The eatertainment chain is accelerating its menu strategy, watching experience, marketing, and technology. And that's just to start.
While it would be an effortless trap to fall into, Dave & Buster’s doesn’t want to get stuck in recent history or the near-term realities of COVID-19. Even easier when you consider these figures. Revenue at the eatertainment chain sank 85 percent, year-over-year, to $50.8 million in Q2, which ended August 2. This time a year ago, Dave & Buster’s revenue was $344.6 million.
Same-store sales plunged 87 percent as the company swung to a net loss of $58.6 million, or $1.24 per share compared to net income of $32.4 million in Q2 2019. Adjusted EBITDA loss totaled $38.5 million. Dave & Buster’s burned through $3.3 million in cash per week and ended the period with $224 million in cash and equivalents, including $111 million from a second equity raise in May.
This while Dave & Buster’s has—and will continue to through December—deferred a portion of rent across its system. It amounted to about $35 million, which the chain expects to mostly pay down over the next two quarters.
Yet despite these hurdles, Dave & Buster’s continues to push forward, CEO Brian Jenkins said Thursday on a conference call.
Throughout Q2, the brand reopened 81 stores and exited the period with 84 on line. Dave & Buster’s previously expected to reach 90–95, but was set back by case surges that forced the closure or reclosure of nine stores. Dave & Buster’s permanently shuttered a restaurant in downtown Chicago in Q2 and has since closed a Houston market unit as well.
THE COVID-19 ROAD FOR DAVE & BUSTER'S SO FAR:
However, it’s opened an additional five net stores, including a fresh build in Manchester, New Hampshire, bringing the total to 89 restaurants open in roughly 65 percent of Dave & Buster’s total store base.
At the beginning of Q2, Dave & Buster’s had just 10 reopened stores collecting 11 percent of prior-year revenues. By Q3, the 68 comparable units in the brand’s 84 reopened base were generating figures at nearly 40 percent of 2019 levels. In the past two weeks, those same restaurants are up to 58 percent—their highest levels to date. The top quartile was 76 percent.
Additionally, thanks to a leaner operating model, 61 of the 84 venues pushed positive store-level EBITDA for the month of August.
A key to watch: Dave & Buster’s has 11 New York and 16 California stores that will be among the last to reopen. They represent more than half of the company’s remaining reopenings, and about 20 percent of Dave & Buster’s total store count, and historically product close to 25 percent of the chain’s systemwide sales, including “several” top-quartile units in terms of store-level profitability. Mall locations are running about 7 percentage points lower than the rest of the base, too.
“We need to get our chain open,” CFO Scott Bowman said simply.
As this process continues to churn, though, Dave & Buster’s is keeping the long-game journey in sight.
Doing so is a four-pronged target—service model improvements, menu, programming, and marketing.
Starting with the first, Dave & Buster’s has long fought a battle with food attachment in an amusement-heavy business. And this initiative was something that pre-dated COVID-19. The brand is working today to make F&B available anywhere in the restaurant, to enhance guest satisfaction by increasing speed of service, and refocus employees on delivering memorable experiences, Jenkins said.
To that end, Dave & Buster’s is developing a mobile self-service order and pay platform that could serve as a game-changer. It’s also testing a snackable menu customers can order in the arcade via mobile devices or kiosk, with pickup available at a central location. In a Dallas pilot, Jenkins said more than 55 percent of the unit’s F&B revenues flowed through the mobile channel, “showing great promise for guest adoption.”
In the past, Dave & Buster’s tested a fast-casual tacos offering in the arcade where customers could grab food without disrupting their play experience as much as a sit-down meal would. Results were mixed. This current version, however, removes even more friction, and simplifies menu execution from a back-of-house angle. Customers don’t have to talk to anybody to get a drink or food order in, or reorder in, and hardly need to take a breather.
Elaborating on the menu topic, Jenkins said Dave & Buster’s will launch a “new, stronger food identity,” once it completes the reopening process and traffic recovers “to an appropriate degree.”
The new strategy was informed by first- and third-party data, and will boost ingredient quality, with a specific nod to millennials. Jenkins called the DNA of this update the “core and explore approach.”
“The pillar of our strategy will allow us to achieve the broad reach that is necessary for an entertainment-driven business, through our core American classics, while simultaneously boosting frequency and differentiation through newer, more innovative culinary applications,” he said.
Dave & Buster’s expects to roll its elevated F&B strategy in Q1 of 2021. It will enable the chain to introduce limited-time offers centered on driving visits during key media windows, Jenkins added.
In COVID times, Dave & Buster's narrowed its menu to 15 items from more than 40 to aid a limited kitchen staff and control inventory. The end result will likely fall somewhere in the middle.
"The reason for that is we want to get the guests some variety, but also maintain some of that efficiency that we've seen so far," Bowman said. "Also from the technology standpoint, that's one of the reasons that we're kind of doubling down on that right now and focusing on that, because we see a big opportunity there, not only from a guest experience but from an efficiency standpoint."
Although this won’t fully hold, Dave & Buster’s operating payroll and benefits expense was $13.8 million in Q2—a decrease of 83 percent, year-over-year, thanks to furloughs and the introduction of a leaner labor model at reopened stores.
The next focus could present near-term ramifications. Dave & Buster’s “wow walls”—nearly 50-foot-wide LED TV screens that can show up to six events at once, designed with stadium sound and equipped for view parties—were first unveiled just about a year ago.
Jenkins said the brand is currently implementing a foundational cloud-based platform capable of streaming linear video content, live digital sponsored content, and entertainment programming, such as sports score scrolls and trivia. Dave & Buster’s can then better manage content selection and delivery via a centralized programming team, while working with local store mangers to refine content and timing for local relevance.
And the journey begins with fall sports (the NFL kicked off its season Thursday).
With teams limiting fans amid reduced stadium capacity, Dave & Buster’s will try to fill the void, Jenkins said. Select restaurants will offer guests in-store premium experiences, giveaways, and sweepstakes to encourage trial. DJs to energize the crowd. Ambassadors to stir buzz.
Additionally, Dave & Buster’s is in the process of launching a branded radio station, “Dave & Busters Live,” which will be heard in all locations and streamed live on the chain’s website and through its app. It will incorporate dedicated radio personalities and curated music, Jenkins said, “enhancing the in-store buys and providing another channel to engage with our guests, when they are in our stores as well as when they're going about their daily lives in between visits.”
Jenkins admitted Dave & Buster’s really isn’t sure what demand is going to look like for these in-store activations out of the gate.
“I think society, and people in general, have gotten pretty used to being at home and doing things at home, from eating to doing projects on their houses and every other thing,” he said. “So whether we're going to be able to drive people in to watch sports on our great assets, it's a question mark, just to be candid here.”
“That said,” he added, “we have built a varied asset that we were going to lean into several things, and this is one of them. It's nothing other than to continue to move the needle and improve our approach of how we deliver an experiential watch experience.”
The fourth directive is marketing. New CMO Brandon Coleman, a former Del Frisco’s president who joined in February, worked on a national campaign with recent agency add Mother of New York. It launched last week and is just the start of a reawakened Dave & Buster’s personality, Jenkins said.
As the company moves through the balance of the year, he added, you will see the new direction evolve as it’s integrated across all of Dave & Buster’s touch points. In tandem with the new messaging, it plans to launch a smarter approach to media by blending local TV, advance TV, digital radio, at home, and programmatic social buys.
“As our guests move through the journey, our new customer relationship management and customer data platform systems will be ready to enroll audiences with messaging tailored to their behaviors,” Jenkins said. “And as our understanding of guest motivations grow, we will automate messaging across the journey to optimize engagement and drive visitation.”
A plan to drive traffic “through a strategic local and digital tent pole messaging approach.” Before COVID-19, the average Dave & Buster’s guest visited less than twice a year.
Jenkins’ hope is that when core and new users return in the coming weeks and months, they see a refreshed brand with multiple and differentiated experiences available.
“… customers have a strong appetite for our resilient brand, and are anxious to inject fun back into their life,” Jenkins said.