There was a time when those looking to open a Family Entertainment Center or arcade could read the “vibe” of a city or town, set up the attractions, wheel in the games, and fling open the doors. That was then, but this is now. Today, a fresh coat of paint, dim lighting, and a clever name no longer guarantee success. Even a mall location, once the gold standard of arcade locations, doesn’t offer any assurances at the cashbox.
I witnessed virtually every Family Entertainment Center iteration over the past four decades, and see success as resting on a series of quantifiable steps that begin long before the first game is played and continue through the life of the business. That is to say, the industry has become more complex, requiring a higher level of professionalism and expertise.
The good news is that the types of data and best business practices, once the sole domain of large corporate entities, are now within easy reach of even the modest, single-location operator.
“The Family Entertainment Center industry is primarily based on carefully paying attention to average per capita spending. It’s a very simple concept uniquely determined by market areas within a city or in some cases a region. What does the average person spend when they decide to leave their home for 2 to 2-1/2 hours for leisure entertainment, including food?”
How much does it cost to go to the movies and purchase popcorn or snack and soda? How much to bowl 2 games, rent shoes, purchase a slice of pizza and a soft drink and play amusement games? Or visit a Family Entertainment Center perhaps? There are a multitude of entertainment options for the consumer to choose from. By researching the costs to consume that time allotment within the area, you can determine the average per capita spending rate.
Demographic information is available for sale from marketing companies that provides detail at a surprisingly granular level. Typically broken down by mile rings (0-5, 5-10, 10-20), ‘travel times’ can be determined to derive the actual target markets. By analyzing more than fifty other demographic statistics including trends in entertainment budgeting and per capita spending, ‘penetration rates’ are calculated that finally lead to potential attendance projections.
One simple formula I use that applies to a Family Entertainment Center location is: Gross Revenue = Average Per Capita Spending x Attendance. How much the facility grosses annually equals the average amount each customer spends per visit multiplied by the number of all customer visits. Attendance is made up of customers who visit once or multiple times per year. That’s the simplest formula you can use to see the big revenue picture. To increase gross revenue, either the average per cap or attendance must be increased, or both must be increased. However, to remain competitive you have to keep the per capita spending amount very close to its market determined amount. This is a key point. If your per person spending amount is below that figure, you are leaving money on the table. If you are above that average spending amount, you might attract the higher end of the socio-economic segment of the region but also discourage a large segment of the local population simply because they cannot afford it.
There is a relatively narrow range of per visit spending in each area that comfortably fits local consumers’ budgets while providing a viable business plan for the operator. You have to hit that sweet spot. You have to know what your ranges are. Part of what some are preaching is to only go after the high-end market, which is small and trending smaller over the past decade. I don’t see that as the only viable long-term answer for the Family Entertainment Center industry.
My thinking is not far from the quip popularly attributed to the 19th century and early 20th-century tycoon, John Jacob Astor IV, who advised, “Serve the classes, live with the masses. Serve the masses, live with the classes.”
Upscale projects also means higher fixed costs that include higher rents for the best locations and higher finishing costs. Those expenses can add up quickly. The result is the operator has to raise prices above the average per capita spending rate and is now competing with the high-end adult food and beverage establishments.
“That’s not who we are as an overall industry. What is an Family Entertainment Center? What is an arcade? History shows that our industry’s roots grew and spread wide because we were known as the cheapest form of entertainment. Family Entertainment Centers grew because we were a competitively priced entertainment option. That’s the dilemma when feasibility work is performed. There are dozens of specific ranges and criteria that must be adhered to, both on the revenue and expense side, to predict with certainty the attendance and per capita spend figures. For example, on the expense side, a rent cost benchmark is 15% of gross revenues.”
IT’S ALL ABOUT THE BASE
In one of the lectures I have given to industry groups I ask the audience to imagine a 15,000 sq. ft. Family Entertainment Center with a surrounding population of 250,000 within 20 miles, a medium-sized market. Typically, this kind of location, given an average per capita spend of around $12.00 per visit, can potentially predict to generate about $1.2 million in revenue and have an attendance of 100,000.
Those numbers look pretty good, until one drills down into the really important numbers. Such a Family Entertainment Center will typically be visited by only 25,000 individual customers who walk through the doors an average of three times a year. That translates to 75,000 visits. Then add on birthday party attendance that will likely include 10,000 children visiting 2.5 times a year, which adds an additional 25,000 visits (20 parties per week of 10 young patrons per party). In total, that means it takes roughly 35,000 customers to produce 100,000 visits and generate the $1.2 million. That is about 15% of a market population of 250,000. In much larger markets, Family Entertainment Centers are grossing the same revenues with the same base of 35,000 customers (because there is more competition) and drawing much less than 15% of the market population. In a smaller market of 100,000, this facility would be drawing 35% of the market.
So, how do you expand the customer base to include a larger percentage of the market population? And, even more importantly, how do you induce the current base to visit more frequently and spend the same per capita on each visit?
In the past and even currently operators adopted several good and bad strategies in an attempt to increase revenues. These included raising the prices during peak periods; increasing marketing and advertising budgets to attract new customers; becoming more high profile within a community through charities and outreach programs; and dropping prices during non-peak times or adding more perceived value to existing prices during non-peak times. These solutions worked well to varying degrees in the short term, but didn’t provide the kind of sustained revenue lift needed.
If you look at your numbers closely, you may discover that 3% of your customers (the VIP’s) have the potential to contribute 20% of your total revenue. What I learned, if you want to make money, the first thing you do is create more VIP customers through loyalty programs.
Interestingly, this strategy worked well during the recent recession at all of our game revenue-share entertainment centers. Revenues actually increased over the past six years while other Family Entertainment Center operators posted game losses of between 15% and 30%. What are we doing right? Ten years ago our number one goal was to grow our VIP programs. We grew it to where the registered VIP’s are making up 20% of our revenues. I believe this was a major reason why revenues were up during the last recession.
As part of the strategy, we were aggressive when it came to the VIP programs. If a player registered and spent a set amount of dollars ($500 per year for example), they received a special VIP card that entitled them to 10% off upon each visit with no expiration date. The program also enlisted the VIPs as customer recruiters. For every VIP who signed up a friend that spent $15.00 and registered, the VIP received $25.00 in bonus credit. What was quickly discovered within several months was that a large majority of VIPs brought in people who became the next group of VIP’s. The “true cost” to the Family Entertainment Center of the $25.00 bonus credit is around $5.00. But wait, there’s more: Roughly 90% of the newly-minted VIP’s began recruiting their friends as soon as they were awarded VIP status. Within a few years, the VIP list grew to over 3,000 at one Family Entertainment Center.
The current strategy is to provide incentives for the current customer base that are not interested in becoming VIP’s. That means we needs them to register, then provide incentives for them to bring in friends or family members, and getting those new visitors registered. If each current customer brought in just one new customer per year it could theoretically increase attendance by 100%. It jumps even higher when the new customers start bringing in other new customers. Truthfully, I do not expect that revenues will double, but I do believe that a 25%-33% increase is within reach. It’s also much easier and less costly to work with current customers than just banking on regular marketing strategies to increase attendance.
Interestingly, these are not altogether new ideas. Casinos, bars, chain restaurants, and other venues have been using elements and variations of them for years. Family Entertainment Centers have been marketing their birthday parties just like this by enticing kids attending a birthday party to book their birthday party or return to the Family Entertainment Center as a regular customer. What is relatively new is the ability and need to apply these same principals to individual customers.
Vending Times Magazine
Written By Frank ‘the Crank’ Seninsky
Amusement Entertainment Management