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Issue Date: Vol. 41, No. 3 / March 25, 2001 - April 24, 2001, Posted On: 3/25/2001


Are Kiddies Industry's Best Kept Secret? Like Bulk And Cranes, This Venerable Coin-Op Category Is Making Strides


Marcus Webb

U.S.A. - When 30-year coin-op pro John Lotz teamed with Lee Batson to form Sunshine Equipment Corp. six months ago, he took a crash course on the kiddie ride business.

Despite his extensive coin-op experience, having worked for Betson Enterprises for more than two decades, Lotz quickly discovered that his knowledge of kiddie rides was lacking. That, he understood, would have to change, as Sunshine had struck a deal with Barcelona, Spain-based Falgas to represent the company's kiddie ride lines in the U.S.

"Like many people working in distribution," Lotz observed, "I had sold some rides over the years, but really didn't know that much about the category. I asked stupid questions to any people that would talk to me in the ride business."

After spending two months studying the basic and finer points of kiddie ride manufacturing and operating, Lotz concluded that the kiddie ride business is one of the industry's best kept secrets.

"The kiddie ride business is no longer a nickels and dimes business," he noted. "Just like bulk vending and cranes, this is very much a real business."

The industry veteran pointed out that return on investment offered by kiddies is greater than ROI in today's video segment. While older rides in poor locations earn as little as $20 to $30 per week, he noted, newer rides in good locations can make $100 to $300 per week.

According to Lotz, there are a number of factors working in the segment's favor. With growing controversy over "violent" video games, he theorizes, the industry is in dire need of non-violent amusements.

"The violence issue is not going away anytime soon, and when the best-earning games come under attack because of their objectionable content, their numbers dwindle," he noted. "Operators and entertainment venues need non-violent amusements that can compete against the Internet and other forms of home entertainment."

Another positive development for the segment, he added, is that kiddie rides fill the void of children's entertainment options that exists in the coin-op entertainment market.

"I firmly believe that there are not nearly enough kiddie rides and carousels or anything for the younger age group in most FECs, arcades, pizza game rooms and other entertainment locations," he said. "If you go into most places like that in the morning, it's like 'mommy and me.' You have a mother with a stroller and a toddler and maybe one or two older children. If there is nothing there for the younger kids, guess what happens? The whole group leaves."

By Lotz's assessment, approximately 75 percent of the rides operated in the U.S. and Canada are run by large operators. Some of them only operate kiddie rides and carousels, while the remainder run a variety of other equipment such as cranes, bulk vending and video games. The other 25 percent of the rides, he said, are operated by "traditional operators" who use the rides in street and site-based locations.

Like other segments of vending and amusements, the kiddie ride industry has experienced a tremendous amount of consolidation over the past decade.

According to Brian Carasik of Denver-based Kiddie Rides USA (KRUSA), there are fewer specialized kiddie ride vendors in today's marketplace.

"There's been a lot of consolidation in the kiddie ride business, and it's still consolidating on a yearly business," he said. "There's only a handful of street operators left that specialize in kiddie rides. When I started out eight years ago in the business, there were probably 120 independents."

Many of those operators, Carasik noted, were part of an old guard unwilling to change its inflexable business practices.

With large chains such as Wal-Mart and Kmart demanding that rides be rotated on a regular basis, the days of leaving the same equipment at one location for 20 years were over. Those operators, he added, were replaced by larger companies capable of offering full service amusement vending services that included kiddie rides.

"The locations wanted one operator accountable for everything," he said. "They realized that it didn't make sense to deal with 10 different vendors."

AGE OF CONSOLIDATION

Consolidation continued in the mid-90s with the introduction of licensed rides, which Carasik cites as the primary element driving location demand for new branded, character equipment. It also provided the opportunity to increase price-per-play from 25 cents to 50 cents.

"When licensing was coming on strong in the mid-90s, it changed the kiddie ride industry significantly," he said. "It had been stuck at 25 cents since the early 1970s, and there was a barrier against charging 50-cents. When licensed rides came in, they gave operators the opportunity to bump up their play price to 50 cents."

According to Carasik, the explosion of licensed rides reached a crescendo in 1997, when the segment was covered extensively in coin-op magazines and took up a large percentage of space at the industry's main trade shows.

Up until that point, he said, few new rides were introduced to the market, mainly because there was no economic incentive to do so. When the dollar coin gains greater acceptance, Carasik believes another pricing transformation will occur.

"I think you'll see a new generation of interactive, digital rides in a couple of years when they can operate at a dollar per play," he said. "Until that happens, manufacturers are not going to invest huge sums of money designing rides that they can only get 50 cents for."

Over the past few years, he noted, the industry has made a strong effort to incorporate safety features that address liability issues. Many of the new rides, he said, employ such design elements as smooth, rounded edges, ergonomic seating, low-profile entryways, seat belts and delayed start buttons.

With locations recognizing the value of having kiddie rides as amenities, Carasik added that a growing number of chains are leasing equipment directly from operators for a flat monthly fee. In Denver, for example, some grocery chains offer rides set at a penny per play.

"It's usually the last thing customers do on their way out, so when they get good value and please their kids, it reflects positively on the store," he said. "What separates kiddie rides from other vending equipment is that it isn't always about the revenue produced. The stores look at them as an appeasement to a cranky child. When a mother tells her daughter that if she behaves she'll let her ride the pony, and she ends up shopping for another 10 to 15 minutes, that's the value of a kiddie ride."

While many kiddie ride-related businesses have diversified over the years, Edgewood, NY-based Kiddie Ride Enterprises has remained committed to the segment.

KRE was formed in 1997 when Lindenwood Capital partners (previously White River Partners) purchased the assets of Just Kiddie Rides, which was launched in 1989 by Michael Reda. Reda, who left the company in 1992 to pursue other interests, is now president of KRE.

The company, which manufactures, markets and operates kiddie rides, also is the exclusive distributor for Germany-based EMT Kiddie Rides. KRE top-selling model is EMT's "Muppet Spaceship," and it plans to unveil "Spider Rider Helicopter" later this month at Amusement Showcase International.

According to Reda, KRE is a rarity in that it is one of a handful of companies that has not expanded into other areas.

"While others in the industry have branched off into other sources of income within vending," he said, "we continue to stay with the formula of being a category killer specializing in kiddie rides only."

With the surge of cranes and out-branching of sources, Reda notes that kiddie rides have been "lumped" into the same profit category.

"Years ago it would take only a few years for a company to see a return on investment; that was when a ride would sit in one location for several years," he said. "Today, rides are constantly being rotated, putting additional stress on a company's bottom line."

Reda observed that kiddie ride sales are not as profitable as they were 10 years ago, so KRE has responded by decreasing its kiddie ride prices.

"It's unusual for a manufacturer to reduce prices," he explained. "However, we have been able to do this by renegotiating licensing fees."

KRE's new marketing strategy of introducing higher quality rides at lower prices, he added, is intended to strengthen both the company and industry.

Theisen Vending Co., based in Minneapolis, MN, is a prime example of how the kiddie ride segment has been integrated into a full-line vending and music and games operation.

Like many vending companies, TVC started out as a bulk vending operation, expanding into bulk distribution about 40 years ago. Its vending services began with cigarette machines and later added soda, candy, chips, pastry and sandwiches. The acquisition of a few music and games operations complemented the company's established games and music routes.

According to TVC's Mike Ruegemer, the addition of kiddie rides helped transform the company into the multi-faceted operation that it has become today. Not surprisingly, kiddie rides and full-line vending are presently TVC's two major growth areas.

"Between 30 and 40 percent of our current business is derived from the management and operation of kiddie rides," Ruegemer said. "We are currently focusing our energy on growing and improving our kiddie operations and presentation to capture more of the market."

The majority of the company's customers, he added, are shopping malls and large consumer chain store retailers. Start-ups also make up a substantial portion of TVC's business.

TVC is the exclusive North American distributor for UK-based kiddie ride manufacturers Jolly Roger, which specializes in licensed character rides, and R.G. Mitchell, which is a leader in the development of interactive and educational rides.

Demand in the U.S. for both companies' products, Ruegemer said, has been on the rise.

Like Lotz, he identified the declining video game market as a principal force pushing kiddie ride sales upward. "Kiddie rides are a growing alternative for today's music and games operators," he said, "largely because of declines in video revenue."

In terms of future growth, Ruegemer believes that the opportunities are there for the taking, mainly due to the technological advances and creative styles being incorporated by kiddie ride manufacturers.

"The only weakness I anticipate would be the lack of enthusiasm about the opportunities still undiscovered," he said. "To combat that, we need to educate those unfamiliar with the business so they understand their entertainment value."

LICENSE TO THRILL

UK-based kiddie ride maker Jolly Roger is considered a leading company directing the development of licensed rides.

Since its launch in 1988, Jolly Roger has grown from a small 1,000-sq.-ft. workshop, crafting 100 generic rides annually, into a 14,000-sq.-ft. plant that produces 1,500 rides annually. According to company president Roger Newborough, the majority of those rides are licensed characters.

"We are heavily involved with licensed characters and have been since the introduction of our first model, 'Mr. Blobby,'" he said. "He was an English TV character who was extremely popular at the time, but unfortunately did not have an international appeal."

Although "Mr. Blobby" was a flop outside of the UK, Jolly Roger recognized the potential of licensed rides and soon began acquiring rights to reproduce popular children's properties, with international appeal, in the form of kiddie rides.

"Licensed rides seem to be something that the UK industry specializes in, as other European manufacturers tend to focus on generic rides, with the exception of EMT in Germany," he explained. "This could be because EMT has connections with the UK and U.S. markets, which recognize the value of licensed rides."

Newborough noted that other European manufacturers, such as those in Italy and Spain, appear to be developing more elaborate, interactive generic rides. While Jolly Roger still manufactures generic rides, the segment only represents two percent of the company's overall sales, he added.

In the debate over whether licensed or generic rides are more profitable, Newborough obviously sides with those who favor licensed products, but he admits that it's not always cut and dry.

"It may be true that generic rides will earn as much or even more revenue than licensed rides, but it all depends on which models are being compared," he pointed out.

"We all know that an indoor generic ride positioned by a store checkout will earn more that a licensed ride at the back of the store," Newborough added. "The popularity of the character also makes a significant difference."

take care of the pence

Pricing on location in the UK, he noted, is typically 30 pence (about 50 cents), where it has lingered for many years, but there has been a move of late to 50 pence (80 cents).

In 2001, largely due to the success of its "Bob the Builder" ride, Newborough predicts that the company will have its most successful year ever.

Jolly Roger licensed "Bob the Builder" in 1999 from Hit Entertainment, which owns the popular British animated series that continues to top the BBC's ratings. The factory's ride based on the program centers around Scoop the digger and the main character, Bob.

"This character is the hottest property available right now, not only for rides," Newborough asserted, "but also for all types of merchandise and TV exposure. The program was only released in the U.S. in January, so the market there is about 18 months behind the rest of the world in terms of character recognition, but we see enormous potential in the U.S. in the coming months."

Another UK-based kiddie ride manufacturer, R.G. Mitchell Limited, has been manufacturing rides since 1958. Last year, the company made about 2,000 rides using self-colored fiberglass, which officials describe as more durable than competing models. Its biggest export markets are the U.S. and the Middle East.

The company is also the UK's largest ride operator, with approximately 5,000 rides on location.

DIFFERENCE OF OPINION

Unlike Jolly Roger, which focuses on licensed rides, R.G. Mitchell specializes in interactive, generic rides. The company currently manufactures 35 different models, only seven of which are based on licensed characters.

"Licensed rides are good 'door-openers' with national accounts," said Marshall Ashdown, the company's sales director. "And depending on the popularity of the character, they can earn more than generic rides.

"But usually this is over a short time frame and the revenues can tail-off as the character gets less exposure on TV," he cautioned. "In our experience, a well-designed generic ride with lots of built-in interactivity can generate revenues equal to or more than a licensed ride."

Ashdown pointed out that licensing royalties add cost to manufacturing. This royalty, he explained, can be between 10-15 percent of the ride price, an increase that is not always offset by added revenue generated by a licensed ride.

According to Ashdown, the company's most successful rides are those rides that incorporate interactive features, such as "Hank's Ice Cream Van" and "The Shuttle," both of which are equipped with touch-sensitive displays.

"Children today are far more sophisticated than previous generations and demand more from their rides," he said. "We now have to appeal to the computer generation, so a basic ride with just one or two sound effects will not be attractive to modern children."


Topic: Music and Games Features

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