We’ve all heard the old adage, build it and they will come. If we’re talking about Family Entertainment Centers (FEC’s), that’s simply not true. For a Family Entertainment Center to succeed, you have to build the ‘right sized facility at the right price in the right location,’ after conducting a proper feasibility study that backs up and integrates seamlessly with your business plan. And once your Family Entertainment Center is up and running, you have to pursue a strategic growth plan that includes both reinvestment and increasing repeat visitations while always working hard to attract new customers.
I see way too many facilities opening up or expanding these days without the owners/investors conducting a thorough feasibility study that looks at all of the crucial factors. These include measuring the available slice of the existing market, the earning and spending power of potential customers, the range of competition in the area and much, much more. Any time this first critical step is skipped, the chances of success are about the same as rolling the dice in a crap game. Without a detailed feasibility study you’re simply fooling yourself. In my experience, most of the Family Entertainment Centers that fail do so because they didn’t establish the proper revenue vs. expenses ratios that form the base of their operation.
Many industry suppliers, particularly those that offer popular attractions, are often providing advice that potential center owners/investors believe will serve as a substitute for conducting a full feasibility study. Even though the products these firms supply may be excellent, the revenue projections provided are not the same as a third party objective analysis. In fact, this type of advice is similar to the problems that led to the Financial Crisis of 2008 with rating agencies getting paid by Wall St. firms to rate those same firm’s mortgage bonds. When you have an interest in selling a product, almost any facility becomes a viable one.
The profitability outlook of operating a good, sold family entertainment center remains strong, but as I said at the outset, you have to pick the right location and level of investment and you have to devise a solid plan for growth. What never ceases to amaze me is how often I encounter people who have been in the industry for even 20 or more years, many of whom want to grow their business, and yet these industry veterans continue to make rookie mistakes over and over again. These veterans need to seek out objective data and third party advice because they don’t know what they don’t know. Fortunately, we’ve seen about a third of our last year’s attendees of Foundations Entertainment University (#1 ranked amusement industry educational program) coming from the ranks of industry veterans. We also have had a dozen veteran street amusement game vendors looking to better understand and reach greater game revenue potentials in the Family Entertainment Centers market.
Through the years I’ve met owners/managers who have been running seemingly successful FECs for years and yet they do not pay much attention to their game data. They don’t weekly track or manage their redemption games ticket or e-point payout percentages or merchandiser win percentages. Even the Family Entertainment Centers that do track that information aren’t using it to improve their business. Any one of our AEM Team (Amusement Entertainment Management) can walk into a Family Entertainment Center and within just a few hours can recommend action steps that result in game revenue increases of 15%-25% or more. This involves teaching the technician and manager how to properly track their game information, make the necessary game programming and price/play adjustments, and improve the game layout.
FEC operators also don’t pay much attention to the game mix. Even a rotation of one new game every three months would improve revenue because Family Entertainment Centers have to provide their customers a reason to come back. Just paying attention to a well thought out list of operating procedures could benefit so many Family Entertainment Centers.
When you drill down into who is patronizing locations, many Family Entertainment Centers are being supported by a very low number of individual customers in a particular market. That’s why an accurate feasibility study is so crucial, so that you have a realistic grasp of your target audience and you can invest appropriately. You also have to analyze the average individual and family out-of-home entertainment spending on an annual basis. This is all the more crucial today when you consider how much money is going to mobile providers and the newest electronic devices. Those new family budget items have definitely cut into the money that used to get spent on more traditional entertainment like ours.
As an example, a hypothetical FEC that grosses $1.2 million in revenues would have 100,000 customers walk through its doors, spending an average of $12 per visit. The simple formula for this is: Gross Revenue = Per Capita Spending X Attendance. But when you factor in repeat visits, you’re really talking about only 35,000 unique visitors, many who come multiple times per year. So one of the most important growth strategies, beyond re-investing in your facility, is to increase the visitation rate of your core group with a few proven strategies.
For the past ten years my company has been focusing on trying to maximize our VIP loyalty programs by devising ways to encourage our small number of frequently visiting VIPs to recruit people like them who are also willing to visit frequently. We’ve done that in part through incentives; a 10% discount for life and additional bonus credits when they bring in and register other new customers, who, as is turns out, are most likely to be friends with people of similar consumption habits.
This is important because we have locations where 3% of the customer base are generating 20% of the total revenue! This is a great cushion to have and is the prime reason why our revenues did not slip at all during the past economic downturn. But what about the other 97% of the customer base? Obviously they are not interested in a VIP program but many can be encouraged to recruit their friends as new customers if the incentives were attractive. Every new location will generate a certain amount of traffic from people who will come once for the novelty factor or in response to a marketing effort. The goal is to convert enough of those people into repeat customers. It’s really a numbers game because only a certain number of those initial visitors are going to come back after either a walk-in or a birthday party.
Family Entertainment Centers spend a lot of money trying to attract new customers but do not focus enough on increasing the frequency of visitation of their core customers. Once you attract a customer, then you have to give them real incentives to come back. That means achieving the following:
- Providing a quality experience (in fact, this entire column presupposes a well managed Family Entertainment Center providing a quality entertainment experience).
- Ensuring that the amount of money a person spends to have fun is fair, given the market demographics of your community.
- Offer different incentives for each type of customer to register and to come back again (VIP plus bring a friend programs).
- Finally, offer an incentive for that person to bring someone else with them when they return and get that new person to register.
Our hypothetical Family Entertainment Center can initially live off a 35,000 customer base, but we all know that operating costs continue to increase and the current customer base will naturally decrease. If you want to grow your profits you’ve got to turn that 35,000 base (100,000 annual visits) into a larger base and at the same time increase the frequency of visitation. Just a small increase in both categories can quickly add up an overall increase in total attendance. And that is without increasing average per capita spending!
There are so many factors that come into play in building and operating a profitable Family Entertainment Center. But if you start with the right location with the right amount of investment, you give yourself a fighting chance. Then, if you reinvest in your facility and you learn how to target the core customers and get them to visit more frequently, you can propel your growth instead of stagnating or losing ground after the initial novelty wears off. Unfortunately, many operators are just doing the basics or less. But it doesn’t have to be that way. We can do so much with just a little bit of extra focused effort to build our businesses.
Written By Frank ‘the Crank’ Seninsky
Amusement Entertainment Management