Our company, Chilton Vending, was one of the early companies to jump on the redemption bandwagon. We put them in many of our street arcade operations. The games earned terrific. Overnight we went from "no redemption" on our route, to a situation where one-third of our total company games were redemption pieces. For us, redemption was a natural evolution from cranes. Life was good. Now, however, it's time to revisit this topic with some of the things we've learned. It will be obvious to some of you, and an awakening to others.
Too Many Locations: Our first mistake was that we installed redemption in places that had no business getting into the redemption business. I've had a great customer of mine in a bowling center that does huge numbers on video and pinball games in a relatively small space. All of his contemporaries tell him he needs to be in the redemption business.
My recommendation to him is that he doesn't need redemption. His income is already maximized, and he doesn't have the hassle of redemption. And it is a hassle. My rule of thumb is that if the redemption games in total don't gross $1,500 per week, you need to reconsider how necessary a redemption operation is in that location. You might be better off with a nice complement of video and pinball games.
You and the location owner will probably net out the same incomes or more, after deducting the product cost, and related costs such as tickets, etc... with video only rather than video and redemption games in these smaller locations. After all, there is some great video product available today with good earning potential. But that's another article.
Labor Issues: Instead of visiting a location once per week, or maybe twice per week, with redemption centers you're there three to seven times per week. If you're not, you're not maximizing income.
Some operators like to have the location personnel order all the product, stock all the shelves, and do most, if not all, of the work in redemption centers. I've moved a little on this. I still maintain that every day I want that location to look at what I do and say, "I'm sure glad I have an operator so I don't have to do all of that work!." If you train the location to do it all, how long will it take them to figure out they don't need you anymore?
A problem I run into with some new large locations is that they want me to operate the video, and they want to operate the redemption games. I used to do it all, but now we involve the location much more in the daily operations of redemption. But in no instance do we say, "Here's the catalog; order what you want."
Redemption Attendants: In the past I've been known to either provide the attendants or co-op the cost of attendants. That was an error for many reasons. Primarily, the numbers don't work out. That is especially the case if the location is small. In most every installation we have, we try to make the redemption counter part of the regular control counter, so that the same labor can run both functions.
The most important issue in redemption operations is that the customer needs to net out more money with redemption games than without. Many of the benefits to the location having a redemption operation are intangible. That is, it doesn't show up in your cash pan, it shows up in the level of customer traffic and registration. The birthday parties, the family atmosphere, the promotional abilities, all play into the redemption operation. These factors can increase the other profit centers for your location by increasing traffic. Redemption games can be a benefit to a location even if the direct benefit is not found in increased game income. It is a new attraction for the location, and you - the operator - pay for it!
We offer the training for attendants, new employees and continual on the job training, and do the ordering of product in most cases. Paying for redemption attendant employees that don't work or answer to you is a tough, and generally a losing, proposition.
Game Selection: Purchasing of redemption equipment is pretty easy. We just made it difficult in the past by ordering products that we shouldn't have.
Rule 1: Stay with the established manufacturers and their established products. My mistakes have been made purchasing unproven, new products.
Rule 2: If you're in a street location (like most all of ours are), stay away from external ball games! That may sound funny unless you've been there. We spent the first five years of our redemption business replacing and chasing balls that were going out the door, down the alleys, etc... There are many good titles and concepts where players never have the ball in their hands. Choose self-contained games like Cyclone, Dinoscore, Big Haul, Wheel of Fortune and others of that type; you'll save yourself a lot of trouble. It must be a great game, if you're going to risk external balls.
Rule 3: This is the exception I discussed in Rule 2 - alley games with external balls. The two we've had great luck with are the Lightning Skees by Skeeball, and the Ice Balls game by ICE. These are standards in every new installation.
Our problem is these new games are so good, the resale on the used alley games has plummeted. I am finding myself replacing the games that were never supposed to need to be replaced! The biggest benefit to these new alley games is that they earn more than the old alley games. Key to this is that they are set at fifty cents per play rather than a quarter, and the customers play them.
Rule 4: Guess what? Remember when everyone got into redemption because the games had "legs" and didn't need replaced? Redemption games may have a marginally longer life span than video today, but not much. It's interesting that today, the video manufacturers are getting better at producing games that last over a longer period of time, while the redemption manufacturers seem to be producing more games with shorter life spans.
Replacing 20% of the redemption equipment annually is not unusual. This can actually work in your favor, if you're negotiating with a location that wants to own their own redemption games. They generally forget to factor in the annual replacement costs, and... well, read the following list of additional expenses.
Replacement Parts: Our redemption replacement parts run 5% of our redemption games gross income, while our video games run less than 2.5%. There are just more moving mechanical parts to break and replace.
Tokens vs. Quarters: I was one of the last converts, but now all of my redemption centers operate on tokens. It makes everything much easier.
Redemption Ratios: Think about this for a moment. Is it important to know the replay percentage on a pinball machine? Yes, it is. Is it also important to schedule the payout on a crane? You'd better believe it. Well, if those things are true, then it's equally important to track the ticket payouts for each redemption game, and to track the actual cost of goods in the redemption center.
Several factors play into this. You're going to have shrinkage (theft); your only goal is to try to minimize that shrinkage. For ticket payouts, just make every ticket a one-point ticket worth one- cent. We've experimented with five point tickets, ten point tickets, and mixing all of the above in one location. It just confuses the issue. Keep it simple. Frank Seninsky has been saying this for years. I'm just now coming around. At the redemption counter, you can mark up the product anywhere from 0% to 100% depending on the product's popularity.
In street locations we've advanced to ticket shredders, but that's about it. All the software packages I've seen would be great if I owned the location and was able to supervise its operation. I need something where I can justify the expense, put the location in charge of its operation, and make it work. I'm sure the right product for us is out there; I just haven't found it yet.
The biggest benefit I've found in redemption center operations, is that it is very difficult and time-consuming. For that very reason, most operators don't want anything to do with it. That makes it a competitive edge for me.
I'm finding the larger the location, the easier the redemption operation is to manage. Simply, you're able to give it the resources it needs. My troubles begin in smaller installations, where I'm limited on the resources I can lend it. That means the place isn't a large enough profit center to the location, for them to give it the attention it needs.
-- Randy Chilton