“Historic Recovery”
McAuliffe Cautiously Optimistic
by Howard McAuliffe, Partner, Pinnacle Entertainment Group
“Weather the storm: to deal with a difficult situation without being harmed or damaged too much.”
That was 2020 for most of us, and I sure am sick of it. Fortunately, I believe it is time to get out and get to work rebuilding our businesses. Based on the surprisingly robust recovery this fall with no vaccine and while Covid cases were growing, I am cautiously optimistic that we will see a historic recovery this spring and summer.
Why do I believe this? There are four primary reasons:
1) As George McAuliffe explained in detail in his December column, sales recovered on average to 80% of 2019 this past October in locations that were open. This recovery was faster than we expected.
2) The savings rate in the U.S. has skyrocketed during the recovery, ranging from a record high of 33.7% in April 2020 to 13.6% in October. Even with the dip, this is still well above the typical savings rate of 6-8% we saw during the 10 years prior to the Covid outbreak. This tells us people are saving and therefore might have more money to spend.
3) Unfortunately, many locations will not make it through the pandemic. This will lead to less competition and lower capital costs to invest in equipment as used equipment prices have declined significantly.
4) Americans are craving social interaction. As the virus rates begin to decline due to a combination of warmer weather and vaccines, people will begin to spend some of the money they saved on out of home entertainment.
What will be different and how can we make sure we are ready?
1) Outdoor Attractions: There are a lot of people who are comfortable in outdoor social settings but are not comfortable inside. For those who have outdoor space available, I would be looking to add outdoor revenue centers like volleyball, mini-golf, group games and, of course, seating.
2) Lower Staffing Levels: Most locations have learned they can cross-train staff to provide a better guest experience with fewer employees. However, many employees are also getting burned out, so providing relief by adding staff will be important. I do expect staff counts to be lower than pre-pandemic levels due to efficiencies learned and as a way to offset increased minimum wages.
3) Improved Operational Efficiency: The last 10 years has been a period of exponential growth as the economy has been strong and out-of-home entertainment concepts have emerged that are highly profitable. However, operational inefficiency can be covered by high profits…and they have been. In arcades specifically, operators have not maximized the capability of their card systems, have been comfortable overpaying for redemption product for convenience, and have spent lavishly on unproven equipment and rapid expansion. The pandemic has put immense pressure on these businesses, forcing many to reexamine their operations. This stress will lead to some failures but also stronger companies for those who survive.
The last year has been truly brutal for our industry and there is still more fallout to come. I’m saddened by the companies that will not make it through, and the people who will lose so much, not to mention the tremendous loss of life. Though the storm is certainly not over, I believe it is time to begin the shift from surviving to rebuilding and thriving. I am excited for the future of our company and industry. I expect to invest more time and money into expanding our business in 2021 than ever before. I can’t wait for F2FEC, Bowl Expo and Amusement Expo this summer to see everyone in person as we all build a new normal.
Howard McAuliffe loves to imagine and implement new products, business models, and ideas, and is a partner in Pinnacle Entertainment Group Inc. He’s an industry veteran who got his start in the business when he was just 16 and has 20 years of expertise in product development, as well as FEC and route operations. Howard’s wife Reem and young son Sami are the center of life outside of work. When he’s not working, Howard can be found enjoying the outdoors, hiking, fishing and mountaineering. Traveling anywhere new or to old favorites like the American West is a passion. Readers can visit www.grouppinnacle.com for more information or contact Howard at howardmc@grouppinnacle.com, he welcomes positive as well as constructive feedback and counterpoints.