Redemption Continues to Dominate

Vending Times recently published their Census of the Industry, 2009 Edition, which is a great service to the industry. They kindly authorized Family Entertainment Today to utilize their graphs in this post.

As shown here total industry coin operated game volume, while down slightly, has remained essentially flat in the measuring period, 1998 through 2008. However this masks some big shifts within game categories in the eleven year period.

Video Games took a big drop in their share of coin op in the period. Total volume fell to less than half, from $1.8 billion in revenue to $882 million. Even more telling is the fact that average sales per week dropped from $60 to $53 despite a reduction of 270,000 games (45%) in the marketplace.

So where did the money go (given that total amusement volume is fairly steady)?

It went to redemption and prize games:

And to:

Prize merchandisers are cranes and merchandisers, any game that dispenses prizes directly to the player.

While not a shock to anyone in the industry, the VT graphs really jump out at you, illustrating the importance of understanding and keeping up with the trends. Why is this happening and why the continued strength of redemption and prize games? Well, you can't do redemption at home for one thing; the home video technology just gets better and better. Another big reason is that redemption and prize games rise to a major challenge for successful game operators: introducing change (economically) over time. The merchandise is what changes and keeps players coming back. Well run redemption operations also serve as loyalty programs. As players save tickets they are invested in a given FEC's game room to which they return when its time to play.

New Shakey's expands to Pacific Northwest

Shakey’s Pizza In the News
Congrats to our customers, Steve and Nick Hersey, who had a great article published on their new Shakey's Pizza location in Spokane, WA.
Pinnacle Entertainment Advisors by Redemption Plus helped provide game room consulting and advice during the build out process. Redemption Plus also supplied all the game room merchandise.
Click here to read the entire article.

CEC Entertainment 3Q Profit Up 28%

From The Wall Street Journal Online, CEC Entertainment Inc.'s (CEC) third-quarter profit rose 28% as the parent of the Chuck E. Cheese chain shook off worries about the H1N1 influenza and the economy to top Wall Street expectations.

The company offered a similarly promising 2009 outlook, saying it expects earnings of $2.63 to $2.67 a share. That range is above the $2.60 expected by Wall Street, according to Thomson Reuters. Noting recent improvement in same-store sales trends, the company expects the figure to be down 2% in the fourth quarter.

CEC's 2010 earnings outlook, at $2.70 to $2.80, is in line with the $2.79 expected by analysts. The company also sees same-store sales flat to up 1%. Cheese prices are seen rising to between $1.50 and $1.60 from the $1.40 expected for the fourth quarter.

Meanwhile, the company's board authorized the repurchase of up to $200 million of CEC common stock. That brings the total authorization to $237.8 million, or 40% of CEC's market capitalization.

The economy and H1N1 influenza--a worry as children are especially vulnerable to the sometimes deadly virus--had put a damper on the fun for the pizza and entertainment chain's investors. CEC has been helped by lower prices for cheese, a key ingredient in the company's pizzas.

CEC reported earnings of $12.7 million, or 55 cents a share, compared with $9.9 million, or 43 cents a share, a year earlier. Revenue dropped 2% to $197.8 million as same-store sales fell 3%.

Analysts projected earnings of 46 cents on revenue of $196 million.

Food and beverage sales, which accounted for under half of revenue, fell 5.2%, while entertainment and merchandise revenue rose 1.3%.

IAAPA 2009 a Major Resource

This is the first fall that I can remember without a Fun Expo. Last year, after the decision was made to permanently move it to the Spring, it was held in the fall and in the Spring as a transition. AMOA, the game operator's show which used to be the strongest for our segment of the business, announced that it is moving to the Spring and combining with AAMA (the game manufacturer's association) for ASI. IALEI, the longstanding FEC association, recently announced that they are dissolving and merging their membership with IAAPA. "Industry" experts talk about consolidation, shrinking, etc.

My take is that we are, and have always been, several industries that overlap. AMOA is primarily a street operators association. That segment has shrunk considerably. AAMA's member manufacturers serve both the street and the FEC (the major difference being street operators are not big in redemption while FEC's must be). IAAPA has evolved from being dominated by the Amusement Parks and Tourist Attractions, to providing a major seat at the table for its FEC members.

So for FEC owners the IAAPA show has become THE place to see the latest and greatest under one roof. Being held in Las Vegas (where room rates are quite attractive) November 16-20, we highly recommend it. If you do attend, come by the Games & Redemption seminar which I'm moderating along with long time operators George Smith, of Family Entertainment Group (a premier national game operator), Michael Getlan, a third generation FEC operator and acclaimed speaker, and Karyn Gitler, former merchandise buyer for Chuck E Cheese and longtime merchandise innovator. We''ll be on Thursday from 3:30-4:45pm and we're cooking up some new stuff to make it interesting. The course description is at http://www.iaapa.org/expos/attractions/attendees/IAAPAAttractionsExpo_FEC.asp
Hope to see you there.

Possible tax savings on capital equipment

I recently received this reminder from a leasing company we refer clients to:

Section 179 Economic Stimulus Package
The New Economic Stimulus Package has recently announced the tax benefits for businesses in 2009. You may already know that IRS Section #179 allows a corporation to fully expense tangible property in the year it is purchased. You can deduct up to $250,000.00 of equipment this year with an equipment finance agreement or a lease!

Example: Equipment Purchase of $300,000.00
1st Year Write Off.............................$250,000.00
($250,000 is the max Section 179 write off in 2009)

50% Bonus Depreciation.................... $25,000.00
(remaining value: $300,000-$250,000 = $25,000)
Normal 1st Year Depreciation................$5,000.00
(Calculated at 5 yrs= 20%: $25,000 x .20= $5,000)

Total 1st Year Deduction....................$280,000.00
($250,000 + $25,000 + $5,000 = $280,000.00)

1st Year Net Cost after Savings....... $202,000.00
($300,000- $98,000 = $202,000) Tax Savings Assuming Rate of 35%.......$98,000.00
($280,000 x .35 = $98,000)

As with all such information you should rely only on your personal accountant or tax advisors advice. We have not indepently verified the details. However if you have purchased games, attractions or other capital equipment this year, or are planning to, you should look into the tax benefits.

Post Labor Day-Operational Adjustments

Time Flys- summer is now over and its September already. For those procrastinators out there, a quick adjustment will be necessary in most FEC's from summer season operations to early fall. With kids back in school, Friday night football starting up, etc, many FEC's see slow traffic in the first few weeks of September, steadily building into winter. In my FEC operating days we had a number of things we focused on to ensure a smooth transition:
1) anticipate the change in seasons and the effect on operations, especially payroll and morale.
2) ensure that we adjusted –in advance- quantity levels on consumable orders so as not to run up our inventory,
3) schedule necessary maintenance to recover from summer and prepare for the busier months ahead.
4) take stock against our sales & expense budget. Since we’re entering the home stretch of our operating year we want to review where we are against plan. This is a great time for the management team to have their first conversation about next year’s budget and plans.
5) put specifics to our fall and winter marketing plan.

Bowling Center's Continuing Conversion to Redemption Game Rooms

It's been a busy summer, both in traditional FEC's and Bowling Center FEC's and Hybrids. We continue to be the beneficiaries of the "staycation" trend as families stay closer to home while pursuing their entertainment choices. With several years of success for the still relatively new marriage of bowling and FEC's, traditional centers are converting their game rooms to redemption. Video games have lost huge market share in the last ten years while redemption game share has tripled.

We have helped two traditional centers with successful conversions open in the last thirty days. The first, Broken Arrow Lanes in Broken Arrow (Tulsa) OK, is part of the Bartholomy Bowling chain of Midwest bowling centers, owned by Andy Bartholomy. Last year, we assisted in the major conversion of the former River Lanes in Tulsa to Andy B's, a state of the art Bowling-FEC Hybrid. Andy B's features 40 traditional lanes, 16 Boutique lanes, Indoor Go Karts, and a terrific 3,000 square foot, 50 piece state of the art redemption game room. This year later Andy decided to convert the game room at the smaller, traditonal Broken Arrow Lanes to redemption.

Broken Arrow has 1,110 square feet for the game room. Prior to conversion it was dominated by video games, with a few redemption games, and accessed from the concourse by a standard three foot door. There was a small, unattractive redemption center out on the concourse. The conversion plan included opening up the doorway, adding a new, well designed redemption center visible from both the concourse and the games, and new paint and carpet. We also created a state of the art redemption game mix, 22 games in all, with the latest high earners and a selection to appeal to all age groups. Andy and manager Michelle Engelby are big believers in the power of debit card systems, and took the opportunity to add an Embed system, not only in the game room, but as a "whole house passport". Cards are sold at the bowling desk and in the game room, and can be used for bowling, games, and food and beverage. The new game room looks great, has been well received by the customers and is tracking at projections!

The second traditional center is Mike Aulby's Arrowhead Bowl in Lafayette, LA. which just opened the converted game room on August 1. More on Arrowhead in the next post.