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Tuesday, January 13, 2015

Repost: The Four "F"s of Game Store Concessions

Greetings!

Today's post is another repost -- I promise that won't happen much more often, I've almost reposted all my previous published work at this point.  I wrote an article for GameHead about game store concessions. Much of it is still very pertinent so I'll just step aside and let the article speak for itself!

The Four "F"s of Game Store Concessions
by Michael Bahr
Originally published November 27, 2012

Once again we return to Rocky Mountain Gamesters (RMG) in remote northeastern Arizona, where Pete Proprietor has himself a dilemma. It's two-o'clock on a Sunday morning, and Pete is cleaning his store. Besides the obvious problem that he is not sleeping in bed at this point, Pete is frustrated at the labor/revenue imbalance he has noticed the past few busy weekends, and it has him on the verge of burnout.

On event nights, the trash barrels fill up quickly with massive soda cups from McDonald's, Jack in the Box, and Circle K. The HVAC purges the worst of the Gamer Stink from the air, but the odor from dozens of discarded fast food bags persists. As Pete vacuums the filthy carpet, he steps on a discarded wad of gum and mashes streams of rubbery pink into the tattered fabric. Errant French fries turn up decaying in forgotten corners, adding to the aroma. And the worst part of it all was that RMG had a full house for the tournament, but revenue after 6:00 pm consisted of virtually nothing beyond entry fees. To ensure an adequate supply of Magic: The Gathering and other allocated products, Pete has to offer enough organized play at RMG to meet the "Advanced" store requirements. After a few weekends cleaning up after his players for a pittance in revenue, Pete begins to see the arrival of his carefully cultivated player base not as the lifeblood of his store but as a descending horde of locusts.

By the title of the article, you already know what Pete is failing to do, and that is to present an effective offering of concessions. But before you smirk at Pete too viciously, you should know that it's not quite as simple as deciding to slide a vending machine into the back corner and buying a few boxes of candy bars at Costco. Execution of a concessions plan at a game store – a plan that will work and not merely be a shrinkage magnet and mess generator – is no trivial matter.

Fortunately, Pete Proprietor can follow four "F"s to get his concessions situation back under control and monetize the aspects of RMG's customer traffic pattern that are currently sitting fallow. Those "F"s are Facility, Fixtures, Flavor, and Fun. I will include some observations from what my own
store, Desert Sky Games, has tried and either kept or discarded.

FACILITY (Is This Building Zoned for Vats of Acid?)

Obstacles to a good concessions offering can exist in local laws, a game store's commercial lease, and the nature of surrounding businesses. A prudent entrepreneur will solve these issues before signing a lease. A store already locked into a lease may have little room to maneuver.

In the United States, at least, there is no locality where a person may set up shop and begin serving food with no governmental approval of any kind. At the bare minimum, state health departments license and inspect eateries; in most places, county and/or municipal licensing and inspection are also necessary. The most common licensing scheme for eateries categorizes them based on what sort of raw food handling is going to take place and what kind of segregation there is between employees cooking food and employees serving it. For a bare-bones game store seeking to sell prepackaged snacks and drinks and nothing else, as most do, there might not be any food service licensing required beyond the underlying certificate of occupancy or transaction privilege license. For a comprehensive offering featured cooked meals and alcoholic beverage service, multiple licenses for the establishment and food-handler's credential cards for the staff and managers may be mandatory. Running the tightrope between the two extremes, movie-theater-level concessions are usually permitted at a lesser licensing and compliance level than that for a full-service eatery. All such things have costs that the game store's budget must meet. Long before you ever fire a draft pod of eight, your store will need to have locked down all of these matters.

If you are leaning toward the "restaurant" option of fully prepared meals and/or alcohol, there is no way to teach what you need to know within the scope of this article; stop reading about games and go learn about restaurant enterprising. The remainder of this article will make the assumption that your game store is going to hew to the limitation of serving prepackaged food and drinks only, or exceeding them only in whatever minimal ways local laws may permit.

Owing mainly to bad landlord experiences during the decline of the 1980s arcade boom, many commercial building leases prohibit the use of coin-operated devices. This is a tremendous blow to a game store, which can monetize reasonably well from devices ranging from gumball and sticker machines (the latter retrofitted to contain TCG cards) to arcade video games to vending machines. In fact, snack vending machines are ideally configured to dispense TCG booster packs! The particulars of the vending world are discussed in the next section, but first and foremost a game store must ensure that its lease does not contain a prohibition or limitation on the use of such equipment on the premises. It matters little how good a vending machine is when the store is not allowed to operate one.

Finally, in terms of facility and location planning, a game store's concessions latitude will be affected to a great degree by what is nearby. If a convenience store is open three doors down, it would probably be best to avoid opening a game store in that location in the first place – but if that has already happened, it is likely that concessions will not work out. Gamers generally do not want to leave their ongoing game and are happy to pay a small premium for immediate refreshment, but not when the same can of caffeine is available cheaply from a store so close by that the game store's guest Wi-Fi still works the entire way over. It is somewhat more common for fast food or strip-mall restaurants to be located in the same shopping center. As long as the game store is not offering licensed food service, it is usually easy to coexist with these businesses. In general, their owners will be happy for the added custom and will exchange coupon offers with you, and the mutual promotion gives you a chance to engage the gaming hobby with customers of the restaurant who bring their families to see the game store after dinner as well. Desert Sky Games originally planned a location that had no restaurants for a mile in any direction, perfect for movie-theater-level concessions. However, DSG ended up in a location, better in other respects, surrounded by food peddlers of both the fast and slow variety. It no longer made sense to license up when our store could do almost as well with prepackaged concessions only.

Desert Sky Games allows customers to bring in dinners from outside the store, because for a relatively small inconvenience on our part for trash disposal, doing so makes our customers happy and keeps them on-site longer and exposed to both marketing and our own concessions monetization. After all, no dinner is complete without dessert! But Desert Sky Games prepared for this eventuality in a number of ways. First, trash barrels are ubiquitous in the gaming area. Second, automated air fresheners help address the environmental conditions. Third, rather than carpet, the floors are polished concrete. Though it can be expensive -- $3 to $5 per square foot – polished concrete is such a gigantic improvement over carpet that it should not be considered optional. It is possible to clean any food or drink mess from a concrete floor completely and hygienically in a way that even the best Scotchgarded carpets cannot avail. It is not subject to warping like hardwood flooring and it is impervious to damage that would destroy tile or linoleum, let alone carpeting. Fourth and finally, staff labor is allocated toward cleaning as necessary, a cost center that (we believe) returns its value in repeat visits from customers with high standards, a demographic that overlaps well with price-insensitivity.

FIXTURES (Press Button, Receive Bacon)

Just as purchasing is the name of the game in inventory management, fixtures are the name of the game in concessions logistics. Fortunately, the hobby gaming industry is very late to this particular game, which has been in full force and effect for the better part of a century – so long that there exist antique soda and cigarette vending machines – so most of these logistics are fairly well solved at this point. Any solution a game store adopts is turn-key, with the only variable being which particular key. Unfortunately, that longevity also means that most of the best means and equipment for concessions have become concentrated in the high-volume deployments like movie theaters, convenience stores, and hotels, leaving a high barrier to entry for comparatively small-scale players like us.

Vending machines are typical of this dichotomy. Dixie-Narco makes a "BevMax" glass-fronted vending machine with a delivery cup mechanism that can vend any size or shape of beverage, from the tiny Red Bull cans to the Gatorade fat plastic bottles to glass-bottled drinks to your standard soda and energy drink aluminums. The equipment accepts coins and bills and can be fitted with a credit card reader. It uses energy-sipping LED lighting and is a Tier-2 Energy-Star Compliant refrigerator. It is an absolute home run in every respect and would instantly set up a game store for a top-level concessions offering with relatively little labor required of the staff besides restocking. It is even rumored that the device periodically emits a fresh spritz of Calvin Klein's "Obsession For Men". The only problem with the BevMax plan is that it starts at over $5,000, plus local sales tax and freight delivery.

What, you mean your local game store can't just whip out five pounds large from the owner's back pocket? Not to worry. There is always Craigslist, where you can get a six-slot Pepsi vendor from 1978 for only $400 or so. It will weigh more than a Honda Civic, ruin any tile or linoleum floors below it, and use up more electricity than an aircraft carrier. Bottles? Nope, twelve-ounce cans are all you get, and modern cans with thinner aluminum will sometimes shred open in the vend mechanism. Bills or credit cards? Don't make me laugh – this beast accepts Washington quarters only, and if you insert a quarter that's a smidgen too dirty, the coin mech will jam and you won't make any sales until that one customer shows up who you pay to do your tech maintenance. Each old vendor is believed to be possessed by the angry wraith of a dead thief. But this vending machine, bad as it is, at least achieves the retail vending gold standard of being highly resistant to shrinkage. It may be an option for a game store that can do no better and wants an extra space heater in the room as a free bonus.

Of course, there is a way to get a brand-new, ultra-modern vending machine at no cost up-front, but it requires payment of the owner's immortal soul. That is to say, the beverage distributors typically offer contract placement of vending machines, but rather than the store owner collecting all revenue from the machines and being free to mitigate COGS through prudent purchasing, the distributors handle all restocking and all revenue collection and pay the owner a pittance of a commission on receipts. Despite the store being quartered (ha ha) out of so much revenue, a contract placement like this may be ideal for game stores that are run by a single owner/proprietor who has a small or nonexistent hired staff and only has so many hours in the day to devote personal labor to store operations.

Dealing with the beverage distributors isn't always a bad knock, though. The better deal for many game stores, and the deal Desert Sky Games chose, was to accept a glass-fronted merchandising refrigerator or "merchandiser" from the beverage distributors. A merchandiser, as seen in convenience stores, allows customers direct access to shelves or racks of beverages. Typically, merchandiser placement is free, but requires periodic minimum orders of product at a price not quite as low as the store owner could find elsewhere with some diligence. Other strings are attached: the store cannot place a competitor's beverages in a given distributor's merchandiser, there is a risk of shrinkage as customers must bring their purchases from the merchandiser to the till, and the game store must perform all restocking and rack-facing labor. That said, once the merchandisers are in place and the workflow mastered, revenues are very good. Desert Sky Games purchased one merchandiser outright from a local business wholesaler for $1,700. It is a brand-new Energy-Star-compliant fridge with a five-year warranty, and we can store whatever we want in it. PepsiCo (which includes Rockstar and Gatorade) and Kalil Bottling (the local provider for Monster, Seven-Up, and A&W brands) provided us with free merchandisers. Coca-Cola eventually offered one, but we declined it pending a need for that much volume, and we store our Coke and Dr Pepper drinks in our own merchandiser in the meanwhile.

Snack vending machines are simpler animals to tame. Most have no refrigeration, and a game store should avoid the ones that do, as ice cream is a disaster waiting to happen in a room full of high-dollar Magic cards and custom-painted 40K models. Any reasonably recent snack machine will have price customization per item feeder and can vend a popcorn bag or booster pack just as well as a Snickers bar. Shrinkage is better on vend than a shelved snack wall, at the cost of some lost versatility and added labor. Desert Sky Games, as of this writing, continues to assess the costs and benefits of buying a snack vendor and likely will do so at some point in the months ahead. For now, and with many game stores, a well-stocked snack shelf within eyeshot of the till is a solid option that offers good revenues against controllable costs. The main failure in snack concessions is to offer few or none at all.

FLAVOR (We Have Mountain Dew or Crab Juice)

Much like the Hollywood script-buying scene, an effective concessions offering is "the same, but different." The gamer demographic has heavy overlap with Asperger's Syndrome, which means there is no theoretical maximum stock of Dr Pepper that will adequately meet demand. Ever. Another fixation for those gamers hoping to watch their weight in between helpings of Funyuns is Diet Coke. Other mainstream drinks such as Mountain Dew, Monster, and Rockstar have their devoted drinkers, and it is folly for a game store owner arbitrarily to refuse to peddle a spender's preferred dope. Some gamers will refuse outright to drink anything other than the precise drink they always consume, and management must accept this reality and tailor inventory to suit it. Counter to all this, however, is a gamer attribute of natural curiosity and compulsion to explore the edges of what is known. Beverage distributors offer flavors on direct wholesale that are not stocked in grocery stores but only at convenience stores and specialty shops, such as Rockstar Recovery Grape, Mountain Dew Gamer Fuel, and Henry Weinhardt's Root Beer. These flavors sell well for Desert Sky Games despite being, by definition, drinks that a gamer usually cannot (conveniently) buy and keep at home. This can add to the specialness of the game store experience and creates a better-rounded concessions offering.

Bottled water is essential. Wholesale is typically very cheap, so a store can sell bottled water inexpensively and still see tremendous volume from it. Dieters, gamers with younger children, women, and gamers with medical conditions may not be able or willing to consume soft drinks. Bottled water does not "keep" as long as most canned beverages, and so must be replenished. Desert Sky Games buys any time our reserve dwindles to less than half a dozen cases, not counting bottles already in the merchandiser.

On the opposite end of the spectrum, for those gamers needing a rush, beverage wholesalers now offer soft drinks made with cane sugar instead of corn syrup. The most common of these is "Mexican Coca-Cola," sold by the glass bottle from Costco, and a top seller everywhere it is introduced. Restaurant Depot ups the ante with Mexican Pepsi, Mexican Sprite, Mexican Fanta (which has to be experienced to be believed) and an assortment of fruit-flavored Spanish sugared sodas to boot. The grocery distribution channel now offers "Pepsi Throwback" and "Mountain Dew Throwback" to meet demand in this category, and this trend will likely continue.

With food concession flavors, once again the "same but different" guideline applies. Gamers eat products like Snickers because they taste great and seem fairly substantial, owing perhaps to the mild protein content of the peanuts. Stores often claim they are going to be the one that offers healthy and wholesome foods, but that never works and those items never sell. Not every food item in the store needs to be a sweet – plenty of gamers like salty/savory snacks as well – but it is pointless to push the health concept because there ain't no takers. As long as most of the mainstays are in stock – M&Ms, Snickers, Doritos, Reese's Peanut Butter Cups, and granola bars – the rest of the food shelf or snack vendor can be dedicated to somewhat more varied fare, from beef jerky to snack cakes. Feel free to experiment with this, and a grocery shelf is a good place to do it because their aisle of prepackaged snacks has much more to it than candy bars. That $1.75 bag of Swedish Fish or Happy Cola absolutely will sell for $2.69 on your shelf. Gamers prove over and over again that they care less about the dollar than about not wanting to leave their game in progress. Keep markups reasonable and customers will happily buy; push too hard and they will feel ripped off and will buy elsewhere.

One added bit is that Arizona has joined a few other states in allowing home-baked goods to be sold at retail under a Home Baking and Confectionery Product Preparation law. The law may or may not require registration of the source kitchen, depending on your locality. If your state has a home baking and confectionery law, it is worth your time to find a registered provider, because gamers buy cookies, brownies, cupcakes, donuts, and muffins much more enthusiastically than prepackaged chocolate or candy. For better or worse, freshness counts.

FUN (Here Comes a New Challenger!)

The concessions category wouldn't be complete without an entertainment offering. Opinions on game concessions at a game store span a wide gamut and are often very heated, with some resentful owners snorting "Never!" to the notion of a video game appearing in their hallowed sanctuary while others embrace gaming as a means to meet a need. Still others, such as Desert Sky Games, have ownership steeped in arcade history and hobbyism, and use game concessions as just another means to advance the overall agenda of delivering a gaming experience.

The major options in entertainment concessions are console gaming, PC LAN gaming, arcade gaming, redemption gaming, pinball, and tactile games (billiards/darts/shuffleboard).

We can dispose of three of those options right off: With dedicated arcades and amusement parks pushing redemption hard, that category doesn't have the math right now that works out for a game store, despite the underlying principle looking excellent. Who wouldn't want to have gamers spending $7.00 on skee-ball or token-toss to get enough tickets to buy a $3.99 booster pack or $4 ultimate rare Yu-Gi-Oh! card? This is likely a future category to watch. Tactile games are huge beyond huge in bars and pubs. Some game store owners will doggedly move forward with them regardless of what I say, but if you want experience-based advice, I recommend staying away. Two local shops, long since failed and closed, moved into billiards and darts and immediately attracted barfly- and biker-type customers. I love me a wicked hog as much as anyone else, but if the Hells Angels adopt your store for their own, you can kiss the more lucrative youth customer base goodbye once the neighborhood moms find out. Finally, PC gaming, a game store cash cow as recently as 2010, fell off a cliff toward the end of 2011 for reasons still not fully understood within the industry. Some combination of ubiquity, the advancement of mobile smartphone/tablet gaming, and staleness in the existing title offerings has dried up demand for PC gaming to a frightening degree and with alarming suddenness. I suggest avoiding PC gaming until this situation settles out.

Console gaming, as an option, has some immediate and strong advantages but important drawbacks. All of the equipment is readily available new or on a cheap used secondary market, including televisions. Virtually all of the newest and most demanded software is appearing first (and often only) in this channel. Gamers can and often do invest significant money in their own specialty controllers and accessories, opening up another revenue stream for the store. In fact, console gaming overall can be a store revenue category, though it typically requires a large amount of owner attention and staff labor, and must be entered definitively, not tentatively. Having said all that, console gaming as a concession requires considerable oversight and expense. The games do not enforce their own play privileges or timing. The equipment was designed for home consumer use, not public use, and breaks down early and often in a commercial environment. Finally, the end-user licensing agreements (EULAs) generally do not extend to commercial use. Chains like Howie's Game Shack pay volume licensing to offer console gaming alongside their PCs, and your store will have to do the same thing, absent "game rental" infrastructure, a cost center all its own. If a game store has a solid background in the console industry and a labor workflow that supports it, this can be an effective concession and possibly an effective revenue category. Product knowledge is less essential: learning the "rares" from a given console is less taxing than keeping up with the money cards from a given Magic: the Gathering expansion block.

Arcade gaming is almost all upside, assuming you can ever get good enough equipment into the store. This is, again, assuming the store's lease permits coin-op devices. Licensing is not an issue. Play privilege enforcement is not an issue. The equipment is built to last. The biggest problems remaining with arcade hardware are that it is crushingly expensive to buy brand new, the secondary market is small and difficult to navigate, and when repairs do come up, they require a reasonable but non-trivial amount of technical knowledge. I think I will need to write "the arcade game article for game store owners" at some point to reach this issue in truly useful depth, but for now there are five threshold concepts you need to know.

First and most importantly, avoid most multi-game machines. Most of these are hack jobs running MAME PCs or equivalent Chinese bootleg motherboards and are not only unlicensed but do not correctly coin up between game selections, making them acceptable for home use but not your store. Moreover, they are worthless on the secondary market so you cannot even readily resell them if your store closes or you decide to get rid of your arcades. By contrast, a domestic product called the ArcadeSD motherboard is a multi-game board that can run licensed ROMs, correctly coins up, and has the appropriate operator settings for real commercial use. There are also a few good manufactured multis, such as Class of 1981 (Ms. Pac-Man/Galaga), Namco Collection (Pac-Man/Dig Dug/Rally-X) and the all-time champ, SNK's Neo Geo MVS. Most of the time, you will get the best results from a cabinet running a single game that it is designed to run. Second, avoid older driving games. They are fun, but the steering assemblies break easily and repairing them is difficult. Pole Position is the worst offender here. Third, present different game options to maximize earnings. I suggest groups of four games that include one vintage game, one Street Fighter series game, one other fighter of any kind, and a Neo Geo. These are your arcade equivalents of covering Magic, Yu-Gi-Oh!, Pokemon, and WoW TCG (or miscellaneous) in the trading card game category. Fourth, just take quarters. It may be tempting to take tokens or swipe cards, but until you acquire some arcade industry expertise, you won't be prepared to deal with some of the extra overhead issues and costs that come alongside the efficiency and anti-theft benefits that tokens and swipe cards offer. Fifth, if an arcade game is 100% working, leave it alone. More problems than I can tell you about in this space have come from people trying to fix what isn't broken. Stick to those five starting principles and you'll be okay. And remember, this stuff isn't terribly expensive now. If you're paying eBay prices, you need to be getting very clean units in excellent working order.

I saved pinball machines for last because they are like arcade games except that noise and repair tend to be the biggest problems with them. Pinball still has hardcore devotees far and wide among gamers and avid players will make a point of spending money if you have a great "pin" operating in your store. Pinball machines tend to be loud, even when their sound effects volume is kept low, due to the normal course of mechanical parts clacking and striking during play. Also, virtually any part of a pinball machine that matters contains a moving part, and moving parts mean breakdowns. Brand new pinball machines shipped right out of the box, such as 2010's Avatar, 2011's TRON Legacy, and the new Marvel Avengers pin, come with no warranty. That should tell you something. Unless you know how or your store has a person available to serve as a tech, avoid pins because you'll never keep up with the constant small stream of equipment fixes that come up. But if you can handle pins, definitely consider bringing them in.

Wrap-Up

So what happened to Rocky Mountain Gamesters? Again, all is not lost. Pete Proprietor has some homework to do, but the resources he needs to manage his concessions situation are out there. With phone calls to his local Coke and Pepsi distributors, he can have a solution for sure on soft drinks – since Pete runs RMG on his own, it probably makes sense for him to get vending machines on a contract placement. Costco will deliver snacks at a 10% premium over shelf wholesale, which in Pete's case is worth the added price. Pete's lease restricts coin-operated device usage to landlord approval, so he may have to convince his landlord that allowing some vending machines and clean arcade games into the store would put him on better footing to be able to pay his rent on time. His local Craigslist has a Marvel Vs. Capcom, a Neo Geo MVS-4, and a Namco Collection available for less than a grand in total. If he has a good relationship with his landlord, Pete will hopefully get the go-ahead to bring them in… and he can sweeten the pot if necessary by offering to pay out of pocket for the carpet removal and concrete polish, which is a bullet that he will simply have to bite. There is a light at the end of the tunnel, though, and Pete will finally better monetize his increasingly popular organized play offerings!

Hopefully, your Friendly Local Game Store gets ahead of the game and learns from RMG's mistakes!

Original article:
http://www.gamehead.com/article/1965/four-fs-game-store-concessions

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