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Operators Continue To Find Profitability In Today's Challenging Yet Lively Bar Market

Posted On: 4/15/2006

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U.S.A. -- The leading edge of the tavern industry in big cities may be undergoing multiple revolutions: satellite music and iPod nights, smoking bans, legalized gambling, branded chains and 89 flavored vodkas behind the bar. But in small-town America and in rural locations, today's operators still take comfort in providing the same mix of music and games devices that have defined the industry for over a century.

The question is: are these operators the last of a breed that is destined to be displaced when big-city innovations finally overwhelm the hinterland? Or are they vendors of a timeless service that can adapt and continue as a solid niche for another century?

Only time will tell. Several operators   who service  taverns told VT that they are confident that their niche is secure -- for now. At the same time, they say, the challenges of tavern operating are tougher than ever. These include stronger DUI enforcement, shifting regional economies and more competition.

Nobody can level the charge of complacency at Dave Poehls of Jamestown Music Co. (Jamestown, ND). He is keenly aware of market trends and works hard to remain competitive. Even in a region that he describes as thinly settled, "Things have changed," he says. "On a per-machine basis we're doing well, but DUI laws and higher prices for drinks have had an impact on us. I think there are probably fewer people in taverns today. Many people probably buy their alcohol for off-premise consumption and drink at home."

To stay competitive, Poehls has done his best to keep up with new equipment trends, including the latest countertop videos and downloading jukeboxes. He's aggressive about marketing. His large dart and pool league operations boast 2,000 members each, including 27 separate dart leagues.

Founded in 1968, Jamestown Music Co. covers about 300 locations in over 25% of the state in a 200-mile radius from its headquarters. "Out here in North Dakota, things are kind of sparse," Poehls says. The company's staff of five uses a fleet of 12 vans and pickups to service these far-flung destinations. Today 90% of his locations are taverns, all independently owned. Many are mom-and-pop operators, but towns with populations approaching 20,000 support larger sites that have 20 or 30 employees.

The tavern market has been "pretty stable," Poehls estimates. "I'm working with third-generation families in some taverns," he reports. "In a town of 200 people they should only have one bar, but they might have two. That's quite common out here. They might have lost their Post Office, their school, and their café -- but they support two bars." The factor that Poehls enjoys most, he says, is the people. "Our customers, 100% of them today, are good people. We don't have any problem bar-owners."

Jamestown Music Co. operates both CD and downloading music. "It's really amazing what downloading jukeboxes will do," Poehls says. "Jukeboxes are getting to be our best earner because people play music all year long. Darts and pool are more seasonal." The company runs several hundred touchscreen countertops and some video golf games, but local law enforcement prohibits online connectivity, he says. "We don't do much with traditional video anymore, but countertops have taken over and they do a very good job for us," he allows.

Competition from charitable gambling and Indian casinos has increased in the past decade, Poehls says. "I don't know if it's a real big factor because the ones who go to casinos are probably older folks who don't go to the bars anyway," he notes. "But anytime you take a dollar out of the leisure economy if affects us a little bit."


What has changed most over the years, says Poehls, is the customer base. "We still have a lot of farmers out here that come to town. We're getting more industrial in North Dakota with a growing number of factories. But we don't have a lot of older people in the bars any more. We used to have a lot who used to come in early, sit around and play cards all day. Now the hours start later and the young people are the ones who come in after work.  But," Poehls adds, "they spend a lot of money."

Similar market shifts are reported by Truman Lemons of Lemons Coin Machines Inc. (Cape Giradeau, MO). The vendor operates some 450 accounts in a 110-mile radius from its headquarters, extending beyond Missouri into Illinois, Kentucky, and Tennessee. The route covers taverns, bars, bowling alleys, C-stores and other classic street locations.

Lemons' assessment of his regional bar market is "fairly stable but not what it used to be." He explains: "There is a lot of pressure on bars with drinking problems. Many bars that used to open at 10:00 AM now open much later, with some opening as late at 6:00 PM. It's rare you see a day bar that opens at 7:00 AM any more. Those that used to open at 10:00 AM now open after lunch or in the late afternoon so that's a lot less hours."

The college trade is coming out much later, drifting in after 10:00 PM, he says. They drink heavily until closing time. "You don't get the same afternoon, after work bar trade that you used to.  It's just not as heavy as it used to be." DUI enforcement creates "tremendous pressure" against drinking and driving. Lemons adds, "We're starting to see designated driving services.  Or the bar serves them soft drinks. But however you slice it, fewer people means less money in the cashbox."

As a result of these cultural shifts, Lemons advises, the number of bars in the region has shrunk dramatically -- as much as 50% in some zones. "Small towns that once supported four bars are down to two," he says. "Many have one bar only. So there is really a lot less business out there." Lemons also sees strong competition from chains. "But many of the chain bars and restaurants are not putting machines in," he says. "If they do, it's just a single countertop or a golf game, but many won't even go there."

Lemons Coin Machines is growing, but it is coming largely at the expense of its competitors. "If you look in some magazines, you'll see more routes for sale than I've seen in a long time. We're still growing."

The state of the regional economy has been a bit off in the past year, Lemons said. "Business never kicked in last fall as it normally does, but we're back and moving now," he said in early March. "It's a fairly stable, steady market. If you know what it's doing, you can count on that revenue."


Like most tavern operations, Lemons Coin Machines' top earners are music, pool and countertops. "The traditional video end is soft, due to too many home units out there," Lemons says. "Pool is steady," he says. "Which category of equipment earns best for us depends on the account. Downloading music has been good for us even though the fees are sometimes an issue." The company operates music downloading boxes powered by AMI Entertainment, Ecast, and TouchTunes. 'We bought a few less jukebox licenses this year, but part of the reason is that if they were a slow earner, the account would say it's not worth paying the fee."

The Lemons route supports in-house dart tournaments, is a member of the American Darters Association, and runs independent leagues. It uses Arachnid's DartMan connection software for a few company-sponsored leagues. The company also provides tournament pool tables for league operators from the American Poolplayers Association. "Leagues always help, period, whether it's darts or pool," Lemons says.

Another heartland operator who is experiencing a virtually identical set of trends and challenges is Terry Gattshall of Midwest Amusement Co. (Jackson, MI). He started in the industry by working with his uncle's route in 1975, and then bought the business in 1983. Today the route covers roughly a 50-mile radius, and comprises about 800 machines in 200 locations, of which some 140 are taverns. Gattshall's bars are mostly classic mom and pops, located anywhere from tiny burgs to larger cities. His preference is for the smaller places.

"The thing I like most about operating in small taverns is that you only have three to four machines in each location," he explains. "So if something happens in one, it doesn't hurt the long-term cash flow. If you lose a big sports bar with 30 machines for some reason, it affects your cashbox. This spreads the risk."

Like his colleagues, Gattshall finds his greatest success in taverns with jukeboxes, pool, video countertops, golf videos, hunting videos and darts. He operates merchandising equipment in a handful of taverns. "Pool does best for us," Gattshall says. He runs pool leagues with 225 sanctioned players under the auspices of the Valley National Eight-Ball Association. It's a seasonal draw, with the company's summer league running on an independent basis. "We were kind of a late bloomer in VNEA," Gattshall admits. "It has helped prevent location-owned tables -- although some people will sell tables to anyplace."

Music on the Midwest Amusement route consists of a mix of 85% CD and 15% downloading units. The latter generate earnings that Gattshall describes happily as "pretty fair." He adds: "I love the operation of them. Most of our downloading jukeboxes are earning pretty well."

But while the staples have remained largely consistent over the decades, the underlying market has shrunk, Gattshall reports: "There are less taverns now than in 1975; that's for sure. The hours have changed; more and more are opening at 3 or 4PM rather than 7:00 AM or 9:00 AM. State police and townships have done a good job taking care of DUI. Each location has good days and some good nights, but none are generating the daily business they used to. Our cashbox reflects this. And with states running their own keno program in taverns for the last couple of years, there is less money to go in the cashbox. The countertops are down 30% and jukes are down 35%."

The only way to get more people into taverns, Gattshall says, is "using leagues and online video tournaments and online jukeboxes. That locks 'em in for one or two nights, because they are playing leagues. It gets them there and keeps them there. We are working more and more all the time to get more locations involved. We probably have 60% of the route involved in some type of league system, whether it's pool, darts, Golden Tee or countertops. Not all bars can come up with enough players. Some don't feel it's necessary. But where we can make it work, we do."

This, then, is the state of the tavern amusements market according to Dave Poehls, Truman Lemons, and Terry Gattshall: three typical operators, facing the typical challenges of tavern operating in 2006. It's still a good business, but even in the small towns and rural counties, the forces of change are continuing to place greater challenges before the operating community.