The Beach Club Business: A Deep Dive

Welcome to The Stanza's deep dive into the beach club business. We are in the dog days of summer, #eurosummer has taken over social media, and designer brands are taking action accordingly. Thank you for your readership, and as always, sharing to a friend who would find The Stanza interesting or valuable is greatly appreciated. Now without further ado…

A beach club is a type of hospitality business that offers guests a space to lay out and dine by the beach in exchange for a day rental rate. The beachfront set up comprises sunloungers and/or sunbeds, a restaurant, a bar, and sometimes a retail outlet for sundries and merch.

Typically when one thinks of a "beach club", the immediate image is one on a beach in the Mediterranean, with lithe tanned Instagram models baking to the sound of atmospheric house music, and equally tanned "Jacques Henri" or "Alessandro" chatting the family business with their fathers at a 10-top table over dover sole, crisp rosé, and cigarettes. European beach club culture is such a circus of vanity, status, and sensuality - so much so that Instagram sensations Super Snake and Gstaad Guy have become famous due to their meme-ification of beach club culture.

@SUPERSNAKE memes are a study in modern society...

HISTORY

While the modern perception of the beach club has become globalized via social media, the beach club business has roots in pre-fascist Italy. Italy's coast comprises 8,300 kilometers, 60% estimated to be occupied by beach clubs, and 27,335 beaches marked for "recreational tourism". Therefore, it's unmistakable that Italy's beach culture has played a key role in the beach club business. The oldest beach clubs in Italy originate in the 1820's - Bagni Dori and Stabilimento de' Bagni, both in Viareggio, Tuscany. These original beach clubs were initially resting areas propped up by wooden stilts and accessible via a pier or stairs from the water.

Just after fascist-era Italy, Italian singer Fred Bongusto released a hit song called "Una Rotonda sul Mare" in 1964, which effectively blew up Rotonda sul Mare, a beach club that originally opened in 1933 and has been restored several times over the decades. Because of its significance in Adriatic tourism, it is now preserved as a conference space.

The post-WWII era economic boom was the catalyst for the mass exportation of beach club culture. Over in France, Brigitte Bardot is often credited for shaping St. Tropez from the small fishing village into the global summer hotspot it is today with her regular appearances at Club 55 on Pampelonne Beach while she was filming "And God Created Woman" in 1954.

Ibiza has long been known since the 1930s as a hedonistic exile from Franco's oppressing fascism era in Spain, and in the 1960's during the global political unrest due to the Vietnam War, bohemian socialites and hippies from all over the globe settled in Ibiza and brought the "Flower Power" movement. Today, Pacha, one of the most successful nightclubs in Ibiza (and the world, the brand was sold for €350M to Trilantic Capital Partners in 2017) still has its main night called "Flower Power". The original Ibiza parties were open-air and lasted all day and night, and were usually in the middle of nature. It wasn't until the 90's, when legislation wanted these parties to be hosted on covered floors, that beach club culture in Ibiza emerged. Beach club parties were a way to preserve the original hippy spirit, with open air parties on the beach.

Sa Trinxa is one of the few original hippy beach clubs that still exist today. It's a no-frills spot where DJ's play old school Balearic house music. You'll find plenty of older leathery-skinned Brits and Germans who you can tell have been vacationing in Ibiza since their youth. I love this spot for prime people watching.

One of Ibiza's first beach clubs, Tropicana, opened on the beautiful Cala Jondal in 1988. Today, Blue Marlin and Casa Jondal beach clubs also share the same coastline.

Off White’s brand license is owned by Milan-based New Guards Group, which was acquired by Farfetch in 2019 for $675M. The brand did a collab with Casa Jondal this year.

Lastly, it wouldn't be a eurosummer history without mentioning Mykonos. The island became a popular hotspot for the global jetset during the post WWII economic boom, and then in the 80s became known as a LGBT-friendly party destination. Today, Americans in particular, love Mykonos. Walk into the always-crowded Scorpios and you'll hear plenty of American accents talking about their latest venture investments and how much they love Clase Azul tequila. Pictured above: Scorpios Mykonos, which is owned by Soho House.

All of this to say, #eurosummer isn't anything new. Hedonism, beautiful people, and turquoise beaches are arguably the most impactful means of the Mediterranean's economic survival.

HOW DO BEACH CLUBS MAKE MONEY?

Revenue streams:

1. Rentals: Beach clubs charge a daily fee for sunbed and sun lounger use.

2. Food & Beverage: Oftentimes beach clubs require a "minimum spend", just like a nightclub would, if you rent a sunbed or sun lounger. It's hard to believe that a party of 2 people would spend anything less than €700 for a day at a beach club, at the very least. Minimum spend thresholds also vary by month. In addition to F&B service by the beach, these clubs usually also have a sit down restaurant and bar they operate for lunch and dinner service.

3. Merch: Beach clubs also typically have a store selling swimwear, tanning oil, and branded merch.

Operating expenses:

1. Staff: Since beach clubs are seasonal businesses, workers are often foreigners who come on location for the summer. On one hand, it's not as expensive as employing union-protected staff in the US who require a lot of benefits, but it can be annoying to have to go through the hiring process every year.

2. F&B Supply: The biggest revenue driver is alcohol, so an operator would need to procure lots of magnum bottles.

3. Entertainment: DJ's and dancers to draw in the crowd and keep them engaged (and spending more money).

Sounds straightforward enough, but what makes beach clubs a high barrier to entry business is all the stuff that comes before opening:

1. Purchase of commercial beachside property

2. If not already zoned for commercial use, the permitting required to operate a business

3. Licenses - food, music, alcohol all require separate licenses in most of these areas

4. Taxes - both upon purchase of property and operating taxes

5. Lastly, if you're not a native speaker with a legitimate network, expect to pay hefty fees for a translator and a trustworthy attorney to help you navigate a potentially hairy process. Actually, if you're not a native speaker and you're not Dave Grutman or Noah Tepperberg, just forget about it (lol).

During lockdown, I was bored and curious about what it would take to quit my life in private equity, move to Ibiza, and open a chic beach club. Based on my research, it would only make sense to partner with a native Ibicenca and purchase an existing beachside restaurant, apply for music licensing, and rebrand. However, the more threatening hurdle is the fierce competition and potentially nasty politics between beach club owners on the island. From what I understand - one does not want to get into a dispute with an Ibiza (or any other hotspot) beach club owner who's been operating for longer than I've been alive. Does owning a beach club institution sound fun and glamourous? On the surface level yes, but the reality is I wouldn't be able to execute well without serious help, despite my own confidence in my abilities to "figure it out".

FASHION BRANDS ARE TAKING OVER #EUROSUMMER

Here's a list of collaborations happening in Europe this year:

• Jacquemus x Indie Beach

• Gucci x LouLou Ramatuelle

• Dior x Shellona St Tropez

• Dior x Il Riccio Capri

• Loro Piana x La Reserve a la Plage

• Fendi x Puente Romano Beach Marbella

• D&G x Four Seasons Taormina

• D&G x Casa Amor Saint Tropez

• D&G x La Cabane Marbella

• D&G x Quisana Grand Hotel Capri

• Off White x Casa Jondal Ibiza

Call it "gauche", but I think it's a smart business move to get placement at any of these beach clubs. Why? Because it's all about consumer psychology. I mentioned in last month's deep dive that people carefully choose what brands they associate themselves with - brands are how people curate their self-image in the age of social media. Therefore, showing your social media followers that you were dancing on top of tables at Shellona St Tropez on a Tuesday afternoon with the Dior logo behind you is a way to signal social validation. And it's a way to signal that you're "cool" enough / can afford to be there in the first place. For this reason, beach clubs are booked months in advance. It's the one season you're allowed to be fully unhinged. I know my European readers are thinking "well, we've always been this way", but for Americans, it's somewhat of a novelty. Americans will meticulously plan their outfits, organize trips on Excel, and fly an entire day to experience this type of overt hedonism. It's different when the experience is in your backyard versus across the Atlantic.

From a practical perspective - these brands also realized that being strategically placed directly where their customers are = more sales. If the bottle of Guy Gerber's rosé made you think you need to buy a new Dior beach bag, now you don't even have to change out of your bikini. You can walk 50 feet from your beach bed.

Back to my point on brand placement and consumer psychology - all of the brands doing collaborations have distinct customer demographics. A Loro Piana stan might reject the streetwear aesthetic of Off White, and vice versa. By choosing where to spend money (and a lot of it), beach club customers are effectively signaling where they direct their support. This is a powerful mechanism to drive brand awareness --> brand affinity --> sales throughout the year. These brands realize the importance of being "front of mind" on social media, and the scalable logo placement being plastered all over social media alone is a significant return on the collaboration investment.

TREND PREDICTIONS

• Hotelisation: Most beach clubs are owned by hospitality groups that specialize in F&B and nightlife. My view is that more hotels will see the opportunity to capitalize on their status-hungry customers that want to be entertained and start operating separate beach club businesses. Examples include Il Riccio at Capri Palace (owned by Jumeirah), Maya Beach Experience (GTO Group), and Four Seasons Taormina (the White Lotus hotel), which did a collab with D&G this year. Moreover, I think hotel groups will see strategic brand collaborations as a way to maximize room rates. For context, FS Taormina is currently priced at minimum €3,400 per night, above the average room rate across the Aman portfolio.

• Differentiation: I think the Loro Piana collab with La Reserve a la Plage is interesting because it doesn't tell prospective customers that they can expect a massive party like at other beach clubs. There definitely is a customer demographic that wants a quieter experience to relax, in addition to the comfort. Further, it helps Loro Piana expand their image from a textile house to a full-on lifestyle brand that you can wear to the beach, not just in the winter. My take is that we'll see more differentiation from a customer experience perspective.

• Diversity in brand participation: Just like companies sponsoring sports teams, a brand collaborating with a beach club can be thought of as a form of ad spend. Why limit that to only designer brands? Any "lifestyle brand" - whether it be a major alcohol brand or any other consumer brand - could benefit from such placement, it just has to be a win-win solution for both parties.

This concludes Deep Dive #2. Thank you so much for reading. Share this if you enjoyed reading, and shoot me a DM with any feedback. Happy summer!