Sales Are Declining Somewhat

Here’s Why and What We Can Do About It!

by Howard McAuliffe, Partner, Pinnacle Entertainment Group

We’ve seen a boom in arcades over the last 10 years, leading to what my father and partner calls the “Golden Age of Arcades,” a significant statement from someone who operated through the video game boom of the early 1980s.

Now, we’re seeing some softening of this record growth, including in the bowling business. Since this issue of RePlay is their pre-Bowl Expo edition, I’ll highlight trends in bowling centers, but much of what we see in those businesses apply broadly to the FEC industry. Regardless of your sector, it’s important to understand why business is trending down, what we can do about it now, and how we can plan for a future which will inevitably be different?

Why Are Sales Softening?

The family entertainment business, and especially arcades, have been a solution to improving several different industries. Bowling has driven a massive boom in redemption arcades, movie theaters are rapidly adding arcades and resort hotels, cruise ships and malls are all doing the same. We are seeing saturation in some markets as competitors open near each other and naturally impact profits.

Fueling this boom has been institutional investors providing the needed capital, as well as pressure for growth. Our industry has been traditionally driven by family-owned small businesses, and this has been changing as larger companies with institutional backing are consolidating the industry. This growth naturally brings competition and lower profitability.

In addition to increased competition, the economy is softening. The headlines are full of stories of how savings rates are declining, credit card debt is rising and lower-income consumers are reducing spending. We’re seeing a clear trend of lower spending during the week, while weekend sales are staying strong. Consumers are starting to reign in spending, which we expect to continue to see as the year progresses, and this will lead to fewer visits and lower spending in locations.

In bowling centers, we are still seeing solid bowling numbers. However, those bowlers are not spending as much on food, drinks and entertainment in the center. In our opinion, it’s that business is slowing due to factors we have little control over. There is, however, a lot we can control.

What Can Be Done in the Short Term

For the last 10 years, it’s been possible to go to a distributor, get set up with a great game lineup and layout, add the arcade to a bowling center (or other anchor like a theater or cruise ship), and make tremendous profits without really knowing how to completely operate that business.

I have been writing, speaking and consulting for 20 years and I’m certain that it’s not possible to learn how to operate at the highest levels just from seeing anyone speak, reading any article or working with a consultant for a short-term limited engagement. I do believe reading, going to education events, and working with consultants is helpful and can provide benefits. However, for the most part, what you find are best practice suggestions and surface level information. All of this is useful, but there is much more.

As profits get squeezed, it is essential to dial in arcade and entertainment operations at a deep level. This requires focusing on small, specific details, like managing crane payouts, evaluating and hiring technical talent and strategically buying parts. Capital spending needs to be profitable and carefully considered, especially for expensive items like arcade games. (Pro tip: the weekly revenue number is not relevant to whether you should buy a game if you aren’t calculating additional factors.)

The way to dial in operations is to hire someone who has done this at scale or work with a consultant over a sustained period who has done this. In addition to dialing in operations, focusing efforts on areas of strength will be beneficial. Groups, parties and event business is strong and will likely remain so. As more of the workforce works from home, companies need ways to connect in person and our facilities are a natural fit. We have not seen as significant a decline in groups, parties and events as we have with the walk-in business. Make sure you have focused teams selling these services, and that you are delivering a great experience operationally.

For the balance of this year, we should all be refining our operations and improving our group and party business, with a goal of having everything dialed in for the 4th quarter when sales can be very strong, especially with groups and event business.

What Does the Future Hold?

The future is bright for the industry. But, I believe we’ll see continued consolidation, more closures, and a shift away from some of the models that have boomed over the past 10 years. Bowling, mixed with food and beverage, and an arcade has been a fantastic business model and will continue to be. However, there are nearly 6,000 movie theaters in the United States and they can’t all add a bowling alley with arcade. There are thousands more vacant retail spaces that can’t all add entertainment.

While I believe we will see a decline in the growth of the models that have been booming, we will see new ways for people to entertain themselves outside the home including augmented reality darts and other attractions, VR that I expect to be more a piece of the model and further growth in duckpin bowling. It’s important to follow these innovations and test them when possible.

Change is constant. Those who hold onto the past will likely decline, while those who evolve intelligently will continue to thrive. More than ever, I believe consumers are looking for opportunities to socialize and have fun outside of their home, and that’s where our locations come in!

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.