State of the Industry from Where We Sit……..

By Bruce Nussbaum, Managing Partners 

Bruce Nussbaum is a founding managing partner of Trifecta Management Group.  He brings a unique combination of a Harvard Law-trained lawyer with extensive transactional experience and a seasoned social entertainment executive with operations expertise.  With this diverse skill set, Nussbaum divides his time between identifying and structuring Trifecta’s new business endeavors with partners and supporting the day-to-day functioning of the company’s retail operations/consulting projects.   Bruce, also a music enthusiast, is actively engaged in the real estate and social entertainment industries via frequent attendance and speaking engagements at national and regional conferences.

State of the Industry

From where we sit……..

It’s 2022 and interest and investment in the retail entertainment industry has definitely picked up, as consumers, en masse, display a desire to socialize after the protracted pandemic stay-at-home period.   Players in the social entertainment industry are returning to the habit of gathering in person for conferences and trade shows.  The Amusement Expo trade show and the Amusement 360 conference, among others, are now behind us, with Bowl Expo right around the corner in June and the IAAPA behemoth looming in November, which makes this an opportune time to reflect on where the industry stands today and what we at Trifecta Management Group think is likely to come next, and how operators can flourish in this environment which also includes higher inflation levels than have been seen in a while.

What’s Going On

By all accounts from operators across the spectrum of venue types nationwide, sales are generally approaching, or even exceeding, 2019 levels, the appropriate benchmark given the great disruptions experienced in 2020 and 2021.  This is being driven in large part by strong transient (our term for walk-in sales as opposed to contracted event sales) demand which appears to be fairly constant across the board.  Group and other event sales experiences, on the other hand, are more unpredictable, with a rebound to pre-pandemic levels potentially mirroring the degree to which employers are returning to pre-pandemic office attendance policies.  But even in those markets where remote work remains a significant factor it looks like the group sales revenue arrow will point upwards as the year unfolds, albeit, perhaps, not as robust as transient business.  Continuing inflation and rising interest rates, however, which some economists are predicting will lead to a recession, could turn the arrows downward.

New project development is coming back as well.  Enthusiasm, as well as capital, for new investment understandably waned during the pandemic.  But that ‘sidelined’ money seems to be back in play and new projects are back on track.  Strong evidence for this comes from Trifecta’s market feasibility study practice, in which we analyze sites and/or markets for clients and advise on the right choices and experience for the market and the prospects for success.  In recent months Trifecta has completed or begun studies on about a dozen different markets across the country, for a wide range of concepts including bowling entertainment centers, indoor/outdoor family entertainment centers, boutique bowling centers, escape rooms and even a large-scale complex that would include an outdoor concert arena, a banquet/events center and/or a family entertainment center.  Again, however, one must watch the larger economic environment and its effect on lender behavior.

 The Times They Are A-Changin’

What we are seeing, and working on, is representative of the larger forces shaping the industry.  On the one hand you have what one might call the ‘single focus’ concepts, which arguably began about 20 years ago with the advent of the boutique bowling center.  This development was highlighted by the pioneering Lucky Strike Lanes and grew to include others including Trifecta’s development of The Corner Alley in the reinvigorated downtown Cleveland, Ohio.  As most readers will know, the boutique bowling center took the traditional sport of bowling and repositioned it in an upscale environment with a primary focus on food and beverage offerings, targeting the demographic we call socially active adults.  The boutique bowling center has proven to be a durable concept, one that is getting even more legs with the newfound popularity of duckpin bowling which opens up the possibility of shrinking the required square footage to bring more real estate options into play.  Note that manufacturers are also enhancing the century-old bowling experience (primarily in boutiques but in traditional houses as well) by adding compelling, interactive games to the sport, notably Brunswick’s ‘Spark’ system that layers on a myriad of augmented reality and other high tech experiential add-ons.

The ’single focus’ idea was then applied to the golf driving range with the introduction, wild success and rapid expansion of Top Golf, which took another traditional recreational activity (the golf driving range) and reimagined it with a more appealing ambience, an array of more compelling game play features and a tremendous appeal to group event customers.  The results have been tremendous, but so are the real estate requirements and buildout costs.  So now ambitious groups are bringing that experience wholly indoors with newly ‘gamified’ miniature golf with game play that is much more interactive and interesting than the simple fewest-putts-to-the-hole, with concepts like Putt Shack, Puttery, Swingers Crazy Golf and others.  The trend has continued with the introduction and growing popularity of axe throwing centers, and the next examples of the genre appearing in the marketplace and/or in the pipeline include concepts built around soccer simulators, cricket and firearms.  Time will tell, of course, which of these sufficiently capture the public’s fancy to thrive as stand-alone concept anchors, which fall by the wayside and/or which evolve into component offerings in larger, ‘multi-use’ concepts.  Some may recall that GameWorks, under the direction of the Trifecta team, was among the first to incorporate a true sports bar into a larger entertainment space in its Tempe, Arizona, location, and to incorporate a boutique bowling element in its Minneapolis, Minnesota, location.

These ‘multi-focus’ projects are also once again on a strong growth trajectory.  Rather than a more narrow aim toward socially active adults and (mostly) corporate event sales, the multi-focus concepts target a broad range of guests who can use the facilities during different times of the day and different days of the week.  These concepts aggregate one or more of the above offerings with other attractions such as video gaming, laser tag, virtual reality, e-sports, go-karts and others, creating a ‘one-stop shopping’ venue to suit the tastes of a wide range of users.  Trifecta just opened one such venue for a client and is in various stages of construction or development on several others.

An interesting wrinkle on this multi-use format involves the movie theatre industry.  That industry is facing a troubling confluence of challenges:  the uncertain post-pandemic recovery, the explosive growth of streaming services and the increasing demands of their movie studio ‘partners’.  Many, if not most, theatre companies are pursuing diversification strategies to reduce their reliance on the ticket-purchasing public and the growing studio share of box office sales, with efforts that pre-dated the pandemic but are accelerating now.  This strategy manifests itself via either retrofitting existing theater complexes to add family entertainment center components or building new complexes combining theater auditoriums and these other entertainment offerings.  Some are even eschewing the theatre business altogether and developing new concepts that are purely entertainment centers with no theatre boxes.  Trifecta has advised many theatre companies in these efforts, supported the opening of one in the midst of the pandemic and is currently engaged with several in this particularly dynamic part of current landscape.

Takin’ Care of Business

As with every business challenge, the pandemic has forced operators to adapt to new market realities and to re-think previously established ways of doing business.  While no operator would ever admit to not focusing on things like cleaning standards and ventilation, virtually overnight the level of public (and governmental) scrutiny in these areas was heightened to unprecedented levels.  Savvy operators quickly adopted phone ordering and contracted with delivery services such as DoorDash and Postmates to offer takeout options and capitalize on that demand spike, reduced touchpoints by introducing QR codes and paperless menus and implemented more frequent and intensive sanitization protocols.  Trifecta is of the view that these concerns will remain even as the pandemic conditions recede, and it continues to be active in advising clients on best practices in these areas including the essentialness of mobile ordering.

Meanwhile, the labor shortages that grew out of the pandemic and associated conditions forced operators to revisit existing scheduling practices and operating procedures in a quest to maintain the same elevated experience that customers rightly expect with fewer employees, as the consuming public has not been of a mind to lower its expectations.  This is a tall order, but one that has rewarded those operators who have managed to pull it off with enhanced margins as sales have rebounded.  The shifting labor market has also put a greater premium on effective employee recruiting and retention.  Again, no operator would ever cop to ignoring things like employee job satisfaction.  Nonetheless, there can be no doubt that an operator’s most effective tool in dealing with labor challenges is establishing and maintaining a workplace that treats all employees fairly and with dignity and respect, supports their career development and provides those employees a fair and compelling compensation package.  Trifecta’s training and development group is proactive and in the vanguard on both of the critical elements of this equation: recruiting and retention.

 thank u, next

So, in a nutshell, sales levels are rising, new attraction offerings are expanding, new concepts are emerging and new projects are springing up nationwide.  It remains to be seen, of course, to what extent rising inflation dampens this outlook.  Trifecta is hard at work supporting entrepreneurs, operators, real estate developers and landlords and other clients, across all the core competencies necessary for success in this industry. 

Our new business, concept development, operations and marketing groups are constantly tracking the latest technological and attractions breakthroughs available for deployment in projects, with an eye toward providing ‘next level’ experiences both visually and experientially.  As noted above, our training and development group is achieving great results in recruiting, retaining and developing effective teams.  Our culinary group, led by a full-time, nationally-acclaimed Chef, curates menus filled with elevated food and drink offerings presented in eye-catching and fun fashion that become part of the entertainment experience and also drive up-sales. 

Our marketing and sales group uses a data-driven approach encompassing digital and traditional marketing methods that tracks ‘in the door’ results rather than just raw metrics.  The evolution in the marketing area for this industry over the past 15 years has in fact been revolutionary – whereas then a typical marketing budget would have devoted 80% (or more) to traditional advertising (radio, TV, billboards and print), today that same 80% is typically more effectively devoted to digital and social advertising.

Trifecta brings these resources to bear for clients on an a la carte basis customized to address specific needs.  In addition, taken together, our clients are leveraging the depth and breadth of our ‘corporate, support and strategic’ experience and expertise at a fraction of the cost, and administrative burden, of adding permanent overhead.

And we are seeing one final trend.  Long-term operators, or in some cases even newer operators who are interested in diversifying their endeavors, are exploring options to step away from the day-to-day grind of running their businesses.  This is particularly prevalent in the traditionally family-run bowling center industry in cases where the upcoming generation may not be inclined to follow in the prior generation’s footsteps.  One option, of course, is to sell the business, but we are also seeing increasing interest in engaging a third party management company to run the business while ownership retains the long-term value of the asset.  In a sense, this enables Trifecta to complete its lifecycle of support, from helping entrepreneurs establish new businesses to facilitating their retirement from the personal burdens but not the financial benefits of the business.  Soup to nuts, indeed, so feel free to dig in.

By Bruce Nussbaum, Managing Partners 

Bruce Nussbaum is a founding managing partner of Trifecta Management Group.  He brings a unique combination of a Harvard Law-trained lawyer with extensive transactional experience and a seasoned social entertainment executive with operations expertise.  With this diverse skill set, Nussbaum divides his time between identifying and structuring Trifecta’s new business endeavors with partners and supporting the day-to-day functioning of the company’s retail operations/consulting projects.   Bruce, also a music enthusiast, is actively engaged in the real estate and social entertainment industries via frequent attendance and speaking engagements at national and regional conferences.