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Dave and Buster’s Entertainment, INC.
- 1. Dave and Buster’s Entertainment, INC. Team 6
- 2. Executive Summary Strengths: Dave and Busters has differentiated itself from other competitors by marketing themselves as a one-stop entertainment experience. D&B has extended their reach by expanding throughout the United States and Canada. The variety of games, dining and drink options attract customers ranging from young children to adults. D&B’s unique marketing strategy has also magnified the niche market of dining and entertainment in one location. The quality of food combined with their high standard of customer service makes them a front runner in their industry. Weaknesses: The greatest weakness from Dave and Buster’s is focusing on the niches of the market. There are many good substitute products that can lure the customers away from Dave and Buster’s. By focusing on middle class to upper class, Dave and Buster’s revenue will have to depend a lot on the economy. Coming along with other development on game consoles at home, Dave and Buster’s is losing its customers on old-fashion game machineries. Conclusion: D&B’s has a strong position in the industry even when the growth of the overall industry is low. D&B went public October 2014 with a beginning stock price of $18.00 and has grown to $38.00. Due to D&B’s strength in diversification the company should continue to grow increasing stock prices over time.
- 3. Main Product Lines: ● Casual Dining: Affordable, family-style dining ● Alcoholic beverages: Alcohol consumption allowed throughout the establishment ● Gaming: Computerized, arcade style gaming Market Size and Potential: ● $1.374 billion ● United States and Canada ● Growth: 1.8% per year ● $1.53 billion by 2020 Main Product Lines and Key Markets
- 4. Detail of Product Lines and Markets Company Products: Dave and Buster’s main product is providing entertainment which includes arcades and bowling and dine-in experience to customers by high quality foods and spirits. With a competitive position in the industry, entertainment and dine-in experience from Dave and Buster’s are highly appreciated by its customers. By providing loyalty program, D&B’s has been able to capture a big amount of returning customers because of special promotion for membership only. Market size: 90% of Dave and Buster’s revenue is from United States locations with 10% of revenue comes from Canadian market. Dave and Buster’s uses Canadian market as a test to see if international markets will be potential to Dave and Buster’s expansion. While the indsutry currently brings in $1.374 billion in revenues each year, sales are expected to increase to $1.53 billion by the year 2020. This will only hold true if the 1.8% growth rate remains constant. Market Potential: Average price per person when having a good time at Dave and Buster’s is $65 which includes spirits, games and foods. Therefores, Dave and Buster’s has targeted its consumer segmentation to be Middle class and upper. With the growth of 1.8% per year in this market, Dave and Buster’s is hoping to expand its location throughout the country for customer’s convenience.
- 5. Differentiation and Key Risks Dave & Buster’s Differentiation: ● First mover in the industry. ● Large investments in advertising and marketing. ● Established brand image and awareness. ● Patented arcade style games. Industry Hurdles and Risks: ● Niche market with increasing threat of substitutes. ● Revenues are strongly correlated to the economy.
- 6. Detail of Differentiation and Key Risks Dave & Buster’s Product Differentiation: Dave & Buster’s has primarily differentiated itself from competitors through large investments in marketing, advertising, and promotions. By doing so, Dave & Buster’s has created strong brand awareness and brand image. This is the main reason that they have been able to expand and grow faster than the industry average. In addition, the company has released a number of patented games that are unavailable to competitors. This is critical in an industry with high competitive rivalry and a high threat of substitute products. Industry Hurdles and Risks: Alternative industries will continue to limit growth until the main players in the industry can differentiate and innovate new products to increase revenues. To accomplish this, significant investments in R&D should be made in order to develop new gaming technology. These new games should be advertised and marketed heavily. This will boost revenues for the entire industry. In addition, sales in the industry are strongly correlated to the economy. Dave & Buster’s recorded a loss in 2010 and 2011 due to the economy. To address this, the company should diversify its product base by offering promotions on games. This would allow them to attract customers and boost food and alcohol revenues, which offer the highest operating margins.
- 7. Management Cognitive Inertia ● Framing Lock-In ○ No evidence of changes in philosophy or strategy. ○ Likely due to long tenures of CEO and CFO (9+ years). Key Employee: Kevin Bachus ● Worked for 12 companies in the gaming and tech industries. ● Position is critical because gaming sets D&B’s apart from competitors. Employee Characteristics ● All five top managers were outside hires from a wide variety of companies and industries. ● CEO and CFO have been in their positions since 2006, creating the potential for inertia. Management Action Inertia ● Leadership Failures / Status Quo ○ No changes to the business model or establishments. ○ Focus is on continued expansion. ○ Overcoming inertia means radically changing the business.
- 8. Key Employee: Kevin Bachus Kevin Bachus is the Senior VP of Entertainment and Gaming Strategy. His position is particularly critical because gaming and entertainment is what sets D&B’s apart from direct competitors and alternative industries. Bachus comes with significant experience, as he has worked for 12 companies in the gaming and technology industry since 1999. This experience will be critical, as Dave & Buster’s will need to come up with new and innovative methods of entertainment to keep sales high in a slowing and cyclical industry. Employee Characteristics Although Dave & Buster’s was established in 1982, the company has managed to keep things fresh by constantly hiring new employees to the organization from a variety of other companies and industries.. Kevin Bachus was hired on from Bebo, Inc. Stephen King, who is the current CEO, was hired from Carlson Restaurants Worldwide, which is the parent company of TGI Fridays. Dolf Berle, who is the COO, was hired from Business and Sports Club of ClubCorp. Brian Jenkins, the CFO since 2006, was hired from Six Flags Amusement Parks. John Melleady, the Sr. VP of Real Estate and Development, was hired from BJ’s Wholesale Club. With the exception of Brian Jenkins and Stephen King, the company has a relatively new management staff. This reduces the amount of inertia and biases that will occur. Review on Glassdoor.com generally spoke positively of the culture at Dave & Buster’s. Cognitive Inertia: Framing Lock-ins Dave and Buster’s experienced cognitive inertia in the form of framing lock-ins. The company’s CEO, Stephen King, and their CFO, Brian Jenkins, have been around the industry since 2006. There is no evidence that the company has adapted to new philosophies, strategies, or cultures during this time period. Dave & Buster’s continues to operate as they have in the past without consideration of new product lines or gaming ideas. The framing lock-in inertia has contributed to the slow growth of the company and industry. Action Inertia: Leadership failures/ Status Quo Despite the industry growth steadily slowing, Dave & Buster’s has not made any significant changes to their strategy. The company still follows the same “Eat, Drink, Play” motto and has the same fundamental setup at their locations. Rather than focusing on opening new locations, Dave & Buster’s should look for Blue Ocean opportunities and look for new opportunities outside of their immediate customer base and industry.
- 9. Industry Description: ● Provides alcohol, casual dining and gaming without gambling ● Niche market with small players existing. ● Industry Players: Lucky Strike, Gameworks, Dave & Buster’s 5-Force Analysis: ● Competitive Rivalry: High differentiation, low growth, and low exit barriers. ● Substitutes: Wide variety of substitutes, including sports bars, movie theaters and casinos.
- 10. Industry Description: ● Establishments that serve alcohol, provide casual dining, and offer computerized arcade games without gambling. ● $1.374 billion dollar entertainment industry offering a full meal experience to targeted ages 21-39. ● Located in 73 different places in US and Canada. Industry Value: ● The industry creates value by providing quality entertainment for the enjoyment of adults. ● Provides entertainment to adults who can consume alcoholic beverages within reason allowing for a safe environment for all customers. Industry Players: ● Lucky Stike operates with annual revenues of $187MM. This company has differentiated itself from competitors by also offering bowling. ● Gameworks offers foods, alcohol and gaming to customers. While they are a competitor to D&B’s, the two companies rarely overlap geographically. In addition, Gameworks lacks the economies of scale and brand image of D&B;s. ● Dave & Buster’s is by far the largest player in the industry with $636MM in revenues. They are highly focused on marketing, advertising and promotions. Five Forces Description: Substitutes (High Impact) ● Many substitutes readily available to consumers, including 70,000 bars and nightclubs, 5,300 movie theaters, and 1,511 casinos. ● High differentiation, branding and promotions reduces likelihood of switching from D&B to a competitor. ● Home gaming consoles. Competitive Rivalry (High Impact) ● High differentiation, low growth, low fixed costs and low exit barriers increase the threat of competitive rivalry. ● Although D&B dominates the industry with 36.7% of the market, there is strong rivalry with independently owned businesses. ● The differentiation of the industry can be seen through D&B’s patented arcade games, strong branding efforts and advertising campaigns. Bargaining Power of Buyers (Moderate Impact) ● Buyers are consumers; typically ages 21-39. Little or no switching costs to competitors or substitute products. ● D&B is differentiated, has patented arcade games, and strategically located, which reduces the bargaining power of buyers. New Market Entrants (Low Impact) ● High differentiation, high rivalry, and low growth means that the threat of new market entrants is weak. ● The combination of D&B’s high market share and low industry growth make the industry unappealing to potential entrants. ● Small, independent establishments capture remaining revenues. Bargaining Power of Suppliers (Low Impact) ● There are a large number of alcohol and food suppliers in the U.S. ● Dave & Buster’s is a relatively large account ($636M per year in sales). This makes them important to suppliers.Appendix 1: Assumptions used for industry calculations
- 11. Blue Ocean Paths Industry Life Cycle *Graph was originally from IBIS and modified for this presentation Complementary Services ● Transportation service ● Follow Uber business model ● Low overhead, low entry barriers ● Increases willingness to pay for regular customers Functional vs. Emotional Appeal ● New marketing campaign to promote family entertainment ● Offer promotional deals on birthday parties ● Support promotions with advertising campaign that targets families. ● Industry is in decline ● Growth is slower than the economy
- 12. Industry Life Cycle Forecasted industry growth is less than the national average at 1.8%. This indicates that this industry is slowly dying. Game manufacturers are declining making it more difficult to find new machines. The game console has provided a new segment in the market shrinking the arcade game opportunity and interest. Strong correlation to the economy. When the economy is high consumer spending follows. When the economy is declining; entertainment is one of the first sectors that consumers cut on spending. This can cause a steep decline for the industry and many businesses are unable to survive. High competition from other gaming sources such as internet & home consoles. This industry continues to grow allowing potential customers to play games and entertain at home. Blue Ocean Look Across Complementary Products and Services: Dave and Buster’s is putting out transportation services for customer’s convenience. Dave and Buster’s will transport its members who live within 5 miles away from each location by its new shuttle services. By doing this service, D&B’s will attract more customers to have membership with D&B’s and D&B’s will have more chance to serve its customers more efficiently. Look Across Functional vs. Emotional Appeal: Instead of focusing exclusively on the idea that D&B’s holds alcohol at the center of its business, the company can target a completely new environment that customers will enjoy at the restaurant by aiming for a more family oriented atmosphere. D&B’s can offer special packages for birthday parties or anniversaries that customers only can find at D&B’s. Besides good deals on food and beverages, customers will now have a chance to win surprising gifts for their birthday parties, to make it more remarkable.
- 13. Competitive Position: Dave and Buster’s Founded 1982 Strategic Position: Differentiation ● 1st mover differentiator ● Niche Market Strategy ● Offer great atmosphere with variety of foods, beverages and games ● Loyal customer program ● 73 locations including Canada Main Competitor: Lucky Strike Founded 2003 Strategic Position: Differentiation ● Late mover ● Full service bars ● Various food types ● Games, bowling and other entertainment ● 19 locations in the US
- 14. Differentiation: D&B is a first move differentiation as they were one of the first to bring gaming to adults. Previously, entertainment venues similar to D&B were aimed at children. D&B enticed the adult experience by introducing alcoholic beverages. Dave and Buster’s is following its principle to provide to the customers an upbeat atmosphere while staying at its location by providing high quality foods, signature drinks based on location and latest high-tech games. D&B’s foods and beverages are updated three times a year to refresh the menus and its customer taste. The foods and alcoholic beverages account for almost 50% of the total revenue and the remaining are on games. The loyal customer program is striving to maintain the relationship with its customers and level up its customer satisfaction by sending out promotions and weekly updated news. Customers at D&B’s are encouraged to enter “Winner’ s Circle” to have chances to win the prizes of high tech gifts and other interesting rewards. Lucky Strike: Lucky Strike headquarter is in Sherman Oaks, CA. Lucky Strike main focus is on bowling operations and other participated activities with dine-in option. They also have full bar service which provides different varieties of beverages and spirits. Why Lucky Strike is D&B’s main competitor: Lucky Strike has a urban appeal that targets D&B’s similar age group of 21-39. The hip appeal tends to attract large groups for entertainment such as D&B. Both companies have a similar price structure. Lucky Strike has 20 locations around the United States and is seen as the strongest competitors of Dave and Buster’s.
- 15. SWOT VRIO Analysis Strength: ● Size advantage over other players ● Marketing and customer research ● Branding ● Differentiated customer experience ● Strategic locations ● Diversified management team Weaknesses: ● Sales depend on the economy ● Slow Growth Industry due to technology competition ● Differentiated, but idle for several years Opportunities: ● Expanding to international markets ● Vertical expansion ● Partnership is offered by various famous suppliers Threats: ● Economic Downturn ● Potential new entrants ● Substitutes and alternatives ● Operates 73 locations; other major player operates 19 locations. ● Marketing efforts have created extensive knowledge of customer base. ● Brand image that is both reputable and likeable. Value: Rarity: Imitability: Organization: ● Corporate Owned ● High Capital ● Menu that accommodates health needs ● High focus on human power preparing food and serving. ● “Eat, drink, and play” has been successful, but needs to adapt to new trends and technologies ● Patented games not given to competitors. ● New locations are strategically placed. ● “Eat, drink, and play” all under one roof is unique. ● Low barriers to entry means that new market entrants can easily enter industry. ● Growing faster than industry average. ● Success in industry is highly dependent on a “fun” brand image, which is hard to establish. ● Several recent top management hires that will help direct the company in a new direction. ● Rotating menu based on marketing research and customer needs. ● Used size advantage to purchase nine Jillian’s locations when the company went bankrupt. ● Using size and brand reputation to investigate expansion into new markets..
- 16. SWOT Analysis VRIO Analysis Strength: Dave & Buster’s is highly differentiated through their unique entertainment systems. It is also famous for delivering promotions to its members via emails and the variety of promotion is very unique. This narrows the scope of the industry and has resulted in no competition on a national level. Weaknesses: The entertainment provided is considered a luxury, which gives it a strong correlation to the macroeconomy. Sales will therefore be highly dependent on household income levels. Opportunities: Dave and Buster’s has been offered to be partner with so many suppliers due to its popularity. Dave & Buster’s only has one international location in Canada. Further locations can be opened in Canada, as well as other economically stable countries. In addition, opportunities exist to expand vertically. This includes activities such as liquor production and cab services. Threats: As mentioned above, sales are dependent on household income, which makes the macroeconomy a threat. In addition, low barriers to entry make new entrants a constant threat to marketshare. Lastly, there are a large number of substitute and alternative products, such as standard sports bars, movie theaters and sporting events. → D&B company position is an industry differentiator by using their branded games and company branding. Value: Dave & Buster’s has industry knowledge that far exceeds its competitors. D&B has corporate executives and administration that have worked in the field for many years and are able to provide valuable insight to make strategic decisions to develop D&B be the company it is today. This knowledge allows them to expand and remain at the forefront in the industry. Rareness: The accessibility of the resources of D&B are rare as they are able to utilize corporate knowledge to find the best locations and newly available games. Corporate headquarters has analysts and operations that are continually making connections and ideas to provide uniqueness to the brand and products offered. Imitability: Imitation is feasible in this industry and has been copied many times but competitors have not found continued success for long. The capital costs involved in opening a entertainment facility are high which limits the number of new entrants. Organization: D&B offers high variety with menu options and quality of product by utilizing staff members to make the best product for the customer. The management team is composed of new hires from a variety of industries, which brings a variety of new ideas and processes to the company.
- 17. Company Comparison: D&B vs. Lucky Strike *In order from most important to least important to the customer.Appendix 4: Relative cost assumptions ● Brand Image and Promotions are the most critical WTP elements to customers. ● Dave & Buster’s successfully achieved this by spending additional costs on Marketing, Advertising and Promotional expenses. ● The slight increase in expenditures caused significant gains in willingness to pay.
- 18. Relative Costs and Willingness to Pay Relative Cost Analysis Relative costs for Dave & Buster’s and Lucky Strike were allocated based on the average amount a customer spends per visit, which is approximately $65. ● Marketing and Advertising: The most impactful difference in relative costs can be seen in marketing, advertising and promotional expenses, in which D&B’s costs were estimated to be 4% more expensive than Lucky Strike. D&B has invested heavily in this area, as reflected in the increases in willingness to pay due to brand image and promotions. ● Economies of Scale: Dave & Buster’s economies of scale were estimated to produce favorable relative costs for payroll, general and administrative expenses of 2% and 0.5%, respectively. ● Bowling Lanes: Because the bowling lanes at Lucky Strike are more expensive and require additional maintenance, the cost of amusement and depreciation were each estimated to be 3% more expensive than Dave & Buster’s. ● Company Growth: Dave & Buster’s is growing significantly faster than Lucky Strike, so the company as a whole incurs more pre-opening costs per customer. This additional expense was estimated to be 0.7%. Willingness to Pay ● Price: Average price per customer for both D&B and Lucky Strike is equal.The allocation of the amount spent changes. More is spent on entertainment whereas a larger portion is spent on drinks at Lucky Strike. The experience of food, drink and play is rated equal but slightly varies on preferences. ● Brand Image: D&B spends a larger amount on advertising which gives them more of a prominent image in the casual dining and gaming industry. ● Promotions: D&B is intricately involved in target promotions through website, e-mail and loyalty program. High marketing knowledge helps to target the consumers needs and increase profits. ● Location: D&B utilizes their corporation headquarters analysis to find the best locations for their potential customers. They also have a larger amount of stores ranging about 65 locations compared to Lucky Strike 20 stores held currently. ● Variety of Games: Lucky Strikes variety of games is higher as they offer both bowling and arcade games. D&B has a large offering of games but is not as well diversified. ● Quality of Food: D&B changes the menu three times a year and they invest in research, development, highly trained chefs to differentiate their product from competitors. Lucky Strikes menu remains consistent.
- 19. Game Theory ● Problem: Customers are not returning enough, which decreases revenues and creates inconsistent cash flows. ● Players: Dave & Buster’s and Lucky Strike. ● Information: Promotion will not be announced until it has started; all other information is public. ● Actions: Offer members $10 free gaming each month, maintain rewards, or abandon loyalty program altogether. ● Decision: Dominant strategy for both D&B and Lucky Strike to increase promotions. ● Sensitivity: ○ Customers do not spend additional money on food and drinks, resulting in a loss. ○ Other competitors enter the game, and the rewards do not entice customers, making the changes ineffective. Appendix 4A : Game Model Appendix 4B : Payoffs Appendix 4C : Formulas and Sensitivity Appendix 4D : Key Assumptions
- 20. Detail of Game Theory Problem: Dave & Buster’s has limited customer loyalty. To address this, the company has the option to increase the current rewards offered in their loyalty program. The proposed increases would offer members of the program $10 of gaming for free each month. This would increase customer retention and profits through increased food and beverage sales. Players: Dave & Buster’s and their main competitor, Lucky Strike. Information: Dave & Buster’s will not release any information about the change in rewards until the program is launched. This would prevent Lucky Strike from strategizing beforehand and create a sequential timing scenario. Actions: Dave & Buster’s has the option to increase the rewards offered through the loyalty program, or maintain the rewards as they currently are. In response, Lucky Strike can increase, maintain, or abandon the rewards offered in their loyalty program. Decisions: Both companies have a dominant strategy to increase rewards through the promotion. Sensitivity Analysis: ● If the customers do not respond as strongly to the promotions as expected, then the decisions will become less profitable and Lucky Strike may choose not to increase rewards, regardless of Dave & Buster’s decision. ● If other competitors enter the game, then loyalty will not be increased to the extent that was excepted. This would change Lucky Strike’s decision to increase rewards with Dave & Buster’s.
- 21. Corporate Strategy: Better-Off Test Better-Off Test ● Vertical Integration ○ Move upstream and create exclusive relationships liquor manufacturers. ● Relationship specific investments ○ Alcohol metabolizes quickly, so customers can driver sooner ○ Flavors are tailored to D&B’s specialty cocktails ● Downstream freeriding ○ Possibility of manufacturers selling new liquor formulas to retail stores and competitors. ● Future horizontal integration ○ Can sell D&B’s branded liquor to retail locations Appendix 5: Complete value chain map
- 22. Details of Better-Off Test ● Relationship Specific Investments: The alcohol produced will have two unique characteristics that will be tailored to the needs of D&B’s customers. ○ The flavor of the alcohol will be formulated to enhance the flavor of specialty drinks offered only at D&B’s. ○ The alcohol will quickly metabolize allowing customers to drive home safely without having to use transportation services. On average, 1.2 million people are arrested for driving under the influence each year. ● Downstream Freeriding: The formulation of specialty flavors and invention of alcohol that dissipates quickly in the bloodstream will require large investments in R&D and marketing. Because of this, liquor producers are currently reluctant to make these investments because competitors will be able to free-ride on their research. This decreases D&B’s research, as industry revenues would increase with these innovations. By vertically integrating, D&B’s can make the investments and solve the free-rider problem. ● Horizontal Integration: Once D&B’s branded alcohol becomes established, then the company may decide to integrate horizontally into the retail market. This would include selling to supermarkets, liquor stores and basic sports bars.
- 23. Corporate Strategy: Ownership Test Ownership Test ● Vertical integration ○ Move upstream and own liquor production facilities. ● Relationship specific investments ○ Ownership allows production schedule to be aligned with D&B’s needs set forth by marketing. ● Downstream freeriding ○ Difficult to create bullet-proof contracts, so ownership of the facilities is a safer option. ● Future horizontal integration ○ Ownership of facilities will allow D&B’s to capture larger margins on sales to retail outlets. Appendix 5: Complete value chain map
- 24. Details of Ownership Test ● Relationship Specific Investments: By owning their own liquor production facilities, D&B’s can ensure that production is consistent with their needs. This means that if capacity is expected to reach 100%, then D&B’s establishments will have priority in receiving the alcohol. Furthermore, production can be aligned with the needs set forth by the marketing department. If D&B’s plans to offer a discount on a certain type of liquor, then they will be able to increase production ahead of time. ● Downstream Freeriding: One major concern with D&B’s financing the research into creating this alcohol is the possibility of downstream freeriding. By owning the liquor production facilities, D&B’s would ensure that the recipes, technology and suppliers used to create the alcohol remained a secret. ● Horizontal Integration: If D&B’s decides to integrate horizontally, then then owning the alcohol facilities will increase their margins on sales at supermarkets, liquor stores and basic sports bars. In 2012, retail sales of alcoholic beverages was $197.8 billion. Dave & Buster’s competitive advantage will enable them to capture a portion of that revenue.
- 25. ● Primary Synergy: ○ Vertical Integration ● Secondary Synergies: ○ Coordinated Strategies ○ Shared Know-How ○ Shared Tangible Resources ● Recommendation: ○ Upstream integration ○ Own liquor production facility Synergy from Vertical Integration
- 26. Details of Vertical Synergy ● Primary Synergy ○ Vertical Integration: By owning their own liquor production facilities, Dave & Buster’ s will be able to reduce the time it takes to develop new varieties of alcohol, reduce inventory costs by timing production and increase utilization. ● Secondary Synergies ○ Coordinated Strategies: Dave & Buster’s establishments will be able to align their strategies with the liquor production facilities. First, the alcohol produced will be tailored specifically to the wants and needs of D&B’s customers. Second, the production facilities will be able to schedule production of certain types of alcohol and certain seasons. This can be aligned with the cyclical demand at the D&B’s establishments. ○ Shared Know-How: Marketing research into the needs of customers will be shared by both the establishments as well as the production facilities. ○ Shared Tangible Resources: There are two main resources that will be shared. First, the D&B’s brand will be used at both locations. Second, all corporate overhead will be shared. ● Recommendation ○ Based on the above synergies, the results of the better-off and ownership tests, and the large potential increases in revenue, it is recommended that D&B’s vertically integrate by owning a liquor production facility.
- 27. Appendix 1 - Industry Assumptions Because of the uniqueness of Dave & Buster’s industry, the following assumptions were used to estimate total revenues and growth: ● The industry will echo the “Arcade, Food and Entertainment Complexes” industry. ● In that industry, the top four companies make up 81.4% of the total revenue. ● Of that 81.4%, companies that fall into the more focused industry make up 41.1%. ● We assume this ratio for the entire industry, which means that 50.7% of the companies in “Arcade, Food and Entertainment Complexes would also fall into the more focused industry. ● In addition, an estimated 10% of the $3.6 billion bowling industry would also fall into the more focused industry. ● This brings the total forecasted revenues for the more focused industry to $1.374 billion. Growth is assumed to be the same as the “Arcade, Food and Entertainment Complexes” industry.
- 28. Appendix 2 - Industry Forces Substitutes (High Impact) ● Many substitutes readily available to consumers, including 70,000 bars and nightclubs, 5,300 movie theaters, and 1,511 casinos. ● High differentiation, branding and promotions reduces likelihood of switching from D&B to a competitor. Competitive Rivalry (High Impact) ● High differentiation, low growth, low fixed costs and low exit barriers increase the threat of competitive rivalry. ● Although D&B dominates the industry with 36.7% of the market, there is strong rivalry with independently owned businesses. ● The differentiation of the industry can be seen through D&B’s patented arcade games, strong branding efforts and advertising campaigns. Bargaining Power of Buyers (Moderate Impact) ● Buyers are consumers; typically ages 21-39. Little or no switching costs to competitors or substitute products. ● D&B is differentiated, has patented arcade games, and strategically located, which reduces the bargaining power of buyers. New Market Entrants (Low Impact) ● High differentiation, high rivalry, and low growth means that the threat of new market entrants is weak. ● The combination of D&B’s high market share and low industry growth make the industry unappealing to potential entrants. ● Small, independent establishments capture remaining revenues. Bargaining Power of Suppliers (Low Impact) ● There are a large number of alcohol and food suppliers in the U.S. ● Dave & Buster’s is a relatively large account ($636M per year in sales). This makes them important to suppliers.
- 29. Appendix 3 - Intra Firm Value Chain
- 30. Appendix 4 - Cost Assumptions ● Assumption 1: Lucky Strike cost of food and beverages are 1% less expensive due to use of cheaper ingredients and less variety. ● Assumption 2: Lucky Strike cost of amusement is 3% more expensive due to additional expenses from bowling alleys. ● Assumption 3: Lucky Strike operating and payroll benefits are 2% more expensive due to less economies of scale. ● Assumption 4: Lucky Strike general and administrative expenses are 0.5% higher due to less economies of scale. ● Assumption 5: Lucky Strike marketing, advertising and promotional expenses are 4% lower due to less advertising and marketing efforts. ● Assumption 6: Lucky Strike depreciation and amortization expenses are 3% higher due to bowling alleys. ● Assumption 7: Lucky Strike pre-opening costs are 0.7% lower due to slower growth rate.
- 31. Appendix 5A - Game Model
- 32. Appendix 5B - Game Payoffs Payoffs ● D&B increases rewards, Lucky Strike increases rewards ($-10.11M, $-4.78 M) ● D&B increases rewards, Lucky Strike maintains rewards ($6.53M, $-9.31M) ● D&B increases rewards, Lucky Strike abandons rewards ($21.88M, $-12.44 M) ● D&B maintains rewards, Lucky Strike increases rewards ($-15.35M, $6.40M) ● D&B maintains rewards, Lucky Strike maintains rewards ($0, $0) ● D&B maintains rewards, Lucky Strike abandons rewards ($5.82M, $-7.33M)
- 33. Appendix 5C - Game Assumptions ● There are no incremental costs from the increase in gameplay. All equipment has already been purchased and is therefore a sunk cost. ● Lucky Strike is geographically relevant. This means that the game only applies to D&B locations that are close to a Lucky Strike facility. ● There are no other direct competitors nearby that could influence the game. ● Dave & Buster’s and Lucky Strike have the same operating margin. ● Food and beverages account 35.8% of revenue at Lucky Strike. This is 13% less than Dave & Buster’s and is due to Lucky Strikes additional revenues from bowling. ● Lucky Strike’s gross margin on food and beverage sales is 6% lower than Dave & Buster’s, due to weaker economies of scale that result in lower bargaining power with suppliers. ● All incremental revenues from the promotions will come from additional food and beverage sales. No additional games will be played by the customers.
- 34. Appendix 5D - Game Formulas Dave & Buster’s ● Operating income of $51.04 MM, averaging $699,178 per store. ● An estimated $16,500 in revenues from gaming will be lost per store due to the increases in rewards. ● Food and beverage sales account for 48.8% of revenues, and have a profit margin of 74.98%, which averages to $255,831 operating income per store. ● The increased benefits will increase food and beverage sales by 9%, which will generate an additional $23,025 operating income per store, less the cost of the rewards. ● If Lucky Strike also increases rewards from loyalty program, then food and beverage sales will increase by 2%, or $6395 operating income, less the cost of the rewards. ● If only Lucky Strike increases rewards, then food and beverage sales will decrease by 6%, or $15,350 operating income. ● If Lucky strike abandons rewards, than food and beverage sales will increase by 15%, which will generate an additional $38,375 operating income per store, less the cost of rewards. ● If D&B increases and Lucky Strike abandons rewards, operating income will increase by $21,878. ● If D&B maintains and Lucky Strike abandons rewards, operating income will increase by $5820. Lucky Strike ● Operating income of $15.08 MM, which is an average of $754,061 per store. ● An estimated $8,500 in revenues from gaming will be lost per store due to the increases in rewards. ● Food and beverage sales account for 35.8% of revenues, and have a gross margin of 68.98%, which averages to $186,214 operating income per store. ● The increased rewards will increase food and beverage sales by 8%, which will generate an additional $14,897 operating income per store, less the cost of the rewards. ● If D&B also increases rewards, then food and beverage sales will increase by 2%, or $3724 operating income, less the cost of the rewards. ● If only D&B increases rewards, then food and beverage sales will decrease by 5%, or $9310 operating income, less the cost of the rewards. ● If D&B increases and Lucky Strike abandons rewards, operating income will decrease by $12,440. ● If D&B maintains and Lucky Strike abandons rewards, operating income will decrease by $7332.
- 35. Appendix 6: Value Chain Map