A Look Toward the New Year
by Howard McAuliffe, Partner, Pinnacle Entertainment Group
This year has certainly been interesting and overall, a very positive one for most of the industry. In January 2021, we were very uncertain about when the country would reopen, and sales were way below 2019. Government aid, especially PPP, had saved a lot of businesses in our industry, but we were still concerned many wouldn’t make it.
By spring break, most locations were open and vaccines were widely available, and by summer, we were hearing things like “my park is up 50% over any June I’ve had in 10 years!” Very few FECs went out of business through Covid (our best estimate is only about 2-3%). The trampoline park industry was hit much harder. (The consensus seems to be that about 30% of that type of facility went under. Many of them were likely in trouble before due to oversaturation of the market and also because single-attraction venues are historically very difficult to keep profitable over the long term.) Overall, most facilities were up 10-20% over 2019 numbers through the summer, which was great news, but then the new issues started to reveal themselves.
The two biggest of these that remain a challenge are labor shortages and supply chain delays. Both are stressing businesses but also pushing the best operators to get better. The reasons for labor challenges are well known at this point: federally subsidized minimum wage, lack of childcare for working parents, fear of Covid, desire for work from home positions, and an increase in “difficult customers.”
Operators have little to no control over any of this. What we can control is how employees are treated. The idea that we are paying people to do a job is not enough. Employees need to be paid better, which also means we need more output from them for their wages. We need to invest in training programs that get employees up to speed quickly and support them in their growth.
Many of the people who work in our industry’s customer-facing positions aspire for advancement, and that aspiration ultimately may lead them to work in a different industry or company. This is not a bad thing and should be something our managers understand and actively help employees achieve.
The supply chain issues are also difficult, some games taking up to six months to get from the manufacturers. Redemption and crane product, especially plush, is also frequently out of stock. The best advice for working through these issues is to maintain communication with your vendors and plan further in advance. Distributors are buying more inventory in advance, so while certain games or products may be out of stock, it’s possible they have a suitable substitute available sooner (but you have to be in contact with them to find out). If you are opening a new location, I would plan to place game orders six months in advance.
While it seems staffing and supply chain issues are slowly getting better, both will continue to be an obstacle in 2022…and surely not the only ones. Two challenges appear to be surfacing: declining consumer spending and inflation. As 2021 is coming to a close, disposable income and savings rates have dipped while outstanding consumer credit is increasing. These are indicators that the spending binge we saw through most of 2021 is coming to an end. We will not be basing 2022 budgets on the revenues w e saw through the second half of 2021. I would expect numbers in line with 2019 or a little less.
The other major wild card is inflation. There is no doubt that inflation has been increasing this year…the big question is will this continue in 2022? Nobody knows, but I expect there to be inflation and some increases to interest rates.
The larger point in mentioning potential challenges for 2022 is that there will undoubtedly be some. Most of our industry made it through Covid in a relatively strong position. Now, I believe it is important that we remain vigilant, don’t overextend ourselves in debt or bandwidth, and continue to improve our operations so we are in good shape to weather whatever storm comes next.
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.