Taking a Big Picture Approach
I’m excited to see the flowering of educational events designed for FEC owners/managers and game operators, especially those focused on redemption. I’ve spent much of my long career learning hands-on about the best ways to run redemption games and manage a game space and passing that knowledge on to others in hopes of improving and building up this industry.
Educational events have value on a number of fronts including providing an excellent platform to network with other operators and an avenue to encourage and investigate renewed investment in new equipment and attractions. But these opportunities can only pay long-term dividends if you initially have a solid base in place. If your infrastructure has cracks and your business model is flawed, throwing more money at the same business should not be your first priority.
The world’s best pro golfer Jack Nicklaus stated that the set-up, the stance and the grip are the most important aspects of the golf swing. In other words, if your fundamentals are not in place, you are destined to hit a bad shot even before you pull the club back. In the FEC business, you have to understand the big picture in order to determine if you are moving in the right direction.
I’ve always been a basics analytic guy. You have to know what business you are really in, and even that changes because core underlying demographics change and they change often. I don’t believe many people in our industry really have that down, even though they have been in this business for many years. If you’re not open to constantly reassessing these foundational aspects of your business, you might never look at your own practices to make sure that your foundation is healthy. The focus always turns to doing something new rather than fixing what is broken.
Unfortunately, a lot of FECs established their business without understanding their true relationship to the market they serve and building to that market. Maybe your initial cost structure or rent or investment was too high. Even if your operations are running smoothly, when it is time to re-invest, your financials show this course of action to be highly risky.
I’m all for education, but I’m also a firm believer that you really need immersion into the core of this business. You need to assimilate a holistic view of the industry. That’s, of course, the core mission of the Foundations University educational program, which I was involved in starting more than 12 years ago.
Of late, I’ve started coaching both new and existing facility owners and managers. It’s an ongoing relationship, and you sometimes don’t know week to week in which direction progress will go. But as one listens and slowly learns the many different issues affecting any decision, something always clicks, and these individuals are finally able to see big, profound ways in which they need to change aspects of their FEC structure. No matter how long you have been in this business, there’s always more to learn because certain aspects of the business are new everyday while others remain more constant.
As an example, our industry must realize how small a number of customers represent the core repeat customers of, let’s say, a $1.2 million business. Maybe you’ve got 100,000 people coming through your facility annually with each spending an average of $12. These figures come from the simple formula: Revenue = Average per Capita Spend x Attendance. However, if you look closely at how many of those are repeat customers, you may discover that there are actually only have 37,500 individual customers (25,000 repeat customers visiting an average of 3.5 times per year and 12,500 visiting only once and never again). This could be the case even though there might be 100,000 or 500,000 or even 1,000,000 potential customers in your marketplace. Now that you realize your business is generated by only 37,500 individuals, your marketing approach needs to be refocused.
The average family currently spends less than 1 percent of their annual income on out-of-home entertainment, and it’s getting smaller because people are spending so much money on mobile. That’s not meant to be totally negative, because we are still number two or three on people’s list of out-of-home entertainment options. I’m just saying that we need to market and promote our businesses appropriately given this reality.
As another example of shifting fundamentals, we’ve seen a number of bowling centers take out lanes and add FEC attractions and redemption games. In many cases, their FEC is generating more money than their bowling center was previously. This is a major mental shift for that operator because all of a sudden he’s been thrust into another core business (a bowling-anchored FEC). In other words, his original short and long-term fundamentals have been completely transformed.
AEM is working with facilities that have, as we noted earlier, a core base of VIP customers that come often and heavily use the facility’s loyalty programs. To date, our best loyalty programs have 3% of the customers making up 20% of the revenue stream, and that is after six years of a focused VIP program. The data shows that not that many people are interested in the VIP program (only a few thousand), so just focusing on that hard-core repeat customer could be risky. It makes sense to now focus on the other 97% of the customers that provide 80% of the revenues. Our example above shows that a portion of that 97% (our data shows about one third of them) are only visiting once and the remaining 64% are repeat customers (67% - 3% = 64%). Let us label this important repeat group of current customers as our “casual customers.”
The next step is to figure out a program to encourage the casual customer (2-4 visits/ year) to visit one or two additional times/year and bring one new friend (a new customer to you) with them. That’s the real sweet spot that could increase revenues by 25% - 50%. Imagine if you could have a 50% chance of having each new customer come back again and be encouraged to bring a new friend? It is much easier and more important to focus on your current casual customers than to focus on getting new customers when you already know that 33% of the new customers are not visiting again. I am not saying to “forget them,” but saying that your marketing plan should include enhancements to have them visit again but not focus only on just getting new customers.
The Millennium Boom is over so we are also going to see less volume in the future than we have been enjoying for the last decade or more. So FECs have to size and structure the business to address that dynamic as well.
We also see a boom of entertainment centers that only cater to the upper middle class, but in some cases, 90% of the people in the target markets can’t really afford to patronize the facility. So even though that’s the current craze in our industry, that’s not really a sustainable long-term model. For every birthday party, a fair percentage of the kids that attend as guests come from families whose household medium income shows they can’t really afford to ever have their party there. That is unless options are available for a lower priced party, perhaps during slower weekday periods. Thus, the growth potential of a high-end facility may be limited, unless the facility is flexible enough to accommodate a larger swath of the consumer demographics in that marketplace.
Many of those same businesses have predicated their success on quality food, but I just don’t believe that we can compete with the restaurant industry, at least at the gourmet food level. That’s a core business that’s not really our business, although we should try our best to serve quality food at a reasonable price.
We have to begin viewing our industry over the longer term, not just the fad of the day. I believe we have to get back to basics and offer high-perceived value with affordable entertainment options. Unless you have a market that can sustain the really high end, and unless your business is right-sized to your market demographics, and unless you can find a way to get at least half of your customer base to come back more than a few times per year, you need to realize that you must learn more about this industry and make sure that your foundation is solidly prepared for the next storm.
Frank Seninsky is president of Alpha-Omega Group of companies, which includes a consulting agency, Amusement Entertainment Management (AEM), and a nationwide revenue sharing equipment provider, Alpha-BET Entertainment; all are headquartered in East Brunswick, New Jersey. Along with industry consultant Randy White, Seninsky also heads up Foundations Entertainment University. During his 41 years in coin-op, Seninsky has presented nearly 250 seminars and penned more than 1,000 articles. He has served as president of the Amusement and Music Operators Association from 1999-2000 and is a past chairman of the International Association for the Leisure & Entertainment Industry. Seninsky can be reached at 732/254-3773 or by email at email@example.com and www.AEMLLC.com.
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