Insider Volume 1 #3

Those of you who know us know that we try hard to be leaders, not followers. The Pinnacle Insider is more than just a newsletter. It will be a place, a club, a resource, and a suite of benefits available only to an exclusive group of family and bowling entertainment operators.

We are hoping you will join us in July when we launch the Insider. With this offering, we are leveling the playing field between you and big chains. The advantage big chains have is leverage, and that’s exactly what the Insider will provide for you! It will be fee based – this is a real business requiring investment and with operating costs – and will be deployed on your behalf. A small investment in joining us as an “insider” will provide a great return – that’s our pledge to you!

So while what follows is our monthly industry report and overview, just remember, it is only one small component of the package of services being a Pinnacle Insider will provide for you and your business. Our vision is to become the corporate headquarters for the family entertainment center (FEC) industry. If you’re Dave & Buster’s or Chuck E. Cheese, you have your own headquarters. You consolidate the data, do sophisticated analysis, develop marketing programs, counsel location management, and test games for real performance. You have buying power based on your volume. You centralize the resources to do all this. You then put that knowledge into best practices, pushing it back out to the field and creating a blueprint for implementation. We know how to do this; we’ve done it before as FEC chain executives and are ready to do it for you!

 

As FEC and Bowling Entertainment Center (BEC) operators, you are probably collecting far more data than you can put to use. Central POS, game and attraction debit card systems, bowling POS, and food and beverage all are collecting and storing tons of numbers. For many centers there’s no way to get past the basics – well, there is a way, but it requires major investment in software, people to mine it, and those with the experience to analyze it. This is not affordable for a single center or small chain. Even if you did make that investment, the universe is too small: You are only seeing your own numbers.

We plan to solve this dilemma. As a Pinnacle “insider,” you will receive the benefit of our team doing the consolidating, crunching, and communication necessary for you to see where you stand compared to other operators. More importantly, we will help you to develop a road map for where you can go! Here’s a small taste of what we are talking about.

We receive weekly sales data for some eighty locations. Back in our chain management days, we created management reports to organize the data so we could quickly see trends, “red flags,” and key performance indicators or metrics. One metric we track is the ratio of “Game Play Sales” to “Card Sales” from your debit card system. “Card Sales” is the dollar value of cards sold in a given time period, usually a week. “Game Play Sales” is the dollar value of plays on games and attractions. Because of the “float” factor, a result of not all purchased play being used in a typical week, and the fact that some play this week might have been purchased last week (or six months ago for that matter), Card Sales and Game Play Sales don’t match up. In fact, that float factor is only responsible for a small percentage of the difference.

A greater difference comes from bonusing. Most of our clients utilize some form of bonus at the point of sale to incentivize higher spending levels. A typical set up might be:


Let’s look at a recent sales week where our client’s Game Play Sales ranged from 67 percent to 400 percent of Card Sales. The vast majority was in the 100 to 200 percent range and averaged 140 percent. Remember, 100 percent is equal to the card sales, so we are trying to understand whether 40 percent of Game Play Sales in “free play” is reasonable. We started by checking the percentage of Card Sales sold at each price point to quantify the amount of legitimate bonus play awarded at the POS. That equaled 30 percent of Game Play Sales, leaving 10 percent unaccounted for. Expressed in dollars, that means that $1,700 in game play sales was unaccounted for in our average client’s store that week.

How can that be? Well, it’s complicated. Some is play from cards bought in previous weeks (offset by play credits bought this week but not used). The rest is from play credits sold through other POS systems and not credited back to the debit card system. Group sales and parties are the usual culprits, but there are other legitimate sources where the accounting hasn’t caught up, and some illegitimate sources where employees enable play credits on cards and hide the transaction in various ways.

How does your center stack up? Some simple adjustments to your accounting procedures can go a long way to improving your loss prevention profile or, at the very least, providing clean numbers to understand and analyze. Like the proverbial radar screen, the cleaner you keep it the better you will be able to identify the picture.

 

We are in FECs all over the country a couple of times every month. It never ceases to amaze us how little effort and attention goes into internal promotion – “inside the four walls” marketing.

When your business is a community-based FEC, drawing from the same drive time population, it is challenging to keep people coming back. Introducing change on a regular basis is a requirement. In our business, we mostly do that through new games and attractions. With new game costs approaching an average of $10,000 and attractions many times more than that, it gets expensive.

Take a page out of retail’s book. Retailers are always looking for an inexpensive way to change the look and feel of the in-store shopping experience. They decorate their stores, capitalize on holidays and seasons, create events or sales around those seasons, and tie-in to merchandise. They are introducing change affordably, drawing attention to their products, and capitalizing on billions of dollars of other free media. Take March Madness as an example. Every game room we’ve designed in the last twenty years has at least two basketball games in it. There is plenty of basketball-related merchandise available for redemption. Kantar Media, a global leader in media intelligence, estimates that the annual NCAA Division 1 Men’s Basketball Championship generated a record-setting $1.24 billion of national TV ad spending in 2016. Why do we not tie-in to those expenditures and the excitement they generate?

It’s time we do. Pinnacle Insiders will gain an edge through similar activities. Why? Because we’ve done it and seen it work. We’ll be creating a series of marketing material packages, “Marketing Assets” for you. They will include ready-made website banners, ad copy, sign copy, and the like to announce internal promotions. We’ll develop merchandise suggestions to support it and provide you with a blueprint to execute. These Insider-only tools are under development and will be rolled out when we launch.

 

“Your success with this game room will be proportional to your ability to integrate it into your business.” We have this conversation repeatedly with our clients during the process of developing and opening their facility. No matter if it is a restaurant, bowling center, hotel, or any other facility, this is a point we cannot emphasize enough. When done well, the results are exponentially better, but it is not easy to do for a variety of very specific reasons:

Historically, game rooms were an afterthought. Games were put into the path of foot traffic to try to get some extra money out of the pockets of customers. Most of us can remember a few games in the front of a pizza restaurant, in the corner of a bowling alley, or as we walked into the grocery store. The psychological transformation of an owner thinking of the arcade as an attraction, as opposed to an afterthought, can be challenging.

This is a different business. Operating a redemption game room is a completely different business than operating a restaurant, bowling center, or any of the other facilities that are currently adding game rooms. Doing this well requires learning a new business and a commitment to continuously managing it.

Creating an attraction. Integrating very different businesses into one cohesive attraction is challenging. However, Dave and Buster’s continued success, while many other restaurants are struggling, has proved that, when well integrated, an arcade is a powerful profit center that complements the restaurant. I have recently heard from two separate but very reliable sources that a major movie theater chain is moving away from arcades in their theaters. I believe they are making a mistake. They need to remove their concept of an arcade and replace it with the whole-facility model that works.

I realize most readers have committed to this model and made significant financial investments to develop and sustain it. However, I reiterate these three key challenges because we often see clients who start out strong then rest on their laurels and ultimately regress. This can happen due to busy schedules, success, allowing uncommitted managers to handle the arcade, or simply falling back into old ways of thinking. Currently, many clients are doing well while there is limited competition and a relatively strong economy. Now is the time to examine operations and ensure that the location is progressing, not regressing or coasting.

When writing this article I began by looking up synonyms for “integrate,” and a few were surprising yet very relevant to this topic: orchestrate, systematize, proportion, harmonize, organize. In order to successfully integrate an arcade into a facility, it is important to very intentionally orchestrate and organize systems, in the correct proportion, to harmonize and create an experience. When this is done well, the facility is a great location-based entertainment attraction that will draw customers and generate profits for the owners.

Next month, we’ll go deeper into specific tactics to integrate an arcade into a variety of specific types of facilities.