A right-sized operation can easily outperform the OOH competition.
OVERALL, THE LEISURE out-of-home (OOH) entertainment industry is reaping the benefits of the positive economic time period in which we’re currently immersed. Not only is unemployment at a SO-year low, the stock market is almost back to its all-time high, the Fed has indicated that it may not be increasing bank borrowing interest rates, the U.S. economy grew by 3.2% in the first quarter, businesses are confidently expanding, and landlords are happy to have a well-run family entertainment center tenant.
That said, capitalism always operates in a “survival-of-the-fittest” mode, even with some government assistance such as SBA-backed loans, low interest rates, property tax credits from cities, lower space rents and tenant improvement money from landlords.
We all realize that some sectors of the leisure OOH industry, to some degree, compete with one another and with every time and money choice the general public has. The competition also includes restaurants, movie theaters, sporting events, concerts, plays and, yes, even just going on a picnic or a hike. We’re all competing for the leisure time of people, including activities that are “free.”
Thirty years ago, when it took a lot less capital to start up an FEC or BEC, the failure rate of FECs in years 1-5 was less than 25% annually. Compare that to the restaurant industry, which has a failure rate of 60%.
Any businessperson entering the leisure OOH industry with risk capital needs to really study their market and learn as much as possible about the industry. You can’t expect suppliers to do this for you, as they naturally have a built-in bias that their products are good enough to attract business in any market.
Markets can easily get saturated, especially when an in-depth feasibility study is not performed by many of the inhabitants and newcomers. In fact, even FECs that have been open for several years should have a partial feasibility study performed, as markets change rapidly.
We can all learn from history. There was a time in the early 1980s that video games became the rage. Many saw the video game industry as “easy money.” Newcomers were offering locations commissions of 60% and even 70%. They did not understand the true parts and service costs, how often games needed to be rotated and reconditioned, the cost of vehicle maintenance and gas, parking, etc.
Almost all vanished from the business, leaving a glut of used video games that had only salvage value. Those operators who understood their costs and profit margins not only survived, but thrived for many business cycles.
One thing stands out: The leisure OOH entertainment industry is not a “zero-sum game.” Yes, there is competition for the family leisure OOH entertainment spending dollars. The good news for FECs is that there are other sectors where there is a noticeable decline.
One such sector is the movie industry. Another is the restaurant industry, which also has to deal with new and coming minimum-wage increases. What that means is that a right-sized FEC with good food, good service, an inviting atmosphere of excitement and desirable attractions – all provided at a reasonable per-person price – is and can continue to be a prime OHH option. In addition, a multi-tiered VIP program and a well-planned upgrade/ change-out attraction strategy, and the implementation of new technologies (such as VR and eSports), all can increase the frequency of visitation and attract new customers.
The FEC story will continue. As the leisure OOH entertainment industry continues to adapt and evolve, new categories will replace old ones. Centers will change out the activities that become stale.
The new “inflatapark” is already dipping at the heels of the trampoline park model. HyperBowling and dynamic projection equipment are giving a new dimension to bowling. Cashless payment systems are reducing the need for cash. Kiosks are helping reduce labor costs and increase operating efficiencies.
The FEC financial models also keep evolving. The percentage of food-and-beverage sales as part of total facility revenue is trending upward as FECs capture a larger slice of the OOH casual food market.
And the FEC industry is still ranked No.1 in birthday parties. Frank Price of the Birthday University will never run out of new ideas for hosting great birthday parties.
Yes, confidence in the leisure OOH entertainment industry remains strong.
Bowling Entertainment Center – June 2019