While Dave & Buster’s pinpoints 10 percent or more annual unit growth as its top long-term value driver, the “eatertainment” landscape is shifting as quickly as any in the restaurant industry. And so is the 117-unit pioneer. Dave & Buster’s new CEO Brian Jenkins, who stepped in for a retiring Stephen M. King on August 5, outlined some of the brand’s recent changes during a September 14 conference call, and also hinted at future shake-ups, including the testing of a bold fast-casual concept expected to hit the market in Q4.
Dave & Busters hinted at the counter-service model in recent quarters, mostly referring to it as an option for guests who don’t want to spend time at a sit-down food experience, but still want access to the amusement offerings. The concept, as it turns out, will be called TNT Tacos, and is set to pilot in Dave & Buster’s home Dallas market.
It will be approximate to the arcade. Dave & Buster’s is taking one of the location’s special events function rooms and revamping it. Essentially think of it as a food truck, Jenkins said.
“Our research shows that what resonates with, particularly, millennials would be street tacos. So we're going to test a twisted and traditional kind of food trucks,” he said.
Jenkins reiterated that TNT Tacos is going to be a test for Dave & Buster’s. But if successful, “the hope would be that we get increased penetration,” Jenkins added. “That's something we've been talking about a lot—what's our penetration in food and relative to Power Cards sold. Our hope would be that we would see, because of accessibility, increased penetration due to this offering and then we'll read that for a little while and see whether that makes sense to rollout to other locations over time.”
Jenkins said Dave & Buster’s sees the fast casual potentially serving as a complimentary delivery mechanism to its casual-dining offering.
Dave & Buster’s provided the news in the wake of another strong report in fiscal 2018. The brand sailed past Wall Street expectations for the second straight quarter after closing the 2017 calendar on a rough note with same-store sales declines of 5.9 percent. Dave & Buster’s Q2 results showed comps declines of 2.4 percent, year-over-year (to note: 2018 had one more higher-volume summer week compared to last year). However, earnings per share of 84 cents, up from 71 cents in the prior-year period, crushed analyst expectations of 67 cents. Net income was $33.78 million, an increase from last year’s $30.36 million. Dave & Buster’s reported revenue of $319.19 million, better than last year’s $280.71 million, and well above Wall Street’s call of $315.25 million. In response, the chain raised its outlook for revenue to $1.230–$1.255 billion from $1.2–$1.24 billion. It’s also now calling for comps to decline in the low single digits versus previous guidance of low to mid-single digits drops.
VR arrives in full force
One of the biggest drivers of optimism for Dave & Buster’s this past quarter and heading into the back half of 2018 is its proprietarily virtual reality platform. The chain launched its first title in Q2, Jurassic World VR Expedition. The second title is coming toward the end of the year, with the plan to build a library of VR content to help Dave & Buster’s
capitalize on this opportunity for years to come,” Jenkins said.
Moving forward, Dave & Buster’s will continue to feature proprietary IP offerings and lean on recognizable titles. The goal being to drive repeat play and more per capital spend when guests walk in the door.
The VR platform did add to Dave & Buster’s labor model, though. There were some cases, in busy stores, where the brand had to mandate two people to help with peak business and ensure execution, loading, and unloading to Dave & Buster’s standard. Jenkins estimated about 15 or 20 locations have two units currently. “The uptime on the game was excellent. And the feedback from our guests was also very strong. So we did spend more labor than we expected in the quarter,” he said.
VR is a paid attraction at Dave & Buster’s (about $5 per play). The brand advertised on TV and saw an increase in per cap in its amusement business, but wouldn’t share exactly what the metrics were just yet. “That said, we feel like it's also a traffic driver,” Jenkins said.
The hope, Jenkins said, is that when Dave & Buster’s builds out its VR library that “at least one guest that is going to consume two of those experiences in one visit.”
“So our thinking is that as we build a library out, we will get repeat play on the platform itself as well as possibly the game,” he said.
Jenkins added that Dave & Buster’s is working on infusing variability in the content, adding “more competitive flare,” and showcasing highly visible guest elements. “You're really trying to encourage multiple plays per visit by an individual player so they can see everything and experience it in different ways,” he said.
In overall reported sales by category, “amusement and other” gained 16.6 percent, while food and beverage sales collectively lifted 9.7 percent, year-over-year, in Q2. The amusement and other category represented 59.2 percent of total revenues—a 150 basis-points increase from the prior-year period. In regards to comps sales on a comparable-week basis, walk-in sales were down 2.6 percent, while special events business was slightly up. Amusement decreased 1.2 percent. Food and beverage fell 4.1 percent. In that category, food and bar were down 3.3 and 5.9 percent, respectively.
For Dave & Buster’s, quality, simplification, and accessibility remain top on its F&B priority. Earlier in the year, the brand reduced its menu 20 percent. It launched a new menu two weeks ago that featured fresh items such as Cantina Nachos, the Impossible Burger, Kobe Meatballs, and hand-crafted classic cocktails. It also divested resources into menu messaging with quality callouts like hand-breaded chicken, slow-cooked ribs, and all-natural chicken breasts.
“We believe simplification will positively impact our speed of service over time,” Jenkins said.
Dave & Buster’s retained a new vice president of food and beverage to spearhead the changes.
“He is continuing to look at how we might tweak or maybe reengineer that even further,” Jenkins said of the 20 percent menu cut. … Speed of service is definitely a focus for us. We have some fairly complex dishes that we have. So he has a keen eye toward how we might simplify the preparation.”
Reduce the friction
Dave & Buster’s has tested and implemented service model changes, primarily during peak times, in many of its stores, Jenkins said. A large number have deployed guest ambassadors that meet customers and guide them to their experience. Another initiative involves kiosk to facilitate guest interaction with that technology.
And in the majority of Dave & Buster’s locations, hosted seating in the sports lounge area was introduced to improve flow during peak periods.
Jenkins added that Dave & Buster’s is in the midst of implementing a new workforce management platform and intend to roll out RFID-enabled Power Cards in Q4.
Growth is still a go
During Q2, Dave & Buster’s opened five new stores: Salt Lake City (a new state); Massapequa, New York; Florence California; Staten Island, New York; and Northridge, California in the San Fernando Valley. The brand is on its way to 14–15 new stores this year, which would represent 13–14 percent unit growth. Eleven of the restaurants are expected to be at the higher end of the square-footage range, with nine at about 40,000 square feet and two between 30,000–40,000. The remaining four will comprise of two small stores and two in the new 17,000-square-foot format.
Dave & Buster’s has 24 signed leases and a long-term target to open 231251 locations in the U.S. and Canada, including 20–40 in the 17,000 box.
“We are confident that by focusing on evolving our offering, improving our service and more effectively communicating our new news and value, we will positively impact comp sales performance over time,” Jenkins said. “We expect moving comp sales, combined with our ability to capitalize on the opportunity to more than double our store count, will drive growth and shareholder value for years to come.”