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Dave & Buster's Reaps Benefits Of McDonald's-Style Strategy

Posted On: 2/1/2006

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DALLAS -- Dave & Buster's Inc. is combating the effects of high gas prices and tougher entertainment competition with two new marketing strategies that were partly inspired by successful McDonald's promotions. According to Corey Haynes, D&B's vice-president of amusements, the company's new price-value promotions are driving traffic and boosting sales significantly.

VENDING TIMES interviewed Haynes  prior to the Dec. 2005, announcement that D&B's was being sold to an affiliate of Wellspring Capital Management LLC (see separate news item in this issue). America's largest chain of location based entertainment facilities reported a very uneven year in 2004, with losses in some quarters side by side with double-digit gains in amusement revenues. However, despite D&B's pending new ownership, the points made by Haynes are still fresh and educational for industry members. His insightful remarks cover the gamut from economy-wide obstacles to successful marketing strategies.

Haynes is forthright about the formidable challenge of current market conditions. "As everybody laments, it's tough, no doubt about it," he acknowledged. "In our locations we are inundated with other chain restaurants. We are also fighting for that entertainment dollar against the competing values of movies, amusement parks and similar arcade-type operations. You are fighting the perception of 'I can do that at home for less money and better graphics.'"

Higher gas prices are "absolutely" a concern, Haynes added. "I think about it every day and watch the gas prices on CNN. How you combat that, how you get people to come in and play, are questions we ask. But there may be good news. If people say 'let's not drive so far,' they may say if they want to go out for some family fun that's close by, D&B's is a good three- or four-hour neighborhood experience. Either that or we start putting gas pumps out front," he joked.

The greatest concern for D&B's, said Haynes, is not DUI laws or other restaurants, but the increasing power and prevalence of home video game consoles. "At $350, that takes a big bite of leisure budgets, and the new generation of Microsoft and Sony consoles runs [at] 10 times the speed of an average PC," Haynes commented. On two separate occasions, D&B's considered offering home games in their locations, but after consulting several attorneys, management decided the legal status of such an operation was too uncertain.

To meet these challenges, D&B's has implemented two new promotions, Power Combo and Super Charge. Power Combo is a purchase package that combines games and food. The patron receives a selection from among nine full-sized entrees, plus a $10 game card, at a total cost of $13.99. "It blew the doors off," Haynes said. "We implemented it in the first part of May and sold half a million Power Combos in the first four months. It has been a fantastic promotion."

Super Charge is a modest 10% up-sell program inspired by McDonald's "super-size" strategy. "This is an absolute no-brainer," Haynes said. "I'm sitting in McDonald's one day and my son orders a $1 double cheeseburger. We'd argued about that because we were about to go home and eat, but he won the argument because 'it's only a dollar.' But before we got out of there I'd paid $1 for a burger, $1 for fries and 69¢ to super-size the fries. Later I'm wondering, how did I get scammed like this? It's just beautiful. I got out of bed and came up with a similar program for D&B's."

Super Charge applies the "super size" concept to the D&B's onsite game credit card known as Power Card. When D&B's customers purchase a $20 Power Card from a kiosk in the location, the vender gives the patron an option of 30% more "chips" or credits for $2 more. "It has been fantastic," Haynes said. "The company average is well over 60% conversion rate. Instead of trying to up-sell somebody from  $10 to $20 or more, you just ask for a 10% increase. It's just so easy. It is fast food-esque. Our customers just say 'Okay' and buy it, the same as I did at McDonald's that day."

D&B's launched both promotions at the start of the second quarter and Haynes says performance has been better than expected. "We thought we'd spin the doors but it's such an easy sell," he said. "Now you can come in and do the whole experience -- eat, drink and play. Food and beverage sales are up but amusements is driving that because we are discounting on the games side."

Additional aggressive local marketing of each D&B's store is handled by two marketing experts at each facility. These special events managers do cold calling, meet with Chamber of Commerce members, offer to do their parties and promise that D&B's will create a better experience than a hotel or ordinary restaurant. D&B's also advertises for corporate events in various business trade journals. The corporate event business is a major growth segment for the chain, Haynes reported. "We've had growth there for every quarter, substantially, for the last three or four years. It's generally 13% to 15% of our business, and pool is important for that. The areas are large -- we can use the tables for buffets at first, then remove the tops and our guests play billiards."

Haynes has been with D&B's for 23 years, and described company founders and top executives Dave Corriveau and Buster Corley as charismatic personalities. Remarking on his career-long stint with the company, he laughed and said, "I ran off and followed the Pied Pipers."

While the Power Combo and Super Charge promotions are proving effective in the immediate term, D&B's long-term market strategy is a matter of positioning, said Haynes. "It's absolutely true that today's consumers enjoy dazzling home entertainment options today, but here at Dave & Buster's we have moving simulators and state-of-the-art equipment. Our argument is, 'Do you really want to stay at home and get up to get your own beer and nachos? Let us serve you while you enjoy yourself.' And it's a social experience. If you sit at home alone in the dark to play games, that's not necessarily our customer. But if it's you and your buddies playing Madden Football, why not do it in a fun atmosphere?"

Like most U.S. fun centers, D&B's has  found success with another niche that cannot be duplicated at home: redemption. "The redemption part of the business is growing for us and has been for some time," said Haynes. "On average, the number of redemption pieces on the floor in a D&B's is probably about 50%, but the revenue stream skews higher because you have a larger number of player positions on each unit. So the number of pieces does not outnumber video for us, yet. But if everything continues on the same path it has been for the last three or four years, we will reach the point where the number of redemption units on our floors outnumbers video."

Prize offerings are displayed in a themed area in most D&B's called The Winner's Circle. According to Haynes, this is not a typical walk-up redemption counter, but a full-blown mall-type environment. "It's a shopping experience -- you can handle merchandise, pick it up yourself and pay for it with your Power Card," he explained. "It is extremely popular." Management has converted all the Jillian's and all but two D&B's stores to include The Winner's Circle; the remaining units posed space problems, but the executive said, "we are trying to figure out a smaller version." Every new D&B's will also include The Winner's Circle.

Beyond redemption, but related to it as an amusement shopping experience, D&B's offers several merchandisers in each location. The most popular is The Big One from Elaut/Skee-Ball. "We tested it for them and worked closely with Skee-Ball's Joe Sladek and Jeff Hudson to modify and customize its appearance," said Haynes. "It does very well for us, as do all of our cranes and merchandisers." The company also operates custom versions of Sports Arena, re-themed as Game Zone. A variety of high-quality, discounted prizes such as music CDs and game CDs are stocked in these machines.

Video remains a vital component of the D&B's game mix. Sega's Ghost Squad was a big hit for the chain in 2004. In fact, D&B's took 100 of Sega's first run of 150 units. Haynes said the company hopes that "more of these strong videos will appear and that manufacturers will get excited about putting a bit of money into the arcade." He described some of the fall titles such as Sega Ghost Squad and Raw Thrills' Fast & Furious as "encouraging signs that manufacturers are testing the waters again."

A forward-leaning buying philosophy on the part of D&B's is intended to support and encourage video game manufucturers in return, Haynes said. "We're doing our part to push the industry along by getting in early and taking a chance on a new, unproven title," he pointed out. "We don't wait until 100 other locations have them and can show us a six-month earnings report."

As an example, Haynes worked with ICE to test an imported European satellite-style multi-player station game called Super Trivia. As he tells it, "We worked with them on making it more game-show style by redesigning the cabinet and some aspects of gameplay by changing questions and coupon payout." Eventually, D&B's bought four-player, six-player and eight-player versions; Super Trivia is now operated in every D&B's and every one of the company's Jillian's stores.

Other large attractions such as Full Swing Golf, a large-size simulator in a carpeted enclosure, plus sit-down video simulators from manufacturers such as TrioTech and Tsunami, are important pieces for D&B's. "We have Tsunami units in every store," said Haynes. "We have Triotech units in some of our places, and are going to buy more of their driving simulators. Large attractions create the 'wow factor' and get people to come in. They play once or twice and get introduced to D&B's and all the other things we do."

While pool remains number-one on the national route according to VT's Census of the Industry, video and redemption have eclipsed pool for earnings power at D&B's. The table game, however,  will always remain a core part of the company's identity. "Pool is our signature piece," Haynes declared. "It brought us to the dance. When we opened in 1982, we said we'd set the Dallas market on its ear with quality pool on quality billiard tables, and with fine service."

However, as video and redemption have "overtaken" pool, the company has "scaled back on how many pool tables we put in a store." This summer, D&B's opened a store for the first time ever with no billiards tables. "But we intend to factor that back in and have at least three tables in each store," Haynes said. "It's not our leading sector but it's important for older players, meaning mid-30s on up, and it's important for corporate business."

Leagues have never been a D&B's component, although at first glance tournament competition might seem a natural fit for the entertainment concept. Management decided from the beginning not to run leagues "because we wanted to attract the casual, everyday player," explained Haynes, adding that that person should be welcome any time, seven days a week. "The league business tends to take over and run your business," he said. "That makes it difficult for us to get more people. We had darts when we first opened and also did not run leagues because our focus was that casual player." The same casual-player, no-leagues approach highlights D&B's strategy for bowling, which it has at its Jillian's locations.

As a full-service restaurant, D&B's faces squarely the issues of alcohol and responsible drinking. "We have been a leader in the industry in taking steps to put in our own internal system for consumption of alcohol, from the time before there were such strict DUI laws," said Haynes. "Every host and 'captain' goes through a training program for serving alcohol responsibly. Fortunately, this has not been much of an issue for us, and I think the reason is because we started this program of responsible consumption in 1983, the year after we opened. We saw it as an issue and it has become an inherent part of our identity. We want people to enjoy themselves safely."

Looking back on the ups and downs of the ever-changing amusements market, Haynes said the most important lesson he has learned is never take one's position for granted. "When business is booming, there is always going to be someone looking at your success and asking how he can duplicate it or shift those dollars to his business," he said. "We work every day to stay on top of our game and make sure Dave & Buster's remains a top choice for food and fun."