The concept believes a combination of organic revenue strategies, unit growth, and cost management will lead to $1 billion in adjusted EBITDA.
When CEO Chris Morris joined Dave & Buster's after the $835 million merger with Main Event, he and his team immediately saw a launchpad for growth. The looming question was, how can new leadership maximize the company's potential?
Morris and others spent months talking to operators and conducting research to comprehend Dave & Buster's opportunities. The executive noted that while the eatertainment concept has delivered big stretches of success, the years leading up to COVID were lackluster, especially on the top line. Leadership sought to understand this shift. It was uncovered Dave & Buster's business model wasn't the problem. Actually, Morris said, everyone is more convicted of the strength of the model than before.
"We learned that our opportunity is improved execution on a number of fronts," Morris said during Dave & Buster's annual Investor Day. " ... What makes us so excited about the opportunity in front of us is most of these initiatives are not rocket science. A lot of this potential can be unlocked through simply better operational execution and basic blocking and tackling."
Dave and Buster's devised a plan to capture $1 billion in adjusted EBITDA from organic revenue growth strategies, new unit expansion, and cost management.
In terms of those organic revenue initiatives, it begins with marketing and media messaging, which Morris said hasn't evolved in more than a decade. Currently, the company has 90 percent brand awareness among consumers, but only a frequency of 1.4 times (number of visits from a customer on average in the past 12 months).
The company will look to improve this metric by optimizing its media mix (more digital and social platforms to meet guests where they are). In 2019, 85 percent of media was earmarked for traditional television, but in 2022, that flipped to 22 percent. With this change, not only did Dave & Buster's reduce its media spend from $32 million to $23 million, but it also increased its revenue per dollar of media spend from $42 to $73. That's 1.7x higher impact. Additionally, Dave & Buster's wants to better leverage its sports-viewing platform. The typical store has 6,000-8,000 square feet of room for watching sports, along with 300-425 seats and 20-35 screens. However, only 4 percent of customers cite watching sports as the primary reason for visiting. Then finally, the company wants to build engagement through entertainment innovation and relevant offerings (refreshing games consistently, celebrity partnerships, watch parties, and more.)
"We put a lot of thought into the best way to reach our targets and what their need states are," said CMO Ashley Zickefoose. "We wanted to put that same thoughtfulness into our media approach."
Another organic revenue pillar is strategic game pricing. The new leadership team uncovered that Dave & Buster's had no comprehensive pricing strategy for its games and that it was significantly discounted relative to competitors—as much as 40-80 percent lower. Power Card prices haven't increased in 20 years and game prices are the same nationwide. There are four main measures the company is taking in response: increase prices of lower chip tiers, use dynamic pricing to capitalize on peak demand and to determine costs based on geography, grow prices in line with inflation, and train staff to upsell customers.
A third strategy is improving food and beverage offerings by fixing attachment and spend per customer. Historically, 57 percent of guests order food and drinks, but right now it's 39 percent. Some existing initiatives to help this include a new head of food and beverage, simplification in the back of house, upgraded menu design, evaluation of new options, optimized pricing, and easier ordering systems. As for building average check, Dave & Buster's will look to rearrange the menu to enhance its price-value positioning, introduce more bundles, explicitly advertise side items, and implement a more defined alcohol program.
Dave & Buster's is also concerned about store refreshes. The company will divide this into three categories—"light-touch," "base," and "potential upside" remodels. The third one comes with the most changes, like interior design, new FF&E, exterior refresh, and expanded entertainment offerings. It would cost more than $4 million with a target ROI of 20-25 percent. Remodels have proven successful in the past. During the previous round from 2011-2017, more than 40 units were revamped and that led to a 12 percent increase in sales on average and a 33 percent lift in average four-wall EBITDA.
Special events are an area of focus as well. Dave & Buster's thinks there's opportunity to reinsert sales managers in stores to proactively market offerings and add more entertainment choices for social and team-building activities, among several other strategies. Then there's unlocking more technology. This means updated self-service kiosks and tablets, better tracking of customer data, improved WiFi coverage inside stores, traffic-driving strategies like store-vs.-store competitions, and more.
"We have spent a tremendous amount of time reviewing and gathering our business enablement needs for our future. We expect these areas of investment will have an immediate impact as we have seen the results on the Main Event brand and have been testing in several select Dave & Buster's," said chief information officer Steve Khlohn. "Our strategies are built on continuous improvement where we will measure outcomes to ensure the return is there based on the investment. We know with the right team members, operations, marketing, and technology, we truly have an opportunity to lead our category, consistently innovating to meet our guest and our team members' expectations."
Alongside those organic revenue components will be continued unit growth. There are 204 stores (151 for Dave & Buster's and 53 for Main Event), but the company said it has room for more than 550 units across the U.S. In the near term, it will aim for 48 locations in three years, or an average of 16 openings annually. Aiding growth will be new mini Dave & Buster's stores, which help the chain penetrate smaller markets. Thus far, there are five of these in the U.S., and they come with 19,000 square feet, $6.6 million in net development costs, $8 million in yearly revenue, and $3 million in four-wall EBITDA. Comparatively, a traditional unit typically has 44,000 square feet, $7.7 million in net development costs, $11 million in average revenue, and $4 million in four-wall EBITDA. Internationally, Dave & Buster's said it could have more than 200 locations.
With cost management, the company said that by targeting cost of goods, labor, store operating expenditures, and G&A, it could save $40-$60 million per year. That come via synergies, more technology, reduced overhead, and better daily operations.
"Things can change macro. The macro environment might change, and that might impact the timing of the delivery of those numbers, but that won't impact the fact that there's significant opportunity to grow this business and grow it in a meaningful way," Morris said.