I really don't mind admitting I'm confused with our coin-operated amusement industry. I can't figure out who's making all the money, or if anyone is making real money. I talk to operators and they tell me that the money is in manufacturing. I talk to leading manufacturers and they tell me the operators have never been healthier. When I talk to the masses of operators, I hear just the opposite. I've never heard the operators as a group so glum. There are clearly operators prospering, but they are the exception. No one thinks distribution is making any money, but I have it on good information that at least a few of them are doing very well. So I've been thinking a lot about this lately. We should look at why in any given market, going all the way back to the Great Depression, that a few companies prosper in markets where the masses of companies are suffering. There must be some commonality among these successful "exception" companies.
I've often observed that most manufacturers live higher lifestyles than the rest of the industry. I've thought frequently in years past that it is they, the manufacturers, who are hoarding all the industry wealth. This summer we've said goodbye to Midway Games, who departed the coin-op industry for greener pastures, or at least pastures not ridden with red ink. That is the automotive equivalent to General Motors announcing they are not going to manufacture cars anymore - a Richter scale announcement by any measure. I don't know what Midway's market share was to this industry, but I know that over half of the video games on our route were manufactured by Midway.
Before we bury the manufacturing segment, we do have success stories to look at. First and foremost is clearly Incredible Technologies. More than one operator owes their profits over the last five years to the variety of tournament golf games they've brought to the market. They don't produce games for all segments of the industry, but rather a very specific, targeted marketing plan capitalizing on online tournament game playing for prizes. This is an example of niche marketing executed perfectly. ICE, Benchmark and Lazer-Tron/
Arcade Planet are also examples of new business models being introduced into a traditional industry with success.
On the surface, distribution sounds like an awful way to make a living today. The small to average-size operators are buying less product than ever, thus pummeling margins, and the larger, expanding companies are buying the product directly from the manufacturers. Having said that, in this magazine I'm sure there is an article discussing the latest expansion/partnership that will rock the manufacturing and distribution circles. You mean there are distributors that are growing their businesses today with success? That's crazy, but it is true. I attribute this to choosing your plan and sticking to it.
Two companies come to mind. Several years ago when it was very unpopular, one company recognized that national operating accounts wanted to deal with one company, so they sold to them, all over the country, producing tight margins but incredible quantities. This business model was fully "in-the-face" of our industry good old boys. The other example is an East Coast distributor who has built their business on first-class service support. They don't give away the products, but you can count on the quality. They had a plan and never varied. Now Rich Babich, a Colorado operator and distributor, gets back into the distribution business this summer with a new marketing plan that is, from what I know, a cash-and-carry with a deep service commitment. Each of these companies has identified what they believe is a market niche that has gone unfulfilled, and they're ignoring the naysayers. None of these companies are void of a very specific plan, and none are trying to be all things to all people. All of these companies are very focused on their visions.
So let's talk about the operators. I've never seen the average operator so down in the dumps. The operating industry is globally undercapitalized, over-leveraged and losing steam fast. Can I go one month without talking about the video poker operators? Probably not. For every one poker operator at the convention that offers to buy a round of drinks and proceeds to pull his own personal convention of hundred-dollar bills out of his pocket, there are 50 operators trying to figure out if they can make next month's rent payment. This one segment has long jaded the general population of operators with their success. There is nothing wrong with operating video pokers in legal jurisdictions; it just has nothing to do with the coin-operated industry it continually gets lumped in with. It is an industry unto itself.
Are other segments of the operating community prospering? Absolutely. One large southern operator is on the "buy-a-route-a-week" program. They clearly see opportunity that most of the operating community doesn't see. Dave and Busters is also redefining our entertainment industry. I point to Dave and Busters as the company that all large FEC operators should aspire to emulate. They have a very specific business model and are successful in reproducing it nationwide. They had a vision of a market niche that was not being addressed and they went straight for it. The model isn't complicated; contrarily, it's almost obvious in hindsight. Combining a pool hall, restaurant and fun center arcade all in one, even at the multi-million dollar expenses they've gone to, seems like a can't-miss business today. Others are trying to emulate them. They'll need lots of luck and vision.
Sugarloaf, my employer, is a company that has to be mentioned as an operating company that took a very specific market niche, skill cranes, redefined what a skill crane is and where it should be placed, and distributed them nationwide. Sugarloaf has just announced that for six quarters in a row, we've showed comparable increases in sales and net income. In today's market, that's definitely a rare success story. Sugarloaf is not a normal operating company. Sugarloaf couldn't run a dart or pool league if it had to. A poker game is unheard of on our routes, but crane-operating success is not.
Nebraska Technical Services is a company that has made a commitment to the online coin-op industry. For anyone who missed the feature article on this company a few months ago in this magazine, you should dig it out. They're on to something!
I can go on about companies that have identified niches, started with
very specific business plans, and don't try to be all things to all people.
It's a risk, and each of these companies I've talked about have gone through
some level of industry scorn as they were operating outside of the accepted
norms. That seems to be the one commonality that I was looking for. Companies
that have very specific business plans, that address very specific market
opportunities, and don't abandon ship when the waters get rough are often
the ones on top at the end. These companies, not industry sectors, have
all the money. I guess it doesn't really matter what level of the industry
you're in - manufacturing, distributing, or operating. In some form or another,
all segments will survive all of us. It's the industry members that have
the vision and commitment to see their plan through that will succeed.