Thoughts on COVID and Reemergence
By George McAuliffe, President, Pinnacle Entertainment Group
As I write this on May 13 we are in the early stages of facility reopening. The U.S. has moved from near unanimity in lockdown to some factionalism and differences of opinion on how soon to reopen. I’m reminded of a book I read in college, The Functions of Social Conflict. I guess I was raised to think that all conflict was bad. This book opened my eyes that conflict, within bounds, can be a good thing in societies.
Most people in this country recognize the serious health hazard, if not to them then to their fellow citizens, and want a “safety-first” approach. Most people also recognize the economic devastation the situation is causing, if not for them then for their fellow citizens. So, debate and difference may help us find a balance.
As reopening proceeds, we’ll see what that does to the curve. As a nation, we need to be careful. A second wave or even a spike could set us back.
Challenges for Reopening?
Over the last month, we attended or participated in many meetings, webinars and workshops on COVID. There’s a ton of diversity in the FEC industry so there is no “one size fits” all model for adjusting. We saw different concerns across industries.
• Capacity: Rules will vary widely. It will be imperative to understand profitability at various capacity levels in deciding whether to open.
• Social Distancing Requirements: These will further affect how many people you can entertain at a time. Arcades talk about operating every third game with two dark in between, bowling centers with every other lane dark and half capacity on laser tag, to name a few.
• Communication: In IAAPA’s Asia-Pacific Webinar, Jeff Chatterton, a 20-year expert in “Crisis Communication,” had some interesting points. Paraphrasing Jeff: Just telling people you’re clean isn’t going to work. The most important thing is communicating that you know how they feel. More on that here: www.prnewswire.com/news-releases/crisis-expert-jeff-chatterton- customers-scared-about-coronavirus-stop-claiming-but-were-clean-301021318.html.)
• Touchpoint Management: Perhaps most important is surveying your facility for guest touchpoints and eliminating those where possible.
• Cashless: Technology ranging from play card systems to online advance purchasing come into play. We’re learning more all the time: Intercard, one of the industry’s leading player card system makers, is challenging the conventional wisdom that cellphone/mobile pay is the best solution. Their reasoning: Mobile phones are constantly in use and in people’s hands, picking up germs, and held to faces. Specific-use player cards or credit cards are deployed for much shorter periods and quickly back in individuals’ wallets. (More at (www.intercardinc.com/pay-it-safe.)
• Sanitation: There will be a new normal in facility hygiene and sanitation processes (see resource links below).
• What if…: This last one nobody wants to hear (and I empathize). We need to have a plan in the event that we do need to close again. Not fun, for sure, but smart just in case.
Much has been written elsewhere to help the industry at large. Here are a few good resources:
amusementrecovery.com/ (led by Creative Works, developed by a group of industry leaders).
www.cdc.gov/coronavirus/2019-cov/community/organizations/cleaning-disinfection.html#How%20to %20 Clean%20and%20Disinfect
Effect on FEC Economics
All of this will have a major effect on operating economics. Let’s take a look at FECs in general:
• Sales: Clearly there will be challenges to our ability to drive sales. In the best-case scenario, there will be a ramp-up as people get comfortable again.
• Fixed Costs: These represent upwards of 55 percent of sales in a typical high-volume FEC with multiple attractions and food and beverage.
• Variable Costs: Credit card fees follow sales with small percentages going to things like employee expenses and travel.
• Variable Cost – Payroll: Payroll is typically 25 percent or so (it may be higher in lower sales facilities). This may actually be easier to control in the early days, as business ramps up there will be increased pressure given sanitation requirements.
• Cost of Sales: This is about 18 percent in our clients’ FECs and is the second-highest controllable expense.
• F&B Costs: We don’t claim to be food and beverage cost experts but I’d sure take a close look at my suppliers, cost and menu engineering.
• FEC Cost of Sales: These are mostly merchandise cost-related. We start by ensuring payout management is under control –– the value of tickets out is the first step in Cost of Goods control. Simply put, there’s never been a more important time for your team to be paying more attention to your redemption program and also spending time doing price comparisons on like items from vendor to vendor.
• FEC Cost of Sales – Marketing: This is tough because with fewer customers during ramp up, the natural tendency is to want to communicate more. Social media and online marketing tools make that cheaper than ever. Use them wisely. Craft the right message. Target the right customers. To paraphrase Jeff Chatterton, too many businesses market to their best customers. Jeff’s key to win over the skeptic is more important now than ever before.
Let’s hope for the best possible outcome as we move through these tough times. We’re confident that when the COVID threat is under control we’ll emerge strengthened and the fun business will be fun again!
George McAuliffe has helped hundreds of businesses large and small develop and execute arcades and FECs. He has personally operated family entertainment centers from 2,000 to 150,000 square feet as a corporate executive, entrepreneur and consultant. He is the owner, with his partner and son Howard, of Pinnacle Entertainment Group.
George lives on the Jersey Shore with his wife, Julie. They have three sons, two daughters-in-law and a grandson.