Profitability remains elusive for Soho House parent Membership Collective Group. Raising prices will help the company eventually change this, but company leaders must be careful about not scaring off people who could begin to think membership no longer holds its value.
The newly public parent company behind membership clubs like Soho House still isn’t profitable, but company leaders see price increases and new clubs as the path forward for growth.
Membership Collective Group, which went public over the summer, reported a $77 million loss Wednesday for the third quarter. The company, dominated by the Soho House chain of clubs, has never posted a profit, according to its prospectus filed prior to its stock market debut.
While company leaders never raised membership prices in the last two years, inflation is the catalyst for what MCG leaders see as a runway for future pricing power.
“We are very, very respectful in that because people do want to come to a House and feel there is value for the money,” Membership Collective Group CEO Nick Jones, who also founded Soho House, said Wednesday on an investor call. “But they do realize their weekly shop is more expensive and that translates to when they go out.”
A combination of inflation on the price of goods, supply chain slowdowns, as well as labor shortages — though, Jones and other members of MCG’s leadership team on the call downplayed staffing issues — gave the company a need to boost prices.
This has meant a 10 to 15 percent increase on hourly wages and a 5 to 10 percent increase on food and beverage costs. Room rates at Soho House clubs are up by as much as 30 percent.
The rate surge isn’t scaring people off: Occupancy rates at guest rooms at the membership clubs averaged 70 percent during the third quarter, which is off the 95 percent occupancy seen pre-pandemic but above most national averages around the world.
The increases are likely to keep going, especially when it comes to food and drink.
“I think that we have more capacity and that we were slower to move on the increases,” Humera Afzal, MCG’s chief financial officer, said on the call on food and beverage price increases. “But now we can see we still have pricing power.”
Even in an inflationary environment, price increases can scare away members or customers if they begin to feel the product is losing value.
While Jones noted members are “incredibly understanding” of inflation and not changing their spending habits, Afzal added the price increases have been rolled out “gradually so that our members felt minimal impact.”
Labor shortages grappled the entire hospitality industry this year, but MCG leaders indicated on the investor call they felt like they almost had a head start in this arena due to Brexit. The company began recruiting from other industries like retail and the airlines to make up for any potential worker losses due to the UK severing ties with the EU.
“People who are good with people but people who are passionate – they don’t necessarily have to come from the hospitality industry,” Jones said.
Hotel companies have hemmed and hawed on deploying actual wage increases to recruit more workers and typically offer one-time signing bonuses instead. But Jones noted the company’s hourly pay is now “pretty up there with industry leaders” while Humera specifically said this has meant £2 per hour increases in the UK while U.S. wages rose from $2 to $5 an hour.
“We’re seeing that pay off in terms of increased retention and improved spirit,” Afzal said. “Improved spirit is important because a happy staff means happy members.”
The bread and butter of Membership Collective Group is its membership base, largely tied to Soho House but also to more fledgling brands like Scorpios — a beach club it founded in Greece — and the Ned, a club in London.
While the company may have lost money, MCG leaders point to its strong membership retention rate as well as a hefty waitlist — there are nearly 67,000 people waiting for a membership across the company brands — as signs it is in a strong financial position.
“Membership is where it starts and where it finishes for us,” Jones said. “Some people have subscribers. We have members. Some people have content. We have Houses.”
MCG’s membership base increased by nearly 17,000 people to 144,503 members over the third quarter. The company also saw a 94 percent retention rate. Membership revenue surged 21 percent while in-house revenue — which would encompass purchases like food and beverage — was up 122 percent from the third quarter of last year.
Company leaders anticipate their line-up of exclusive clubs are situated to capitalize on a post-pandemic hospitality climate craving exclusivity and some degree of privacy. There is a coworking component to the company that can capitalize on remote work trends. MCG expects to open as many as seven new Soho House properties a year while the Ned and Scorpios will grow at one to two new clubs a year.
MCG announced the Ned NoMad, a hotel and members club slated for New York City, on the call while a second Scorpios is slated for Tulum, Mexico. Upcoming Soho House openings include Nashville, Mexico City, and Stockholm.
“We really are seeing après pandemic living really suits what we are doing at Soho House,” Jones said.
Tags: coronavirus, coronavirus recovery, membership clubs, soho house
Photo credit: Membership Collective Group wants to beef up its membership base through new clubs like The Ned (pictured: a rendering of the planned The Ned NoMad in New York City). Membership Collective Group