Re-Emerging Stronger Than Before
A Look at Our Future After the Current Crisis
by Howard McAuliffe, Partner, Pinnacle Entertainment Group
“W e’re fighting and struggling to get through this.” I hear some version of this statement every day while speaking to suppliers and operators in our industry. There is no doubt that Covid has hit all of us hard and unfortunately, there will likely continue to be struggles well into 2021. There is no sugar-coating where we are right now. However, there are positive signs emerging that indicate those who can make it through this will come out stronger than before. Here are the positive signs we see:
1) Locations are continuing to reopen: According to our analysis of past clients which encompass 24 states and one Canadian Province, 89% of reporting locations were open as of Sept. 6, which is 5% more than the previous month.
2) Sales volume in existing locations is increasing: Our previous client locations that reopened were operating at 64% of the previous year as of the first week in September, which is up from 50% in August. These revenues are not enough to survive longterm, but the trend is certainly positive. Even without a vaccine and with Covid cases growing in most of the country, increasing numbers of people are going out.
3) Delivery business is increasing: Our restaurant clients that deliver food and currently closed for indoor dining have replaced 60% of their food revenue just with delivery. While much of this business will move to indoor dining when they reopen, it is reasonable to assume some of the increased delivery will remain due to their improvement in service infrastructure. FECs that have quality food offerings have been much slower to add delivery, which is an opportunity more should embrace.
4) Reorganization and consolidation: There will be companies that enter bankruptcy. We have already seen Chuck E. Cheese declare Chapter 11. Increased bankruptcy declarations do not mean all locations in a bankrupt chain will go away. In fact, most will likely remain and in some cases they will emerge with more favorable fixed costs like rent and with a stronger parent company. We are seeing companies that overleveraged are now available to buy for a fraction of what they spent to build out. This will lead to consolidation as stronger companies buy the weaker ones and improve them, ultimately leading to a better customer experience.
5) Partnerships: New alliances will form. We have been fielding inquiries from international companies and institutional investors interested in opportunities within our industry. In addition to financial partnerships, there will be operations partnerships. Two companies we have worked closely with over the years, Redemption Plus and Rhode Island Novelty, have partnered. A leaner Redemption Plus working with such a leading and powerful fulfillment partner, makes for a stronger and more exciting company going forward.
6) Virtual reality is still strong: The most shocking finding in our recent dive into client location numbers was the strength of LAI Games’ Virtual Rabbids: The Big Ride. We believed intuitively that this game would be particularly hard hit by Covid. However, the reality is that Virtual Rabbids is the #1 game in 22 of 23 locations we looked at and was #2 in the other location. This indicates that VR will not likely be permanently affected by this pandemic as we feared.
It would be foolish to bury our heads in the sand and pretend everything is going to magically be fixed and quickly return to pre-Covid’s “business as usual.” As an industry we are facing the most challenging period in our history, one that will lead to permanent changes. The good news is that many of us are working harder than ever and focusing on improving so that many of the permanent changes are positive ones. The data so far indicates the recovery is slow but steady. We all want it to happen faster, but the reality is that it will likely continue at a slow pace, possibly with some down turns. We do believe that most of the industry will survive and will emerge stronger than ever.
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.