Small Footprint, Big Profits

Don’t Overlook the Potential Success of Small Market Locations!

by Howard McAuliffe, Partner, Pinnacle Entertainment Group

The highest average sales revenues for the first month after opening we’ve ever seen happened last year in a small facility (and in a small market): a whopping $1,000 per game per week! At first this appeared to be an anomaly, but now we’re seeing the emergence of a trend with similar facilities.

This result defies some common assumptions, specifically that the heyday of the arcade is in the past, that large population centers are key to profitability, and large facilities with a mass of attractions are essential to generating large revenues. I’m not saying that these common assumptions are wrong (because there are clearly many examples of large facilities in major urban centers creating huge profits), BUT it is possible to generate major profits from smaller facilities in smaller cities when certain elements are in place. We find that these smaller markets have been frequently overlooked.

I remember getting a call in 2002 from a couple who wanted to hire us as a consultant in a small town in Illinois. They were going to sell their plumbing supply company and open an FEC in a town with about 20,000 people because “there is nothing for kids to do here.” We listened as they talked about buying a large building where they’d build out the FEC. Finally, my dad (George McAuliffe) said, “Okay, as your consultant I want you to not hire me, do not sell your plumbing business, and, no matter what, do not build an FEC in that town!”

The advice in that instance was perfect and saved the clients their life savings.

My point is that facilities need to be right sized and carefully planned especially in smaller markets. Not overinvesting is essential. Here are the elements that must be present for a small footprint facility to deliver major profits.

1) It must be a location that draws a lot of repeat business (generally eight to 10 visits per year).The good news is that a properly designed and operated arcade will be able to help do that. A top-notch prize counter is another key incentive to get customers to save tickets and return for more.

2) It needs a significant, but right-sized, investment. A 20-25 piece game room is sufficient in these markets, but the game mix must be state of the art, include a debit card system and have a fully stocked and manned redemption counter (with a commitment to staffing especially during peak periods).

3) It needs a committed ownership and management team. To generate top revenues in a smaller space requires very efficient operations. It’s essential that the management and ownership are committed to learning best operating practices and instituting systems to generate the guest experience necessary to drive repeat business.

The revenues we see replicated in various smaller markets around the country with 20-25 piece game rooms are remarkable. When properly designed and managed, the experience that can be delivered in that size operation is sufficient to drive revenues. This is a testament to the quality of product available from manufacturers, and proves the experience is strong enough to bring customers back frequently.

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 [email protected], he welcomes positive as well as constructive feedback and counterpoints.