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Issue Date: Vol. 41, No. 10 / August 25, 2001 - September 24, 2001, Posted On: 8/25/2001


Prize Merchandisers Achieve Double-Digit Growth In Machine Sales And Operator Earnings


Marcus Webb

U.S.A. - America's mania for prize contests, lotteries, sweepstakes, and the like shows no sign of a slowing down. In August, a $200 million multi-state Powerball lottery drawing was the lead story on many national newscasts. Meanwhile, analysts say the market for risk-reward entertainment has more than doubled to some $60 billion in less than a decade, and there's no end in sight. All of this raises a tantalizing question: is there a way for the coin-operated amusements industry to cash in, legally and simply, on this frenzy?

The answer is a big "yes."

In fact, the industry is already cashing in, thanks to prize merchandising equipment. According to the just-released VENDING TIMES Census of the Industry, merchandisers of all types , cranes, rotaries, pushers, and prize-dispensing novelties , achieved a 14% increase in machine placements last year, making it the trade's second-fastest growing niche after kiddie rides. Operator revenues from the category grew an even more impressive 17%. (The survey did not include national crane operators, but does cast a revealing light on overall trends among music and games operators.)

Today any category of equipment that achieves annual double-digit growth , in machine sales and operator revenues alike, no less , must be counted as an outstanding, even stunning, success. In fact, operators we spoke to routinely used the word "phenomenal" about the performance of today's prize venders. Based on conversations with operators nationwide, it appears that prize merchandisers have now established themselves as a small but increasingly important staple, comprising anywhere from 5% to 40% of the total machine base for some operators. From all accounts, the category is well positioned to continue its rapid growth as a steady stream of additional operators move to embrace this niche.

Prize merchandisers have gone through two distinct growth phases in the past 15 years. During the late 1980s and early '90s, skill cranes swept the country as one jurisdiction after another approved the claw devices for operation. By 1987, up to 40 manufacturers built cranes. Factories expanded on the original single-player, small-plush units with a host of variations including jumbo cranes, dual and triple cranes, and later gift box and watch cranes. Eventually candy cranes and chocolate cranes followed. A smaller but steady market for rotary merchandisers accompanied this boom.

The second growth spurt in automatic prize merchandising was triggered in Dec. 1997 by the debut of Sammy USA's original "Sports Arena." This skill-based upright novelty vender awarded keychain sports merchandise from a spinning carousel display. Since then, U.S. operators in fun centers and street locations alike have deployed more than 10,000 of the original model and its successor variations including "Super Sports Arena," "Music Sports Arena," and the countertop "Mini Sports Arena."

These statistics suggest that Sammy USA alone could be responsible for something like half the growth in the installed base of prize merchandisers from 1997 (when VT's Census estimated some 65,000 merchandisers were on location) to last year's field, estimated at 82,000 units. The balance is comprised of cranes of all types, rotaries, and other popular prize-dispensing novelties including Benchmark's "Drill-O-Matic" and Bay-Tek's "Whistle Stop."

PRODUCT VARIETY

Many factors have combined to help create the "Sports Arena" phenomenon. First, the market was receptive to new, novel products. By the middle and late 1990s, video games were tumbling from their 20-year peak as the trade's leading product. Operators, looking for something to take up the slack, became increasingly willing to try new concepts. Norbert Meunier of King Pin Games Inc. (North Freedom, Wisc.), who services the nation's largest water park, its largest mini-golf attraction, and other associated leisure sites, made a pointed comparison between video and prize vending devices.

"Prize dispensing machines outdo video games 10 to one in my business," he declared. "A group of three self-contained prize machines in a major hotel will earn more than several top video games. I can't imagine running my business without entertainment vending and wouldn't think of it! We have one account that does $20,000 a week , mostly redemption , but even so, self-dispensing equipment accounts for 25% of our business. And it's becoming more important as there is less video to buy. How else can we fill those holes? If I could, I would have nothing but redemption and prize machines in every location. We no longer operate strictly video arcades and have not done so for two years. These machines started out as supplemental income but now they're a mainstay in what we do. We operate 40 'Sports Arenas' alone!"

The growing popularity of redemption was another factor paving the way for the success of automatic merchandisers. As Meunier's remarks indicate, redemption proved to be the answer for many operators as video softened. In the mid-'90s, redemption enjoyed its own boom , particularly as FECs flourished mid-decade. The advent of stand-alone prize dispensers was initially viewed, and often sold, as a way for street operators to participate in this redemption boom.

Lisa Pardue of Williams Amusement (Orlando, FL) says her company caters to many tourist locations and appreciates precisely this flexibility. "Automatic prize vending equipment is extremely important for us because most of our locations are unattended," she explained. "You have redemption success without redemption overhead. 'Sports Arena' particularly is a phenomenal prize piece for an unattended game room."

SIMPLY REDEMPTION

Doug Minter of Tip Top Amusements (Carson, NV), whose company provides game room equipment to top Nevada hotels and casinos, emphatically endorsed the same idea: prize venders provide a lower-overhead alternative to the more labor-intensive form of ticket redemption. "Many locations want some redemption, but they don't want the problems of counting and weighing tickets and devoting staff time to that," Minter said.

"This type of equipment is the answer," he added. "It shifts the responsibility of loading prizes to the operator, while saving the expense of paying the help to run a redemption counter. It also saves the space of having a redemption counter and this allows redemption to be installed in smaller locations. Of course, the problems of employee theft of merchandise are also reduced if locations don't have to stock prize merchandise."

Prize dispensers are more than just redemption substitutes, though. The devices hold their own unique appeal, beginning with a broad player base. Compared to the first generation of cranes , traditionally bright red cabinets with flashing lights and sometimes cartoon-like graphics , "Sports Arena," at the time of its debut, looked rather subdued to many observers, with its metallic gray flake cabinet and black and chrome trim. Yet this very subtlety of design probably helped the machine draw a whole class of grownup players who might have viewed typical cranes as "only for kids." Operators are aware of this and uniformly describe "Sports Arena" as "very attractive" and a "good-looking machine that has eye appeal."

In addition, the prospect of an instant win, with no interim build-up of tickets required before a player can claim a prize, gives prize venders a unique rationale and role. Accordingly, operators found the machines could hold their own, sometimes even in competition with ticket redemption units in an arcade setting.

As King Pin's Meunier put it, "Not everybody wants to get tickets; some players want the instant gratification of getting a teddy bear, watch, or collector's coin. It appeals to a different group of people. Collecting tickets is especially appealing to five to eight year olds, but for older kids the strongest appeal is getting a CD from a self-dispensing machine. That also applies to parents, who will play both types of games."

Still another major factor driving the success of prize vending novelties is their merchandise stocking versatility. Redemption experts have long maintained that offering desirable prizes is overwhelmingly the key factor driving gameplay in this category. In fact, some experts go so far as to label the entire prize-reward amusement concept as "entertainment shopping." To take full advantage of this dynamic, the "Sports Arena" class of equipment is designed to display and vend a wider range prizes more efficiently than traditional claw systems. And, Sammy has themed its follow-up products to fit a wide range of locations, as well.

Williams Amusements takes full advantage of this versatility, said Pardue. "We cater to tourists so for game rooms we have 'Sports Arenas' with higher-end electronics, small electronics like the talking mouse, and trendy items like movie tie-ins," she said. "For our nightclub locations, we intstall Sammy's 'Club Rave' featuring 'GloGear' jewelry like necklaces, bracelets and charms. These are hot because a lot of celebrities wore them during the Grammys. Also we offer full-length CDs and CD singles in our 'Music Arenas.' We go by the Billboard chart and stay with the top albums."

A SAMMY SOLUTION

Further supporting "Sports Arena's" success is the manufacturer's innovative approach to after-sale market support. Rather than simply manufacturing the game itself, Sammy USA became aggressively involved in merchandise selection, packaging, and sales. Sammy accomplished this through creating a separate prize division to supply packaged prizes to operators of the machines. It proved to be a shrewd strategy, since many potential operators lack the time, inclination, or expertise to find great deals on merchandise independently.

As Charles Rowland of Games People Play (Richmond, VA) explained: "I'm of two minds about the prize dispensing business. I appreciate the longevity of the equipment, but I also can understand people who say prize selection, maintenance, and so on is too much work." For many operators who share this view, Sammy's prize division offers a welcome solution.

Sammy's approach to the actual art of prize selection proves equally canny. According to operators who regularly purchase Sammy's merchandise prepacks, the company does an excellent job of finding and selecting a wide variety of merchandise that appeals to an equally wide array of customers.

Like "entertainment shopping," another catchphrase that is inextricably linked to the coin-operated prize-reward category is "perceived value." This slogan sums up the simple proposition of buying something cheaply in bulk, then selling it for a higher price one unit at a time, along with selling the fun of playing the game. Sammy's prize buyers, operators say, have the knack for selecting goods that offer high perceived value.

"One of the key factors of having a successful prize machine is to keep up with what's hot," said Williams' Pardue. "Depending on what kind of location you have, electronics and licensed items are good. To be really successful you need to pay a little more and stay with the items people want."

Randy Nasatir of Classic Vending (Chicago) regularly purchases 90% of the merchandise for his "Sports Arenas" from Sammy. He says: " The best thing about 'Sports Arena' is the merchandise. FM radios, TVs, radios, clocks, cameras, and electronics are things that people want. Sammy is constantly coming out with new prizes. They want quality merchandise in their machines, because they know that's what drives gameplay. Their prices are decen, too. Of, course we'd always like prices to be even lower."

PAY THE RIGHT COMMISSION

Commission splits for prize vending equipment may be handled in a variety of ways, largely according to whether locations help pay prize costs.

"We prefer to handle the prize cost ourselves because it makes accounting simpler and saves labor," said Tip Top's Minter. "The cost of prizes is worked into the split and we take a higher percentage. Some locations prefer to see a higher percentage of the cash box going to them, so they help pay for prizes. But in the end it works out about the same."

Most operators with whom V/T spoke agreed with Minter, preferring to cover prize costs themselves and offer locations a 60-40 split in the operator's favor.

Legal issues of fairness and skill versus gambling, which plagued the crane market in the 1980s, don't seem to be much of a problem for today's prize venders. Most operators told V/T that the success of the games requires a win ratio of 25% to 35%; this in turn ensures that players don't complain to authorities. Janet Stansfield Hess of Stansfield Vending Inc. (La Crosse, WI) says cranes are her company's main prize vending equipment, but the same issues apply.

"There is an element of skill," she said. "We haven't had any issue with legal concerns on payout. It's in the best interest of every operator to make sure players get a fair value. Certainly cranes have payout meters but my redemption manager can get an animal four out of five times. That tells me skill is involved! Our players are getting a good value; they are putting as much money into the crane as they would have to pay outright to purchase the same prize at retail, and in addition players get the entertainment value. If they win the first time, it's a great value , which happens."

The timelessness of prize venders appears to mean this category has a solid chance of enjoying a long and healthy future.

Charles Rowland, whose Games People Play runs bulk vending and different types of cranes, pointed out that "The equipment never depreciates; it is simply a matter of rotating your stock and coming up with prizes that people want. You buy the equipment once and you run it for years and years. My cranes were expensive; I bought them brand new. But they have paid for themselves three or four times over, even after subtracting the cost of prizes. Once you percentage the game correctly, it's like bulk vending , there is a profit on every sale."

Williams Amusements' Lisa Pardue believes prize venders can keep growing as an industry staple. "We started out slowly but we keep adding more!" she exclaimed. "I think there will eventually be a limit to how much we can expand in this area, but we haven't reached the peak yet. As long as you keep the merchandise fresh, people continue playing and the growth potential stays strong."


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