There was a time when the prospective operator of an arcade or a family entertainment center could start by reading the “vibe” of a city or town, choose the appropriate attractions, wheel in the games and open the doors. That was then, but this is now. Today, a fresh coat of paint, dim lighting and clever business name no longer guarantee success. Even a mall location, once the gold standard for arcade sites, offers no assurance about the cashbox. Success requires taking a series of quantifiable steps, beginning long before the first game is played and continuing through the life of the location. This is the process recommended by Frank Seninsky, chief executive officer of Amusement Entertainment Management (AEM) and Alpha-Omega Amusements & Sales (HQ-East Brunswick, NJ), and an industry veteran who has witnessed just about every FEC iteration over the past four-1/2 decades.
Seninsky pointed out that the amusement industry has become increasingly complex and competitive, and thus demands a higher level of professionalism and expertise than ever before. The good news, he said, is that the types of data collection and analysis, and the best business practices that once were the exclusive domain of large corporate entities, are now within easy reach of even a modest single- location operator.
Success in today’s operating market depends, at base, on paying careful attention to patrons’ per-capita spending, Seninsky emphasized. “It’s a very simple concept, uniquely conditioned by market areas within a city, or in some cases a region. What does the average person spend after deciding to leave home for 2 to 2.5 hours for leisure entertainment, including food?”
Avg. Per Capita Spending x Attendance = Gross Revenue
Simple example: Take a 15,000-sq.ft. Family Entertainment Center with 3 attractions and a population within 20 miles of 250,000.
$12 per capita x 100,000 total visits = $1,200,000 Gross Revenue.
Note: 20 birthday parties/week-avg. x 10 kids/party = 200 kids/week x 50 weeks/year = 10,000 total kids/year.
Consumers choose among alternatives. How much does it cost to go to the movies and purchase popcorn or another snack and a cold drink? How much to patronize the bowling center, rent shoes, bowl two games, purchase a slice of pizza and a soft drink, and visit the arcade? And how much does it cost to visit a FEC? By researching the expense of consuming the equivalent time allotment within the area, the experienced FEC entrepreneur can determine the average per capita spending rate for his target market.
Demographic information is available for sale by marketing companies that can provide surprisingly granular detail. Typically broken out by “mile rings” (e.g., a radius of 0-5 or 5-10 or 10-20 miles around the site), distances can be converted to travel times to demarcate the actual target market. A researcher can then study that market’s demographic characteristics, including trends in entertainment budgeting and per capita spending, and relate this information to the FEC’s attraction and food service pricing. Research could also project market penetration rates and, ultimately, the FEC’s potential annual total attendance.
One simple formula Seninsky applies to a FEC site is: Gross Revenue = Average Per Capita Spending x Attendance. Average per capita spending (average amount each customer spends per visit) multiplied by the number of all customer visits equals gross revenue.
The game room guru’s definition of “attendance” includes customers who visit once or many times per year. “That’s the simplest formula you can use to see the big revenue picture,” Seninsky explained. ‘To increase gross revenue, either the average per capita spending or the attendance- or both- must be increased. However, you should make an effort to keep the per capita figure very close to its current existing market-determined amount.”
This is a key point, he insists. “If patrons spend less than that per capita average on each visit to the FEC, then the FEC loses revenue to its competitors. That loss is incurred if a patron goes elsewhere to grab a snack and complete his 2.5-hour out-of-home leisure experience. A facility that has a higher than average per capita spending rate for its market might attract the region’s higher-end socioeconomic segment, but it will discourage other large market segments who either can’t afford to visit and will most likely consider other less expensive entertainment choices.”
“There is a relatively narrow range of per-visit spending in each area that comfortably fits local consumers’ budgets while enabling the operator to design a viable business plan. “You have to hit that sweet spot. You have to know where your ranges are,” Seninsky explained. “Part of what some in the industry are preaching is only to go after the high-end market, which is small, and trending smaller over the past decade. I just don’t see that as the only viable long-term answer for the FEC industry.”
Seninsky’s thinking is not far from the quip popularly attributed to pioneering fur trader and international merchant John Jacob Astor, who advised, “Serve the classes, live with the masses. Serve the masses, live with the classes.”
The problem with going upscale, according to Seninsky, is the expense. “The facility owner is going to spend a lot of money at the outset on rent, obtaining a prime location and remodeling or building the facility. Those expenditures, combined with overhead, add up quickly. Charging higher prices – above the market area’s average per capita spending for out-of-home entertainment – will limit attendance, too.”
“There is also an element of the oxy- moronic in discussing a luxury entertainment center,” Seninsky pointed out. “That’s not who we are as an overall industry. What is an FEC? What is an arcade? History shows that our industry’s roots grew and spread wide because we were known as the cheapest form of out-of-home entertainment. FECs grew because we were a competitively priced entertainment option,” he recalled.
“That’s a dilemma when feasibility work is performed. There are dozens of specific ranges and criteria that must be adhered to, on both the revenue and expense sides, to predict with certainty the attendance and per capita spending figures. For example, on the expense side, an AEM rent cost benchmark is 15% of gross revenues.”
CALCULATING THE BASE
In one of the presentations Seninsky has made for industry groups, he asks the audience to imagine a 15,000-sq.ft. FEC with a surrounding population of 250,000 within 20 miles, a typical midsize market. This kind of location, given an average per capita spend of around $12 per visit, has the potential to generate about $1.2 million in revenue on an attendance of 100,000.
This performance looks pretty good until he drills down into the really important numbers. Such an FEC will typically be visited by only 25,000 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 add 10,000 children visiting 2.5 times a year, which adds an additional 25,000 visits (20 parties a week with 10 young patrons per party). In total, that means it takes roughly 35,000 customers to produce the 100,000 visits that generate the $1.2 million. That participation is about 15% of the 250,000 market population. In much larger markets, FECs are grossing the same revenues with the same base of 35,000 unique customers (because there is more competition) and drawing much less than 15% of the market population.
Spend more time developing your VIP program. You will discover that VIPs bring in more VIPs.
Is there a way to expand that customer base to include a larger percentage of that 250,000 population? And, even more importantly, can the current customer base be encouraged to visit more frequently and spend the same per capita on each visit?
Seninsky explained that operators historically have adopted a number of good and bad strategies in an attempt to increase revenues. These strategies include raising prices during peak periods; increasing marketing and advertising budgets to attract new customers; becoming more high-profile within a community through charitable and outreach programs; and lowering (or adding more value to) prices during nonpeak times. All these solutions have had a more or less positive effect in the short term but didn’t provide the kind of sustained revenue lift needed to sustain the operation over the long run.
“Look at the numbers closely,” he advised. “You might discover, for example, that 3% of your customers have the potential to contribute 20% of your total revenue. What I’ve learned is that, if you want to make money, the first thing to do is create more VIP customers. These are a small group of people who come approximately once every two weeks. That’s a direct revenue increase.”
According to Seninsky, the VIP strategy has worked well at some venues during the recent recession. He reported that revenues at AEM client FECs have actually increased over the past six years, compared with other operations that have posted losses of between 15% and 20% during same period.
“What are we doing right? The No. 1 goal was to grow our VIP programs,” he observed. “And we’ve grown them to where the registered VIPs are producing 20% of our revenues. I believe this was a major reason why revenues were consistently up during the past 7 years.”
As part of the strategy, Seninsky and his revenue share partners were aggressive in designing and implementing their VIP programs. Registered players who spent a pre-set amount – $500 per year, for example – received special VIP cards entitling them to a 10% discount on each visit, with no expiration date. The program also enlisted those VIPs to recruit other customers. For every VIP signing up a friend who registered for the program and initially spent $10 on their first visit, the sponsoring VIP received $25 in bonus credit.
Seninsky’s Alpha-Omega Group (now comprised 8 companies) quickly discovered, within several months, that a large majority of VIPs brought in people who became the next group of VIPs. The “true cost” to the FEC of the $25 bonus credit is around $5. And there’s more: roughly 90% of the newly minted VIPs began recruiting their friends as soon as they were awarded VIP status. At one FEC, the VIP roster grew to more than 3,000 within a few years.
An essential part of Seninsky’s strategy is to encourage members of the existing customer base who are not interested in becoming VIPs to join his second tier loyalty program. For his part, Seninsky must induce them to register, then provide incentives for them to bring in friends or family members, and get them registered in turn. If each customer brought in just one new customer, it could theoretically increase attendance by 100% (double). The benefit becomes even greater when the new customers start bringing in more new customers.
“Truthfully, I do not expect that revenues will double,” he said. “But I do believe that a 25% to 33% increase is within reach. It’s also a much easier and less costly alternative to simply banking on regular marketing strategies to increase attendance.”
These are not new ideas. Casinos, bars and chain restaurants, among other venues, have been using similar strategies for years. FECs themselves commonly market their birthday party services in just this way, enticing kids who attend one to book their own birthday party, or to return to the FEC as a regular customer. What is relatively new is the ability (and the growing need) to apply these same principles to individual customers and their family and friends, including adult groups.
Originally published by Vending Times June 2015
Need To Know More? Get To Foundations Entertainment University
Instruction on the best FEC operational practices, not unlike the VIP customer strategy described in this issue, is available at Foundations Entertainment University, which assembles three times a year. This year’s first FEU, class No 38, will take place during June 14-16 in Chicago, IL. The next two sessions will be held on August 22-23 in Atlanta, GA and on October 18-20 in Phoenix, AZ. The $689 tuition fee includes 2-1/2 days of classroom instruction; lunch and dinner on Tuesday and Wednesday (the special hotel rate includes 3 breakfast coupons); a Tuesday-evening tour of local entertainment centers; and a comprehensive manuscript book and CD. Informal one-on-one consultations with instructors and attending sponsors greatly enhance the value of the program.
FEU, now in its 14th year, covers financial feasibility, planning, design, financing, development, marketing and managing a successful location-based entertainment business. Frank Seninsky is a founding member of the faculty, which also includes Randy White, White Hutchinson Leisure & Learning Group; Jerry Merola, Amusement Entertainment Management (AEM); Frank Price, FL Price; engineer Peter Olesen, Entertainment Concepts; and Kevin Williams, KWP Ltd. Frank Price’s Birthday University is held in conjunction with Foundations Entertainment University. All FEU attendees can attend Birthday University for $10.
Graduates of FEU’s class No. 37 came from a wide variety of entertainment facilities operating in North America and Puerto Rico. They included operators of indoor and outdoor FECs, children’s centers, trampoline parks, skating, water attractions, bowling centers and roller rinks, along with laser tag arenas, nature farms, and arcade game operations.
Hank Schlesinger is a New York City-based writer and reporter. He’s published more than 40 books, and has contributed to numerous consumer and trade publications over three decades. For the past twenty years, he’s been a contributing editor at Vending Times, covering the amusements and bulk vending sectors. Hank can be contacted at [email protected]