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Issue Date: Vol. 43, No. 3 / March 25, 2003 - April 24, 2003 , Posted On: 3/25/2003


Stability, Profitablity, Diversity Are Factors Driving Sales Through Coin-Op Kiddie Rides


Marcus Webb

U.S.A. - Two contradictory trends have animated America's kiddie ride market in the past year. A spur toward growth is seen in the launch of successful high-end simulator-type rides by leading manufacturers, plus the announcement of high-profile licensed rides from an entirely new manufacturer. Notably, products from these sources are aimed largely at the steadily expanding universe of corporate chain accounts.

Yet that same universe of locations took a serious hit from the ride market's second major trend: Kmart filed for bankruptcy last year, resulting in the closure of many stores and a glut of used rides on the market. This factor, coupled with the overall slowdown in the U.S. economy, led to slightly slower sales for most ride suppliers. From the peak sales year of 2000, the volume of new rides being shipped declined slightly in 2001 and 2002, manufacturers report.

Nevertheless, the overall U.S. kiddie ride market remains remarkably stable. It would be an oversimplification to believe that the above-noted trends merely cancelled each other out. In a way, these major developments in the ride niche were ships passing in the night , they impacted very different ends of the ride market. The Wal-Marts and upscale shopping malls insist on the newest, hottest, and flashiest products , including kiddie rides. These locations are therefore unaffected by any glut of used rides, a category of product that tends to find a home in independent street locations.

Accordingly, it is in spite of (not because of) such unique events that the overall picture for the kiddie ride niche remains rock-steady and quietly profitable. This year to year stability can be measured by several yardsticks. Based on estimates provided by industry veterans, augmented by independent surveys, VT estimates that the number of rides on location in the United States has nudged to more than 100,000 units sometime last year, up from approximately 98,000 the year before. The average weekly earnings for kiddie rides is reliably reported at around $75 to $80 per unit per week, another incremental increase over the prior year's figure. This would result in estimated gross national revenues of approximately $375 million per year for the overall U.S. kiddie ride market.

GUARANTEED ROI

Another measure of consistency: ride operators across the board report that lowe-end or refurbished rides can be expected to earn back the cost of their investment in just eight to 16 months, while newer, upscale rides can still achieve 100% ROI within just two years (and sometimes much sooner in a high-traffic location).

"At an average $75 a week and with a 50% commission, that's a two-year payback term," noted Mike Ruegemer of Theisen Vending Co. (Minneapolis, MN), a leading operator-manufacturer. He added: "That is pretty much the norm in the industry, although there are situations where it could happen in six months. In major malls, you can have revenues of $300 and more per week."

The source of this stability is easily found: it lies in the nature of the ultimate customer for rides. "Our primary customers are kids from three to nine," pointed out Brian Carasik of Kiddie Rides USA. "They never change. Their growth stages are identical around the world, in any country and any culture. They learn sounds and colors; they enjoy motion; and they want to ride the pony, the truck, and the airplane. For this reason, our basic technology is always new to a child; they are not affected by the newest generation of computer graphics and memory."

Carasik continued: "The kiddie ride industry does have some trends for keeping up with technology, of course; and the new video ride simulators are great pieces that generate excellent earnings for higher-end malls, so long as they are operated by sophisticated operators who can do the maintenance. But for many street operators, the best rides are still the evergreens , very much including the timeless, refurbished rides , that make the most money with the least maintenance. A well-built, well-maintained ride can literally stay on location for 30 years, paying back the cost of investment again and again."

DUAL APPROACH

Acknowledging this backdrop of a stable market, Theisen Vending's Mike Ruegemer noted that while children do indeed go through the same stages of development in a timeless fashion, it is also true that older kids are becoming more media-savvy and more computer-literate with each passing year , reflecting the changing home and school environment. Theisen, which bills itself as "the world's largest provider of kiddie rides," operates in shopping centers nationwide and represents two prestige brands from the UK, Jolly Roger and R.G. Mitchell.

"Our outstanding new products this past year were Jolly Roger's 'Bob the Builder' and the new 'Arthur,' 'Cat in the Hat' and 'Clifford' licensed rides are looking very good for this year," Ruegemer noted. "On the R.G. Mitchell side, we have a new kiddie simulator ride, 'Dodge-'em Wars,' where we are targeting a slightly older segment of six to 11. It's a more sophisticated product: the ride moves with the steering apparatus and it features a video monitor that shows other bumper cars that kids can interact with. Both Jolly Roger and R.G. Mitchell are always trying to stay on the cutting edge with new technologies to keep the market and the industry fresh."

GROWING CHILDREN'S MARKET

The child population has tripled in the past 12 years according to demographics studies. The number of rides on location across the U.S. has not tripled, however; instead the installed base of rides grows at more like 2% or 3%t annually, which appears quite sufficient to serve the increased youth population. "Most rides are being used 30 to 40 minutes out of the average day, so there is still great capacity to serve a larger customer base," noted Theisen's Ruegemer.

Dominating the market with an estimated 90,000 units in large chain stores, malls, and other top locations are three major groups. First, the large ride company operating specialists, many of which also manufacture rides (such as Theisen). Second, nationwide operating companies such as Sugarloaf (a unit of American Coin Merchandising Inc., Boulder, CO) and T.D. Rowe (Houston). Third, fun centers ranging from the 425-unit Chuck E. Cheese's, to stand-alone sites such as Fundome (Salt Lake City) which alone operates over a dozen rides in its single location.

Increasingly, the first two groups overlap, because the largest operating companies are steadily absorbing the ride specialists and manufacturers. One ride expert estimated that 85% of the specialists have been purchased by the national and regional operating firms in recent years.

Additional notable new high-end products for the upscale malls and corporate chains this year include the "Kiddie Coaster" video simulator ride. Products of that name, featuring DVD roller coaster action, arew available from two different companies offering two different cabinet styles (Innovative Concepts in Entertainment and Amutec). Entering the market as a new kiddie ride manufacturer is Sugarloaf, which has acquired the rights to build Disney-themed rides. They will be sold through a new division called Kiddie World. (See VT February.)

ON THE STREET

The bottom tier of the kiddie ride market is the province of local and regional music and games operators , the "street" market. This group increased its ride inventory from an estimated 7,000 units in 2000 to 8,200 units in 2001, according to VENDING TIMES' Census of the Industry Issue 2002.

Large in terms of percentage increase , but relatively small in absolute numbers of unit sales , this growth in the number of rides operated by street-oriented companies has persisted for several years. It is chiefly due to the fact that certain forward-looking music and games companies employ a strategy of diversification to maximize revenues in each location.

These operators are moving beyond just the staples of yesteryear (music, pool, pins, video). They are more willing to offer anything and everything that a location needs, sometimes up to and including bulk machines, full line vending, pay phones , and, on occasion, kiddie rides.

GEO-MARKETS

According to KRUSA's Carasik, the two tiers of the kiddie ride market have become distinctly stratified. Smaller local operators are hard-pressed to compete for the business of major national chain accounts. Such prestige stores remain, by and large, the province of the major national operators, who supply them with top-end rides. But Carasik said local operators can find ample expansion opportunities by seeking homes for simpler, cheaper rides at independent locations.

"We recently refurbished some old-time choo-choo trains for a railroad museum," Carasik said. "The operator will probably keep that spot for 20 years and it will be a huge, profitable site for him. That is where creativity of the operator comes in: there are hundreds and hundreds of styles, themes, and genres to fit any location. In coastal areas, for example, we sell a lot of boats, whales, sharks, and dolphins , they make money because there is a lot of emotion that goes with the ride. By matching the ride's theme to the location, the operator will protect his relationship with the location and have less threat of losing it."

Experts say that less prestigious locations, all the way down to the humble Laundromat, offer surprisingly strong ROI over time. During a family's one-hour stay at the location, an older ride set on quarter play may be ridden by a child three times , so what appears to be a 25 ride is actually generating three times that amount from many customers.


Topic: Music and Games Features

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