At Dave & Buster’s investor update over the summer, CEO Chris Morris laid a vision for the brand centered around messaging, technology, F&B, and store design, among other growth drivers. But one of the less-technical points, Morris said, was none of it was “rocket science.” The legacy brand set a goal to capture $1 billion in adjusted EBITDA, and it all began with better execution.
Dave & Buster’s just generated Q3 revenue of $467 million and adjusted EBITDA of $82 million for a margin of 17.5 percent, or 350 basis points better than the same period in 2019. Same-store sales declined 7.8 percent as Dave & Buster’s lapped a Q2 2022 comp that was 17.5 percent over 2019. Measured to that same pre-COVID view, Q3 same-store sales were 8.1 higher.
Morris, who assumed the CEO role following Dave & Buster’s $835 million merger with Main Event, called the current macroeconomic backdrop “unique and complex.” Yet there’s evidence the chain’s efforts are settling in.
Starting with marketing, Dave & Buster’s reiterated whitespace remains in improving conversion and guest frequency by ensuring “we get the right message to the right people at the right time.” Despite its standing as a strong-awareness brand (90 percent among consumers), Dave & Buster’s has historically not been a high-frequency concept. Morris said earlier the number of visits from a customer on average in the past 12 months was 1.4 times. That needle has idled over the years. Even going back to 2019, executives pegged the figure at “less than twice a year.”
The process to bump the number is a multi-pronged one that starts with optimizing media mix, with a focus on digital and social outreach to find guests where they are. Three years ago, 85 percent of media was national TV. Last year, it fell to 22 percent. Dave & Buster’s reduced media spend from $32 million to $23 million and saw revenue per dollar of media spend rise from $42 to $73 in response. Or a 1.7X higher impact.
Morris said the chain made “significant progress” toward the larger goal in Q3 through targeted investments in marketing technology infrastructure, which is enabling Dave & Buster’s to build out a digital engine. “We remain confident [it] will begin bearing fruit in the early part of fiscal 2024,” he said.
However, as that system matures, there’s been a focus on “quick wins” as well, Morris noted. Pilots have already launched in owned and paid channels. They’re designed to provide specific, data-driven learnings on how to effectively target known and unknown guests. “That will enable us to engage with our guests more effectively and efficiently with personalized communications,” he said. “We will scale the learnings from the initial pilots and additional tests scheduled for the fourth quarter to inform our digital strategy efforts in 2024.”
Ultimately, the aim for Dave & Buster’s will be to acquire more high-value guests. In turn, frequency and lifetime value will lift as the brand finds and speaks to that customer more likely to visit multiple times per year versus the one who’s dropping in less than twice a year. Morris said Dave & Buster’s plans to focus on personalization and guest experience. “We already know the immense value of getting this right,” he said.
There are currently 5.4 million users in Dave & Buster’s loyalty database. That group visits over 50 percent more often and spends roughly 15 percent higher on each visit compared to non-loyalty guests.
“When we think about the benefit of growing the loyalty database, clearly, there is an opportunity for us,” Morris said. “The more engaged we are with our guests … we’re going to be able to deliver a service model for that guest that’s tailored for the guest and a better position to deliver personalized messages to the guest. And so, we clearly see an opportunity to build out our loyalty platform, and as we do that to improve both sides of it, the service model as well as our marketing performance.”
There are a couple of ways Dave & Buster’s expects to do this. Firstly, it rolled a mobile app. That was the initial step. Now, it intends to improve and refine the platform in the years to come. As it does so, it will be testing and learning, Morris said.
Secondly, and the brand observed this in a remodeled location (more on this later), Dave & Buster’s recognized opportunity to improve digital guest engagement at the store level. “Being very deliberate,” Morris said, “about how we migrate a guest through the entire guest journey and do it in a way where the mobile app should enhance that guest journey to enhance the overall service model.”
“And as we focus on enabling a better service model, a better guest experience, we believe that will migrate more people into the mobile app, which will then improve our loyalty database platform,” he added.
Another topic at hand for Dave & Buster’s that’s pulsed in recent months is an evolving relationship with dynamic pricing, or what it’s calling “strategic game pricing.” Historically, the brand has not had a robust blueprint on this front, Morris admitted. Prices were stagnant for decades and consistent across regions nationwide, regardless of economic conditions.
Leadership told investors Dave & Buster’s remains significantly discounted relative to competitors—as much as 40–80 percent under the field. Power Card prices haven’t lifted in 20 years. The measures in response are: 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.
Zeroing on dynamic pricing, Morris said Dave & Buster’s initiated “certain technology investments” to facilitate a new gaming system in Q3, which “will give us our desired capabilities to optimize the price of our games.” In advance, the brand tested a number of strategies to unlock a portion of the pricing opportunity in certain areas, he added. “These tests have shown encouraging results, which we will continue to fine-tune ahead of rolling out across the broader portfolio in the coming weeks and months,” Morris said.
CFO Michael Quartieri added the test is live in roughly 12 stores. Dave & Buster’s is charting various price points within those restaurants and evaluating the impact. “And we’re looking at it holistically,” he said. “So it’s not only an impact on what your initial card load is, but it’s also on the overall revenues, what kind of recharge rate do you have. We’ll also look at what the impact on dwell time because we look at all that in its totality to understand the real value that we’re driving to the customer as part of that value proposition.” A pricing adjustment could arrive late into Q4 or early Q1.
The next progression on the table for Dave & Buster’s is a multiphased approach to improving F&B. In the past, 57 percent of guests ordered food and drinks at the brand. But coming into Dave & Buster’s summer investor call, it was 39 percent. The company tapped a hew head of F&B and turned focus toward simplification in the back of house, upgraded menu design, evaluation of fresh products, optimized pricing, and easier ordering systems. Dave & Buster’s also examined how the menu was arranged to enhance price-value proposition, whether it could introduce more bundles, how it advertised sides, and whether the chain’s alcohol program was as defined as it could be.
That was Phase 1. The second stage revolves around execution by removing unnecessary complexity and boosting speed of service to improve food quality and throughput at peak. That lunched systemwide on September 25.
In the ensuring five weeks, Morris said, Dave & Buster’s Phase 2 menu drove a roughly 5 percent increase in F&B revenue per check, an almost 100-basis-point improvement in COGs, and improved speed of service and quality of the guest experience.
Alongside the go-live of Phase 2, the brand began piloting Phase 2 of the D&B Menu of The Future in 10 stores. If all goes accordingly, Morris said, it will spread across the fleet in April 2024.
Phase 3 will be “particularly exciting,” he continued, as it’s designed with the objective to further increase F&B sales through targeted culinary innovation of apps, bowls, desserts, and sides that aligns with the company’s updated hospitality model “and better meets the need states of our entertainment-oriented guests,” Morris said.
“Already in Phase 3 testing, we are seeing incremental improvement in food check, overall satisfaction scores and F&B attach rates above and beyond the favorable Phase 2 results,” he added.
Meanwhile, Dave & Buster’s continues to reface its brand. A broad remodel program is dividing across three buckets—”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.
The last time Dave & Buster’s refreshed (from 2011–2017), more than 40 stores witnessed a 12 percent hike in sales on average and a 33 percent lift in average four-wall EBITDA.
Morris said the majority of boxes today essentially have the same look, feel, layout, and offerings as they did over a decade ago. “After significant research and analysis, we have designed a remodel program that not only approves the physical appearance of our stores, but also represents the culmination of an interrelated strategic reset in how we will run our business more efficiently and better meet the need states of our guests,” he said.
Specifically, the company believes the remodels grow revenue from “the introduction of disruptive entertainment product news,” improved F&B sales thanks to a reconfigured dining room, improved execution, and elevated and relevant design. Additionally, it’s a restaurant built to balloon special event sales through the introduction of more group-related entertainment options and improved engagement.
The first remodel, in the Houston, Texas, suburb of Friendswood, has driven double-digit sales uplift compared to the prior year and a more than 30 percent rise versus 2019. F&B mix is up nearly a full percentage point (reconfigured dining room), special event sales 45 percent, and net promoter scores 15 percent. Loyalty member has also increased at a faster rate than the rest of the system and, thanks to a digital guest engagement platform, the store has collected “important guest data on thousands of guests,” Morris said.
“Notably, based on what we are seeing, we are highly confident this remodel is on pace to hit or exceed our target return threshold. And we expect to value-engineer future remodels to have even better ROIs,” he said.
Dave & Buster’s was able to remodel the location without closing it. But when it was 100 percent finished, it treated the store like a brand-new opening with a VIP party and community event followed by “quite a bit” of local store marketing.
“But I’ll tell you, I don’t want to leave anyone with the impression that part of the reason we’re getting these results is because we’ve allocated significant incremental marketing dollars to the store, because that’s not the case,” Morris said. “We’ve supported it with marketing, but it’s been more in the ordinary course of business. The difference is now we have news to talk about.”
As of now, Dave & Buster’s plans to complete eight additional remodels in Q4 and three in early fiscal 2024. It’s also begun permitting a “significant” number of additional remodel sites for next year and, assuming future success, will be in position to complete 40–45 remodels by 2025 and 2025.
Building on special events, Morris said the renewed effort allowed Dave & Buster’s to take a more aggressive approach to outbound prospecting. It’s noticed dividends in the 20 stores where it’s added a dedicated sales manager. These units are pacing 80 percent higher in terms of special event upsell revenue growth.
Dave & Buster’s implemented holiday showcase events as well. The company bring groups, virtually and in-person, into stores to see what’s available. Attendance for those, Morris said, has nearly doubled over the prior year.
Additionally, Dave & Buster’s new SMS launch to engage with special event customers helped with conversion and repeat business. “All of this provides significant momentum in the fourth quarter, where we expect to eclipse pre-pandemic levels and have already booked as many $10,000-plus events for the quarter as we did in the entire fourth quarter of 2019,” Morris said.
Overall, Dave & Buster’s special event business’ comparable sales were up 4.8 percent in Q3 on a year-over-year basis and down 3.5 percent against 2019.
The last pillar at work is broad-spectrum tech to optimize service models, Dave & Buster’s enterprise game ecosystem, new store IT infrastructure, and improved data analytics.
At the beginning of November, the company completed the U.S. rollout of its server tablets powered by OneDine. Guest-facing employees can now execute ordering and close out transactions from the palm of their hands. Dave & Buster’s is on track to have 61 stores with updated IT infrastructure by the end of the year, with the remainder on deck for 2024.
With the adoption of a new ERP, Morris added, Dave & Buster’s streamlined integration of its back-office systems to maximize real-time actionable insights and is driving innovation with new footfall traffic tech that’s being tested in three stores, with the anticipation it’ll roll systemwide next year.
Dave & Buster’s opened three stores in Q3 and is racing toward six more in Q4 (three of which have already opened, in Colorado Springs, Colorado; Lafayette, Louisiana; and Pooler, Georgia). That would bring the brand to 16 new restaurants in 2023. Four international locations are expected to break ground in 2024 as well. Internationally, Dave & Buster’s previously said it could have more than 200 locations.
There are 217 total venues today in North America, including 159 Dave & Buster’s branded stores in 42 states, Puerto Rico, and Canada 58 Main Events in 20 states.
Executives at Dave & Buster’s investor day said the company 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.
That includes a new mini Dave & Buster’s box, which help the chain penetrate smaller markets. As of the summer, there were five of these in the U.S., and they came 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.