Downturns and Preparedness

Moves to Consider While Revenues Are Still High

by Howard McAuliffe, Partner, Pinnacle Entertainment Group

Interest rates are the highest they have been in 15 years, supply chain issues continue to affect nearly everyone, inflation is high, and yet business is still booming. As 2022 came to an end, we expected to see sales in FECs decline starting in January, believing consumers would cut back on discretionary spending. That has not happened.

Wages are up, unemployment is low, and Americans are still spending, but, there are some indications this may start to change. While people significantly increased their savings during the pandemic, those savings are now declining, likely leading to less spending as 2023 continues. Efficient operations are always necessary, but they become critical when macroeconomic conditions become more challenging.

The following are a few trends that should be considered to increase efficiency and profitability while revenues are still very strong.

Larger Arcades

Arcades continue to drive profitability in most family entertainment centers of all types. If sales are at a level where the average annual game revenue is equal to the average cost of a new game, it’s time to add games if space allows. If your location has unused space, or an underperforming attraction that can be removed, increasing the size of the arcade can add profits without adding significant labor.

Start by adding a boxer if you don’t already have one. Boxers have become trendy on TikTok and, after years of average performance, have skyrocketed to the top in nearly every arcade. High performers from last year – including pushers, ticket cranes and unattended virtual reality – continue to do well today.

Many locations have shifted away from VR that requires staff assistance because they’ve found the direct ROI isn’t as strong as with unattended pieces like Virtual Rabbids: The Big Ride and King Kong of Skull Island. While this makes sense for some locations, we still believe manned VR attractions can be very powerful revenue drivers if they are correctly operated and marketed. They have a greater ability to drive new traffic to the fun center, adding sales that don’t show up on the collection report. To do this successfully, these attractions must be properly staffed and marketed.

High-Quality, UncomplicatedFood Offerings

The days of a glorified snack bar with hot dogs and pizza are largely over. Some locations, especially in the bowling world, have upgraded their food to a level bordering on fine dining. This is usually unnecessary and adds to costs and complexity that can negatively impact customer service.

We find that moving to a smaller, simplified menu with high-quality food offerings works best. We don’t want customers to leave the center to get something to eat, but we also want the kitchen to be able to keep up with demand on a packed Saturday. A simplified menu saves both time and dollars by limiting food waste and increasing labor efficiency in the kitchen.

Focus on Groups and Parties

The group and party business came back strong towards the end of 2022. With many companies offering hybrid work environments, employees are naturally together less than before the pandemic. As a result, these companies will increasingly look to provide offsite group events and parties, and a great option is the local FEC.

Most locations sell out during the holiday season, but only some actively sell smaller groups and events which look for space during the workday year-round. A nice room (with AV equipment), good food and drink, and a fun offering are very appealing compared to a bland and expensive hotel conference room. The added benefit is that guests at these functions who have a good experience will often come back with friends and/or family. Small-group events are extremely profitable because they allow centers to generate revenue during typically slow hours and provide the opportunity to acquire new customers.

2023 is off to a wonderful start. Taking advantage of the previous suggestions or otherwise improving your profitability now will allow you to generate higher profits in the short term and also help you weather any economic challenges that come in the future. Worst case, no macroeconomic challenges arise and you generate even higher profits!

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.