Want to Be a Success in the LBE Business?

We'll get right to the point. If you want to be successful in the community location-based entertainment (LBE) business, including such venues as family entertainment centers, children's entertainment and edutainment centers and family fun centers, you need to be in the restaurant business first. That's right. You read it correctly: Yes, you need to be in the restaurant business FIRST.

We don't mean that you first need to operate a restaurant, although that would give you a significant advantage. We mean you have to think of your facility as a restaurant offering entertainment rather than an entertainment facility offering food and beverage. The restaurant component comes first, and the entertainment comes second.

This may seem like a radical statement and a departure from the conventional wisdom in the LBE industry. We don't see it as so radical. The conventional wisdom in most industries, including LBEs, tends to be more analogous to looking into a rear view mirror of where you've been, rather than looking out the side window to where you are or the front windshield to where you need to go. We recently undertook an in-depth study of the community-based LBE industry to identify key factors essential for long-term success and found the conventional wisdom that "LBEs are in the entertainment business" is way off target. Regional and tourist attractions are another story, but even theme parks take food very seriously. Even the terms LBE, FEC and CEC (children's entertainment center) all have the word entertainment in their names as key attributes, which fuels this mistaken paradigm. The most successful "entertainment" facilities combine destination food with entertainment. Both Enchanted Castle in Lombard, Illinois, and Chuck E. Cheese's, each over 25 years old, as well as Dave & Buster's, which is 23 years old, are examples of the restaurant-entertainment formula. There are many other examples of highly successful centers LBEs that follow this formula. The formula works because food is a better driver of attendance than entertainment. Families go out far more frequently to eat than they go out for entertainment. For example, the average American eats out 200 times a year. That's a lot of frequency. The food acts as the anchor and entertainment becomes the impulse sale while the guests are there. And the combination of food and fun has a synergistic appeal far greater than either the food or the entertainment alone.

The idea that you can use entertainment as the anchor for a community-based LBE and place food and beverage in a secondary status as a snack bar or concession stand is the formula for failure. Unfortunately, over the past 15 or so years, many entrepreneurs have learned that lesson at the cost of their life savings, and sometimes their homes and marriages.

Here it is again, put another way. If you want to be successful in the community-based entertainment industry, approach it with the attitude that you must be a destination restaurant that also offers entertainment. Your food and beverage sales need to be at least 35% and possibility as much as 60% of your revenues to have a successful formula. The most successful combination seems to be about 50/50.

Let's take a look a Chuck E. Cheese's, a chain of 466 locations that attracted 42 million kid-visits in 2003 and consistently makes money. Yes, Chuck E. Cheese's has a love-hate affair with many parents, but you can't knock a basic formula of food with fun that has worked for 25 years, (with constant updates.) The company reports that the food and beverage category represents 67% of sales. If you adjust out the birthday parties, food and beverage (F&B) is probably about 60% of total revenues. Here's what the company said in its 2003 annual report:

"The combination of a meal occasion with family play time is what differentiates our concept and contributes to frequency," says Mike Magusiak, president of CEC Entertainment (the name of Chuck E. Cheese's company). He continues, "Frequency is important to growing the business, especially because our target market is such a well-defined niche." The CEC annual report goes on to say, "Frequency is one of the keys to success in the restaurant/entertainment business. When you look at the statistics, it becomes clear why building guest frequency is one of the fundamental areas of focus for CEC Entertainment."

The above statement explains the fundamental keys to success in the LBE industry - frequency with a well-defined market niche and the combination of a destination meal occasion restaurant with fun. That's exactly why Chuck E. Cheese's considers itself to be in the restaurant industry, not the LBE industry.

So why do so many LBEs continue to get it wrong? Why so much LBE roadkill? We believe there are three basic explanations for the perpetuation of the myth that entertainment comes first and food service is secondary.

First, entrepreneurs continue to copycat existing concepts, many that are 15 years old, or more. It's amazing how many entrepreneurs will see a fairly new center on a busy weekend during its honeymoon period, a center with only a snack bar and not a destination meal occasion restaurant, and therefore assume they've just seen the formula for success. These entrepreneurs then go off to clone those dinosaurs.

Second, LBE developers are intimidated by food service and look for a simple no-brainer solution. Quality food service is very complex and should intimidate a novice. But that is no excuse for not incorporating it into the business. Creating a destination food facility, a destination restaurant, takes expertise and an experienced F&B manager. Most LBE entrepreneurs don't take food service seriously, or they want to avoid its challenges, so they take the easy route rather than the road to long-term success.

Finally, the LBE industry trade associations contribute to the myth that food service can be approached with a simple solution of a concession stand. Just visit the IAAPA convention or Fun Expo and you will find the trade floor populated by nacho and cheese, popcorn, frozen pizza, soft pretzel and similar snack bar food suppliers. You won't find a full-service restaurant vendor, with the exception of one or two franchisors. Yes, IALEI has attempted to put some emphasis on food with a restaurant village area at Fun Expo, but still, the vast majority of the trade show is filled with entertainment vendors, making entertainment attractions the focus of attention.

We have never run into an LBE operator who isn't a member of IAAPA, IALEI or both. However, we have also never run into an operator who is a member of the National Restaurant Association, the trade association for the restaurant industry. (Surely there are a few.) Our company is a member of the National Restaurant Association. We aren't sure if any other LBE consultants, designers and producers are. That says a lot to us about the attitude the LBE industry has about food.

So the bottom-line advice we offer is simple. Whether you are an existing LBE operator or are planning to be, get serious about food, very serious. In fact, get so serious that you think of yourself as a restaurant first, a destination dining facility, not as an entertainment center. If you drive frequency with food, your guests will also spend money on the entertainment. The converse formula of trying to drive frequency with entertainment is rarely successful.