The hottest trend in the industry today is a new approach to merchandising that offers very high-end prizes of $50 and up. Today we have several top "workhorse’"earners in the merchandiser category such as Andamiro’s Winners’ Cube; Namco’s Barber Cut Lite; Bay-Tek’s Amazing Road Trip; LAI’s Stacker and Lighthouse; ICE’s X-Prize; and Family Fun Co.’s Time 2 Win. Together, these games have made 2009 the hottest year for merchandisers since triple cranes were introduced to the U.S. almost 30 years ago with Betson’s Big Choice Triple Crane.
Something very unusual is going on here. It would be a mistake to think of the current generation of high-end merchandisers as simply the latest iterations of a long-time trend. The truth is quite different. For an industry that started its redemption and merchandiser business 100 years ago (with Skee-Ball) and diggers with "slum" merchandise – candy, the half-cent rubber snakes, plastic rings, and so on – today’s high-end merchandisers represent a multifaceted revolution in economics, security, promotion and more.
Changed economics begins with the investment (purchase or finance cost) of these machines and the ROI from their expected working life. The best of the high-end merchandisers are extremely well built and could quite possibly continue working and earning for 10 years or even more. Unlike ticket-vending redemption games, which can only be operated in places with manned prize centers or automatic tickets-to-prizes vending machines, these merchandisers work well in any location with heavy traffic, including street locations.
But the biggest economic change is the value of the prizes. As I mentioned, for decades our industry had been working with cranes and merchandisers that offered plush animals, then progressed to low-end merchandise. Later, operators learned how to use their machines as "store fronts" with slightly better merchandise such as glitter balls, sporting goods, watches, jewelry and bling.
Rich Oltmann of Family Fun Co. is famous for creating more than 65 crane themes such as Pez, Super Hero, Starbucks, Dunkin’ Donuts Coffee, etc. For years, the creative operators of boardwalk arcades on the New Jersey Shore offered merchandisers with perceived-value prizes and trade-ups of $50 to $100. Meanwhile, price per play has increased slowly from 50¢ to $1, with creative bonus pricing such as seven or eight plays for $5. (The trick to making this work is to get rid of the coin mechs, or only use them for 50¢ single play but not for any multiple bonus play, and use only bill acceptors.)
The first major leap of innovation from cranes to contemporary merchandisers that I can recall was Sports Arena from Sammy and Key Catcher from Sammy/Sega, followed by Lighthouse from Leisure and Allied Industries (LAI). These games made it economically sensible to offer truly high-end merchandise. Instead of the 1-in-12 win ratio (hit frequency) that had prevailed before, these machines appealed to a new generation of players – customers who were willing to test their skills to go for the high-end prizes and accept much lower hit-frequency ratios. Our kids have been raised to want the latest and greatest high-tech toys – from iPhones to cameras, video phones, and other electronics. Kids will play as many times as it takes to win whereas previous generations stopped playing if we didn’t win something after several plays.
(The casino industry has cashed in on this principle by putting cherries on the slot reels so we win a couple of coins or credits and feel good for a few seconds and then proceed to give our winnings back to the house.)
The next twist was LAI’s Stacker, using the proven poker-style principle of "hi-lo double-up" to offer the player the option of accepting a low level prize just won or rejecting the lower level prize and going for the higher level prize (such as iPods and other high end electronic items).
Now Winners’ Cube, Barber Cut Lite and Road Trip are dominating the cashbox charts, even earning higher weekly gross revenues than coin pushers in some cases. Average weekly grosses are in the range of $300 to $500 in B locations. For example, my company’s Winners’ Cube has seen weekly revenues exceeding $3,250 in an A+ location.
This revolution in prize values has triggered a change in security procedures that operators must follow. With $2,000 to $3,000 worth of merchandise in a single machine, operators have to store, secure and lock machines, trucks and inventory storerooms on locations. They must protect the prizes like they protect the cash in their bill changers and their tickets and tokens. Alternatively, some operators stock merchandisers with photo cards of these high-end prizes; if the player wins a prize, the machines vends a coupon that can be mailed in or redeemed in person for the real merchandise. This means less of a security risk for the operator, but of course it also means less player excitement from the promise of instant gratification.
Another popular prize concept for merchandisers operated in FECs or theme parks is bundles of 500 and 1,000 and 2,000 tickets that can be won in a single play (with 1,000 tickets worth $7.50 in terms of prize cost, using my company’s FEC redemption point formula). Kids and adults love to win tickets and machines that offer these prizes become one of the top 20 game earners. This can be done on the street as well as in fun centers, with tickets redeemable for food, items already offered, or just about anything except alcoholic beverages or cigarettes.
High-end merchandisers make it possible for operators to take a new approach to marketing. One tactic I am using for FECs and mall locations is to stock a Winners’ Cube with gift cards from stores in the same mall or in the local market. The rows of prizes can have gift cards valued at $10, $15, $20 and $25. The operator makes even more money because stores will give them a discount on the purchase of these gift cards. The stores like the idea because it drives business to their venues. The smart operator will arrange for those stores to distribute coupons that in turn drive traffic to the FEC, and then to his merchandiser. It becomes a win-win technique where both parties benefit and the operator and location make money on both ends. This strategy allows the operator to use cranes and merchandisers as tools for cross-promotions and marketing.
Oddly, one thing has not changed in my operation’s financial model yet. In my own company’s FECs and gamerooms, the cranes and merchandisers have accounted for 15% of the gross game revenues for the past decade. This remains true today. But it has required a conscious choice, and some carefully enforced policies, to keep these popular merchandisers from cannibalizing revenues from "regular" redemption games that offer more typical prizes at the counter.
With a cost of sales at 22% to 25% for redemption (depending on local competition), the operator will find his cost of prizes is higher for merchandisers, in the 25% to 33% range (assuming that everyone buys their prizes and merchandise at the same discounted price). So relying more on merchandisers with high-end prizes may make customers happier – but it could also reduce the operator’s bottom line, if he or she is not careful. Obviously this is not a risk in locations that do not have traditional redemption. In those cases, each of the top merchandisers is a great opportunity and offers a tremendous return on investment.
The merchandiser revolution is not over yet. What’s next? For a clue, notice that Bay Tek has capitalized on the tremendous success of its Big Bass Wheel redemption game by using the same concept in their Amazing Road Trip merchandiser. In the coming months and years, we can expect to see other manufacturers incorporate gameplay from the greatest redemption machines of all time (perhaps even pushers) into merchandisers. Perhaps we could see a five-year period of even greater merchandiser earnings.
Thanks to the merchandiser revolution, this is once again a great time to be a game operator. Today, operators are beginning see the pot of gold at the end of the merchandiser rainbow, just as our players and potential players do.
FRANK SENINSKY is president of Alpha-Omega Amusements (East Brunswick, NJ), parent company of Amusement Entertainment Management, a consulting agency; Alpha-BET Entertainment, a nationwide revenue sharing equipment provider; and Alpha-Omega Sales, a distributor of new and reconditioned games. During his 40 years in coin-op, Seninsky has presented nearly 300 seminars and penned more than 1,300 articles. He served as president of the Amusement and Music Operators Association and the International Association for the Leisure & Entertainment Industry. He is editor of The Redemption Report and an instructor at Foundations Entertainment University. Seninsky can be reached at (732) 254-3773 or by emailing email@example.com.