November/December 1996
Golfers are always looking for a miracle to help their games, and manufacturers chase market share by supplying the hocus-pocus.
Ely Callaway sighs, sounding a tad bored with hearing the same old question. A few weeks earlier, the reigning king of the multi-billion dollar a year golf club manufacturing industry introduced his latest product, a brand new driver with a head that looks as large as a softball. Called the Great Big Bertha, it is the latest in Callaway Golf's line of clubs named after a World War One artillery piece that hurled shells exceptional distances. Like its cannon namesake, the Great Big Bertha promises phenomenal propellant capabilities; it is said to be able to launch a golf ball a l-o-n-g way down the fairway, not only far but straight. There is, naturally, a catch. The Great Big Bertha is priced at $500, comparable to the cost of a washer/dryer.
Isn't that rather expensive, especially when one considers the cost is twice that of its predecessor, the plain old Big Bertha?
"Sure, it's high priced," the industry's new grand-wizard murmurs with a dismissive wave. "We did that on purpose. The club is very costly but it's also very rewarding. People will buy 'em even if they can't afford 'em. They'll find a way to buy 'em."
Amazingly, after the initial shock wore off, there was very little hubbub about the cost of the club. Maybe that is because the asking price of the Great Big Bertha was quickly eclipsed by similar products from other manufacturers. Before Bertha II was five-months-old, one of the smaller companies, Mizuno, told the industry press it was bringing out a club called the Zoid, priced at $650, to compete against the Callaway offering. That news had hardly been assimilated when Ram Golf, another relatively small manufacturer, said it, too, was bringing out a new driver, the FX-It. The cost: a heart-stopping $1,000 per club.
Even that has caused little stir in the market place. That fact alone is indicative of the direction the industry has turned. Seemingly overnight it has changed from a business controlled by a rather small group of familiar corporations -- Hogan, Wilson and MacGregor, for example -- to one dominated by entrepreneurs. Or maybe it's just an old story that's become new again -- as Calvin Coolidge, president, tightwad, and poor golfer, once remarked of the game, "It is a fine method of relaxation for men in business life. [But] like everything else which is an outside enterprise, it can undoubtedly be carried to excess."
The archetype of the golf entrepreneurs, of course, is Ely Callaway, a tall, slim, dignified man of 77 with thinning, wavy, gray hair, intense brown eyes, and a face as wrinkled as a golf shirt that has been sitting crammed into the bottom of a suitcase for a week. Callaway is an optimist, a man brimming with self-confidence and gracious Southern charm. He also is an extremely shrewd businessman. So when he introduced a driver that cost more than any other single, off-the-rack new club in history, his two score-plus competitors had to pay attention. They responded by trumping his card, which surprised those not familiar with the dynamics of the evolving industry. What, many golfers asked, could possibly prompt such a radical upward departure from the normal pricing structure? Has everyone gone crazy?
Part of the reason for the sudden price surge is technology. The head -- the part of the club that actually strikes the ball -- of the Great Big Bertha, the Zoid, the FX-It and others too numerous to mention, all contain, in varying proportions and configurations, a new-to-the-industry metal called titanium.
Although it has been used in the aircraft industry for years, its use in golf clubs represents a radical departure from the time-worn industry standard, stainless steel. Since titanium is 40 percent lighter and 60 percent stronger than the metal it threatens to replace it opens entirely new vistas for the country's estimated five million dedicated golfers, a number that includes roughly one million women, many of whom have had difficulty with the heavier stainless clubs. But the immediate news for the consumer is not all good. Since few foundries are set up, so far, to handle titanium on a scale necessary for golf-club mass production, clubs made from the metal are going to be expensive.
Another price-contributing factor is design. In the last few years the shape of clubs has undergone considerable transformation, specifically in bulk dimension with "oversize" becoming a magical word. The properties of titanium allow even bigger clubs to be made. The head of Great Big Bertha, for example, is a shocking 25 percent larger than that of the Big Bertha, which itself looked like a cherry on the end of a toothpick. To incorporate titanium into a new product line, manufacturers sent their design departments into overtime. These costs, naturally, are being passed on to the consumer.
With so much money invested in design and technology at the manufacturing end and coming out of the pockets of golfers on the other, the industry has become fiercely competitive; the struggle for dominance has become truly ruthless.
No one knows for sure exactly how many club manufacturers there are on any given day since some of the very small companies go under on a regular basis and new ones rise to take their place. The best estimates indicate there are about 50 golf club manufacturers currently operating in the market place. Experts contend that there are only a handful of companies that are considered major players.
Who are they? A definitive answer is impossible. Some of the manufacturers are privately owned and do not divulge their profit/loss statistics. On the other hand, some companies are public and their numbers are readily available. While the general public may have only a hazy idea of who is succeeding, those within the industry have a very good idea of what the competition is doing. Ely Callaway, for example, reckons that there are only four companies that are truly influential in the current market: His own, Cobra, Taylor Made and Ping. Although the latter two are private, Ely estimates Taylor Made's sales last year at $175 million and Ping's at $150 million. Cobra Golf's Mark McClure has his own simple if somewhat facetious answer for the question of who the leaders are. "The industry," he says with a straight face, "is dominated by the three C's: Cobra, Callaway and Cheap."
For an objective look, one has to turn to a publication like Golf World Magazine, an industry weekly. Since statistics are not available for all the companies, Golf World charts its leaders by its own formula that defines market share rather than sales. Using this measurement, the magazine figures there were eight strong companies in 1995: Callaway, Cobra, Taylor Made, Karsten Manufacturing (Ping), Titleist, Spalding (Top-Flite), Wilson, and Tommy Armour.
Even this seemingly unambiguous information, however, has to be broken down since the industry is divided almost neatly in half by the type of club that has led to each company's success. On one side are those manufacturers who specialize in production of metal woods; on the other are those who concentrate on producing irons. It is rare for one company to produce either one or the other exclusively; most offer both irons and woods. Nevertheless the lines of specialization are distinct.
Everyone agrees that Callaway Golf is the undisputed leader in the metal woods category with estimated control of some 30 percent of the market. Golf World says the companies trailing Callaway in the woods division are Taylor Made, with a 14 percent share, Cobra (8.3), Wilson (4.2), and Ping (3.2). Together, they had 29.7 percent of the market, almost 1 percent less than Callaway alone.
Irons, however, are a different story. Although it overwhelmingly led the metal woods category, Callaway was third in irons sales with only a 10.2 percent market share. The leader was Cobra, with 13.5 percent (two years earlier it had held only a 3 percent share), followed closely by Ping with a 12.6 percent share, then Callaway. Following Callaway in close order were Titleist (6.5), Tommy Armour (5.5), and Wilson (5.1).
By just about everybody's reckoning, then, the two major competitors are Callaway and Cobra, who together in 1995 controlled almost 40 percent of the woods market and nearly 25 percent of the irons market. (While Taylor Made was strong in woods sales it was very weak in irons sales, ranking 15th in the country in Golf World's compilation.)
What this means, in practical terms, is that there is a dog-fight shaping up between Cobra and Callaway to see which will be the dominant manufacturer of the Nineties.
Somewhat surprising, considering that they are in the same business, Callaway and Cobra have only two things in common. One is that they both produce clubs popular with millions of golfers in the United States and around the world. The other is that they are both headquartered in Carlsbad, California, a semi-somnolent oceanside city of 66,000 just north of San Diego. As the golf ball flies, if it could fly that far even with the new clubs, Callaway and Cobra are roughly three quarters of a mile apart.
Both companies have access to the same technology. Both are well-known in the golfing world with similar sterling reputations Both have the deep pockets necessary to fight a long, bloody battle. So who appears to have the edge?
It depends on who's doing the talking.
Ely Callaway is explaining his position in a pronounced Georgia drawl that he has been unable to smother although he has long been absent from the Peach State. Clad in a yellow cotton turtleneck and checked sportscoat, a pair of half glasses dangling from a cord around his neck, he is hovering over the immense wooden desk that dominates his cluttered, surprisingly small office. From one side to the other the space is no larger than a small green, about the distance, in fact, from which a good golfer could reasonably expect to sink a putt. To his right is a credenza whose top surface is jammed with odds and ends including an autographed picture of President Clinton in a golf cart with a bag of Callaway clubs strapped onto the back. Elsewhere in the sanctum, among the framed Callaway ads, portraits of his fourth wife, Cindy, and those of a cousin, the famed golfer Bobby Jones, are pictures of other golfing presidents -- Bush and Ford -- who also are Callaway customers.
It is said that Ely, whose personal fortune is estimated at $100 million, enjoys his luxuries. Reportedly, he drives a Bentley, flies the Concorde, and sleeps at the Ritz. But I couldn't verify it by looking at his office. Expecting perhaps a skyscraper haven with an ocean view, I found instead a second floor walk-up that looks out through a smoked glass window onto a busy parking lot.
But a person's surroundings are not always indicative of financial success. Ely's office is spartan; his company is wildly successful. Last year, Callaway Golf recorded sales of $553 million, $104.5 million over the previous year. Not bad for an organization that started on a relative shoestring 13 years ago and was bringing in only slightly more than a third of a million dollars until Ely introduced Big Bertha. That was in 1991. From then on, sales shot upward.
"We went from the smallest golf company in the country in 1983 to the largest in 1995," Ely brags.
Those who know him, I have been told, call him Ee-Lee. Those who do not call him Ee-Lie. I call him Mr. Callaway.
"Mr. Callaway," I ask, "to what do you contribute your success?"
"It all was done on product," he boasts. "We're too good," he adds rather immodestly. "We make products that are the most rewarding in the world, products that are demonstrably superior to and pleasingly different from those of our competitors."
Isn't he concerned that others are breathing down his neck?
He chuckles. Why should he worry, he replies almost indifferently. The current competition is not something he needs to be concerned about. "Look at Cobra and Taylor Made," he says dismissivley. "Neither one has been super outstanding in producing golf clubs."
Callaway's focus for the future is not on the competition but on maintaining the same combination of salesmanship and product that has brought Callaway Golf to the top of the heap, the mix that has resulted in more than 3 million golfers, so far, having bought Big Bertha clubs. And that doesn't include the expected sales of the Great Big Bertha or the company's line of "improved" irons, also new this year.
Some of Ely's critics attribute his company's success to the fact that he is arguably the best salesman in the industry, a superpeddler who could hawk bragging rights to Texans. Of course, he rejects this proposition. "We're good at merchandising our product but that isn't what accounts for our popularity." It is, he says emphatically, product quality, not salesmanship, that makes the difference.
If I were to climb to Ely's roof I could see, off to the east, on the edge of the same sprawling industrial park, the shiny, glass-fronted, new edifice of Cobra Golf, Callaway's chief competitor. On the back side of that building, also in a second floor office but one that looks out, not on a parking lot but on an aquamarine pond and rolling brush-covered hills, sits Mark McClure, Cobra's 44-year-old, baby-faced CEO.
Perpetuating the casual style common both to the industry and California, McClure is wearing an open-necked white shirt and a dark cardigan. He still looks like the All-American boy he was when he was chosen in 1979, at age 27, to head what was euphemistically called the "Cobra Golf Sales Department." In actuality, it was not a department at all, but a one-man operation. He was that man.
At the time, the company was making only one club, a utility wood called the Baffler. The runners on the bottom of the club head made it valuable for golfers who found themselves in trouble on the course: fairway bunkers, deep grass, hardpan, pine needles, rocks -- you name it.
To demonstrate the club's versatility, the company's founder, Thomas Crow, a championship golfer from Australia who had immigrated to California, used to walk outside the Cobra headquarters, then located where Interstates 5 and 805 merge just north of San Diego, and disdainfully place a few balls on the sidewalk. Using the Baffler, he would pick the balls off the concrete and send them screaming across eight lanes of congested freeway, bouncing them off a billboard on the other side.
It was the Baffler that kept the company alive and growing at a marginal rate.
In 1990, eleven years after he was plucked from his seasonal jobs (teaching skiing in the winter; golf in the summer) McClure, then only 38, was named CEO. That year, the company's annual sales totaled a mere $27 million. Ironically, that was almost $6 million more than Callaway's, but Ely's company would spurt after the introduction of Big Bertha a year later. Cobra's big jump would not come until 1993 following the introduction of its big seller: King Cobra oversize irons. Once they came on line, they became a standard in irons just as the Big Bertha had done in woods.
Verily, Callaway had a good year in 1995, a string of good years as a matter of fact. But so has Cobra. Last year the company came on even stronger than Callaway, percentagewise, although its volume figures were lower: Net sales of roughly $200 million, about $75 million above the previous year -- a 38 percent increase compared to Callaway's 19.
At Cobra, the reaction to the introduction of the Great Big Bertha was muted. The reason for the so-what-else-is-new attitude was that Cobra has its own titanium offering.
Cobra, McClure says, had been working on a titanium driver of its own since the early 90s but had not hurried its development because of the high manufacturing cost. It announced the introduction of its new club, the It, a few weeks after Ely's pronouncement.
Like the Great Big Bertha, the It also met with immediate approval. Its first production run of 200,000 clubs quickly sold out, as did Callaway's initial 300,000 Great Big Bertha's.
But that and the fact that both contain titanium are the only real similarities in the two clubs.
For one thing, the prices are considerably different. The It retails for $367, $133 less than the Great Big Bertha (not to mention $283 less than Mizuno's Zoid, and an amazing $633 less than Ram's FX-It).
For purists, there also are major differences in size and design. Unlike the Great Big Bertha which apparently was made as large as possible without increasing the weight, Cobra's It was purposely restricted in size so designers could add other features. While the It's head is 16 percent bigger than previous stainless models it was not as large as it could have been given the weight-saving characteristics of titanium. Cobra decided to use the margin it created with the new metal by adding weight to other areas of the club, hopefully to make it not just larger but also smoother to swing.
"There is a point of diminishing returns," says Cobra club designer Chris Best. "You don't just build something bigger because you can. Titanium doesn't build a better
head, but it allows you to design a better head."
While nodding to the importance many golfers place on head size (figuring the bigger the head, the easier it will be to hit the ball), McClure points out that is a fallacy. Bigger heads do not necessarily mean lower scores, he avers. What is important to Cobra, he says, is what the club can do for the average golfer, the player who has a handicap of 15-20. This, in essence, underlines the main philosophical differences between Cobra and Callaway.
Ely points with considerable pride to the number of professional golfers who are using Callaway clubs. Implicit is the corollary that if the clubs beneficial to the pros, they would do wonders for the everyday hacker.
While Cobra, too, has its pro endorsers (it is a necessary prerequisite in the industry) McClure is very explicit when he says that clubs in and of themselves will not make better golfers.
"Despite the great changes made in equipment and the hoopla about new equipment making lower scores possible, those scores remain remarkably stable," McClure contends. "No matter what equipment you use, you have a certain skill level you have to overcome. In other words, there is a threshold every golfer meets and to break through that requires a tremendous dedication in time and effort." That means practice and lessons.
What he wants to do, says McClure, is promote the idea that Cobra clubs make the game more enjoyable although not necessarily immediately better. "We help the golfer get his ball airborne and move it forward a respectable distance," he says. "The score level doesn't necessarily change but the game becomes more fun. Lowering the score is one thing; having fun is another. In truth, we don't take ourselves too seriously; we believe that golf should be fun."
Callaway Golf has momentum in its drive to be the dominant club manufacturer for the immediate future. It has name-recognition and it got the jump on everybody with its new titanium line. But -- a big "but" -- there is another component to consider in trying to divine the future.
Last December, about the time the first Great Big Bertha appeared, American Brands, a massive East Coast holding company with interests as diverse as tobacco products and optical instruments, announced that it had purchased Cobra for $700 million.
What makes this particularly significant to the golf club industry is that one of American Brands' wholly-owned subsidiaries is Acushnet, the parent of two well-known producers of golf equipment: Titleist and Foot-Joy.
Foot-Joy is the country's best seller of golf shoes and gloves, while Titleist is not only the top ball seller (it churns out a million balls a day), but has a very successful line of clubs as well. In effect, this makes for a different playing field.
A 30-minute drive east of Carlsbad is Escondido, home to Titleist's West Coast headquarters.
Sitting in his office which has no outside view and is smaller than either Callaway's or McClure's, is Steve Pelisek, director of sales and marketing for Titleist's club division. A lanky, dark-haired man in his late thirties or early forties, Pelisek flashes a huge salesman's smile and gives reign to his infectious good humor.
"See this," he says proudly, holding up a copy of the company's new brochure. "Look at our motto," he adds, pointing to the large type: "Better Clubs for Better Golfers," it reads.
"That's our philosophy," he says, bobbing his head vigorously.
But how, I ask, does that fit in with Cobra, the newest member of the family? Will the two companies, since now they are both under the same ownership, be competing against each other?
"No, no, no," Pelisek says patiently. "Cobra is a perfect bookend for us. We don't compete. They are strongest where we are weakest and vice versa. Cobra's strengths are among seniors, women, and high handicappers; it's soft spot is among the younger, better players, which is our strength. Callaway, while strong in all the groups, is least strong among the younger, better players, which, again, is where we are strong."
Pelisek rises and walks to a nearby bookcase, returning with a black looseleaf binder. Flipping it open, he points to what he claims is statistical proof of his statements.
According to the table, Titleist's DCI irons are the No. 1 best seller among golfers under 30 and the second best seller (trailing Ping by less than two percentage points) among golfers with a handicap of five or less. A five-handicap golfer is very good; to consistently score in the 70s is a plateau few golfers ever reach.
Now celebrating its 25th year as a club maker, Titleist is older than either Cobra or Callaway and has had a little longer to refine its goals and decide where it wants to position itself in the market.
"We believe the future strength of the company will be to focus on a specific segment of the golfing public," says Pelisek, explaining that Titleist is aiming at what he calls the "gap" in the industry: the area pretty much ignored by Callaway and Cobra.
While Callaway markets a couple of putters, for example, and Cobra has several entries in the market, the putter is one of Titleist's mainstays. The company offers eight different models ranging from carbon steel and brass to milled aluminum. It's hot new product is the Scotty Cameron line.
"We'll probably sell 200,000 putters this year," Pelisek says proudly, pointing out that will be about 20 per cent of the market with most of the other putter sales going to Odyssey and Ping. "We've already sold every Scotty Cameron we can make for this year. They'll be on shelves for consumers but we're ordered up."
Titleist also is introducing this year a new line of specialty wedges, a segment of the market so far not represented by either Cobra or Callaway. "We hope to sell 600,000 - 700,000 wedges this year," Pelisek grins.
Will Titleist's entry into the Callaway/Cobra competition be significant?
Very likely. For one thing, Callaway is no longer simply faced with a single major competitor -- Cobra -- that controlled only a respectable share of both the irons and woods markets in 1995. Instead, Callaway now has a double-barreled competitor -- Acushnet -- that owns two of the top club producers in 1995, Cobra and Titleist.
According to Golf World, Titleist had the fourth largest market share in the irons division. Although it trailed Cobra, Ping and Callaway individually, the Cobra/Titleist shares combinetotaled 20 percent of the irons market, roughly double that of Callaway.
Granted, Titleist's woods sales were weaker. It was No. 11 in that division, according to Golf World, with only a 1.1 percent market share. But that may change when and if the company readjusts its priorities.
Right now, says Pelisek, Titleist's main interest is in producing irons for the low handicapper. Next on the priority list is putters. Woods are at the bottom.
What could be meaningful, though, is that by coming under the American Brands umbrella, Cobra's pockets have been considerably deepened. This is consequential when it comes time to allocate funds for research and development, a vital factor for a company in a competitive situation governed strongly by new technology. Both Callaway and Cobra currently set aside about 2 percent of their annual sales revenue for R&D but with American Brand's millions behind it Cobra's budget could grow; Cobra would have available across the board more funds to finance its fight against Callaway.
Is this keeping Ely awake at night? Not hardly.
"We were delighted with the news (of Cobra's sale to American Brands)," he says enthusiastically. Although he did not use the word "relieved" it may have crossed his mind. Before it was announced that American Brands was buying Cobra, it was widely rumored that the holding company had its eye on Callaway. In that light, Ely perhaps should be taking comfort in the fact that his company remains intact. But he does not indicate that he considers himself a man who has just dodged a potentially fatal bullet. Instead, he radiates confidence that Callaway Golf will go down in history as the club producer of the 90s and into the next century.
"Fortunately for us," he says, "our competitors
do not believe that you really, really can make golf clubs that
are better. Needless to say, we're delighted with that attitude. The only
thing that might cause us problems," he adds thoughtfully, "is that some
golf club company somewhere might create a club that is better than ours.
If that happens, we'd better watch out." Clearly, he thinks it would be
easier to get a hole in one on a 400-yard par-4.
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