Over our company’s 22-years working in the location-based entertainment (LBE) and family entertainment center (FEC) industries, which include bowling and other community-based out-of-home entertainment venues, we have been retained by many clients to analyze their poorly performing centers and develop a strategy to improve the performance. The recent economic downturn has increased that portion of our business, as those facilities that might have been marginally profitable before the Great Recession now find themselves under water.
In almost all situations, the issue of no or minimal profits is due to inadequate revenues. Over the past two decades, our analysis of such problem centers has consistently found that in the vast majority, the root cause of the poor performance was due to either or both a:
- Lack of focus on a particular market segment
- Mismatch between the center and the socio-economics in its market
The focus problem boils down to the owners thinking the road to success in the family entertainment center industry is a broad definition of ‘family,’ having a little bit of something for everyone, something for every age group. I remember many of the earlier FECs that said they were targeting families, but included a billiards area. Then the owners wondered why they weren’t attracting as many families as they had hoped. I won’t dwell in this issue, as I have written extensively about the need for focused assortment over the years. The bottom line is that to be successful, you need to shoot with a laser at a narrow market niche rather than shoot at the entire population with a shotgun. You can’t be all things to all people, but you can be very special to a particular market niche. Then you will also get secondary markets, although you didn’t specifically design for them. This is a basic principal of marketing that applies to almost all retail, restaurant and community-based entertainment type venues that depend on high repeat business and loyal customers (not necessarily large attractions like theme parks, as they are large enough to offer a broad enough selection so they can appeal to a number of target markets and require less frequency of attendance).
The second root cause, a mismatch with the market areas’ socio-economics, also relates to a need to focus on a particular market niche, but rather than the niche being defined solely by age and type of group, such as young children, a family with children ages 5-12 or young adults, the niche needs to also be defined by socio-economics. As much as no one wants to admit it, we humans are class conscious and like to hang out with people like ourselves in terms of our tastes, values and lifestyles. Birds of a feather like to flock together. This is especially true for indoor entertainment venues where dissimilar socio-economics don’t mix.
Different socio-economic groups have different expectations about quality, which in LBEs deal basically with the ambiance or décor, customer service and the food.
Where we find most LBEs miss the boat is failing to design their facilities to the level of quality to attract the upper socio-economic market, which we will call the upscale market. This market segment accounts for three-quarters of all out-of-home entertainment spending and 64% of all restaurant spending. What the LBEs did was offer Walmarts to markets where the majority of households wanted Targets or Nordstrom’s (actually I am being kind comparing them to Walmart, as Walmart is professionally designed whereas many LBE are amateur in design).
When it comes to the quality of the physical facility and the ambiance, décor, or what we call quality-of-place, the LBEs failed to make an adequate investment – they under spent. That’s right, their centers didn’t cost enough. This is the opposite of the popularly held belief that you can maximize return-on-investment by spending the least amount of money. Walmarts cost less to build than Targets and Nordstrom’s. P.F Chang’s China Bistro costs more to build than your local Chinese restaurant or a Denny’s. They all are designed to attract a particular socio-economic.
There is an investment sweet spot, the needed investment to attract a particular socio-economic that achieves the maximum return-on-investment. There is a direct relationship between cost and return before the sweet spot is found—the greater the cost, the greater the return. Once the sweet spot is reached, the relationship becomes inverse—increasing cost means decreasing return.
The investment sweet spot varies with the particular socio-economic group the LBE wants to attract. The higher you go up the socio-economic ladder, the greater the investment required to attract them. It takes a much higher level of finish to please an upscale market. But for that added investment, you achieve the highest repeat business and higher pricing, resulting in higher revenues.
In many of the centers we examined, we traced the cause of the under investment back to the feasibility study, where the socio-economic segment with the best market opportunity was not defined and with it, what was required to attract them.
Success deals with much more than the mix of the entertainment. It deals with the entire emotional experience the guest has based upon their expectations and their need to feel that the LBE reflects who they are and their values and tastes. Only by defining the guest socio-economics and determining the level of investment required to attract them with the needed attributes can LBEs find the investment sweet spot of maximum success.