent standing cocktail receptions.

Kelly predicted that, in 2017, the Hideaway would host 15 Saturday weddings, at $13,500 each, and another

three weddings on other days of the week, at $10,500 each. Since the Ballroom was already nearly sold out for

prime dates in the 2017 wedding season, Kelly was confident the club could achieve this projection based on the

waiting list and number of potential clients who had already been turned away. By the second year of operating

both spaces, Kelly projected the Hideaway would host 18 Saturday and five non-Saturday weddings. Finally, in

2019, the Hideaway would host the full capacity of 21 Saturday weddings and another seven non-Saturday

weddings. Each year, Kelly planned to increase the price per wedding by 2 per cent. In addition to weddings,

Kelly estimated other opportunities to rent out the space would generate an additional $15,000 in revenue in

2017, $25,000 in 2018, and $35,000 in 2019. Again, she estimated a steady increase thereafter of 2 per cent.

Kelly also recognized that, to deliver two weddings at the same time, the number of kitchen and wait staff

would have to increase significantly, and both wedding timelines would have to be perfectly aligned to

keep the kitchens running smoothly. Staffing the now-double wedding operation would be a challenge in

such a small town. She expected to be able to hire temporary foreign workers to help with the kitchen and

service requirements of the peak season. However, Kelly and Roberts would have to research how this

process worked and consult with the board about this plan.

New Maintenance Facility

Roberts knew that if the current maintenance space were to be converted into a wedding venue, the club

would be short on room for its maintenance work. SRGCC had two separate spaces for maintenance

facilities and storage. The east side of the clubhouse was primarily used for summer operations such as golf

carts and off-season storage of equipment. The second space was an aging barn that was used for off-season

storage and seasonal material storage such as fertilizer, mulch, lawn tractors, and bunker rakes. The barn

was well beyond its useful life and needed to be replaced; Roberts felt this might be the optimal time to

review how to make the best use of a capital outlay to not only house maintenance activities and equipmentbut also make the maintenance operations more efficient. He planned to consolidate the equipment and

operations from the barn and the east side of the clubhouse to free the space for the Hideaway and to

construct a purpose-built space for maintenance away from the public spaces. The new maintenance facility

would be 8,100 square feet (752 square metres), to support the increased demand on maintenance, and

would include storage for all of the equipment from the two previous spaces and a dedicated space for staff

facilities, including an office, lunchroom, and washrooms. The total cost to build the new maintenance

facility was $269,050. He estimated that, considering utilities and personnel, the new facility would result

in a net annual savings of $55,000 a year, increasing at a rate of 2 per cent per year.

Parking Lot Expansion

In order to support the growth on both sides of the business, Roberts anticipated that SRGCC would need

another 100 parking spots. The existing lot was already fully occupied for large events, weddings, and busy

golf days; he estimated the cost for the additional 100 spots was $157,300, which included all of the site

work, electrical, concrete, and other expenses to complete the work.

Finally, as Roberts pondered the long list of investments required (see Exhibit 5) and the memo Kelly sent

him regarding the costs of running the expanded weddings and special events business (see Exhibit 6), he

wondered if SRGCC should just go ahead and invest in insulation and heating for the Hideaway in order to

have it functional year-round. This option would significantly increase the insurance and heating cost, by

$18,000 per year, but Roberts knew the industry statistics indicated that the majority of weddings occurred

between June and September. He was not sure how many weddings he should estimate hosting in the offseason

at SRGCC, but he assumed that he would have to offer a discounted rate for weddings in the offseason.

How deeply he could discount the rate without affecting his profit was uncertain. He estimated that

a 25 per cent discount would be required but was eager to see what the numbers would look like. He did

not think he would secure any non-Saturday weddings at all in the off-season nor did he think that the

special events business would increase significantly in the off-season. The Ballroom was available for those

events. Roberts was concerned about how he could staff special events in the off-season, given the transient

nature of much of the labour in Ainslie in the fall and winter months.

DECISION

Roberts had to convince both the bank and the four families who made up the board of directors that this

expansion was the future for SRGCC. He knew the families would be reluctant to put more capital into the

business and that SRGCC's overall cost of capital was currently close to 8 per cent. He wondered if he

should play it safe and focus only on the immediate capital needs of the barn and maintenance facility and

hold off on the Hideaway and increased parking. Alternatively, he could just go all out and propose the

entire project. If he mentioned winterizing, he knew he would be asked how much busier the club would

need to be in the off-season to justify that option. Roberts knew that he would also have to convince the

bank that the club was financially stable both before and after any expansion. He knew that he needed to

determine the impact of both the increased debt and the returns on the project on SRGCC. Roberts also

questioned whether Ainslie, a town of 7,500 people, could support another wedding venue for the summer

season or for the full year. With the golf industry slowing and the barn deteriorating, he knew SRGCC had

to act quickly and prudently in order to maintain its reputation.

EXHIBIT 1: GOLF COURSE INDUSTRY BENCHMARK DATA- REVENUE$ BY SIZE OF COURSE (2017) Bottom quartile Lower middle Upper middle Top quartile (25%) (25%) (25%) (25%) Revenue range: Low Value ($000) 30 $ 266 $ 586 $ 1,240 High Value ($000) 266 $ 586 $ 1,240 $ 5,000 Revenues and expenses % of revenues Total revenue 100.00 100.00 100.00 100.00 Sales of goods and services 84.10 86.40 90.30 81.50 All other revenues 15.90 13.60 9.70 18.50 Cost of sales (direct expenses) 17.60 22.20 25.10 26.20 Operating expenses (indirect expenses) 90.80 80.90 77.20 73.90 Total expenses 108.30 103. 10 102.40 100.10 Net profit/loss -8.30 -3.10 -2.40 -0.10 Financial ratios Current ratio (x) 0.60 0.60 0.70 0.40 Debt to equity ratio (x) 4.10 3.40 2.70 2.20 Interest coverage ratio (x) -1.30 0.30 0. 10 0.90 Gross margin (% ) 79.10 74.30 72.20 67.80 Return on total assets (%) -1.90 0.60 0.20 1.10