The Eatertainment Pioneer Is Ready to Rememerge From COVID-19 a Stronger, More Diverse Company.
Dave & Buster’s has been relatively silent this past year, absorbing the ebbs and flows of COVID-19 like a tidal wave. The 141-unit chain’s total revenues in fiscal 2021 sank nearly 68 percent, from $1.354.7 billion to $436.5 million, year-over-year. Same-store sales dropped 70 percent as Dave & Buster’s swung a net loss of $207 million versus net income of $100.3 million in 2019.
Yet the message is ready to change, and so is Dave & Buster’s. CEO Brian Jenkins said the eatertainment icon will “strike pretty hard” this summer with a marketing run that’s going to reflect broad changes across the company’s operational profile. This includes everything from virtual brands to revamped F&B offerings to labor changes, tablets, and even sports betting.
“… we are going to be talking about our brand with a larger voice, starting around June,” Jenkins said during a conference call.
Dave & Buster’s setbacks of the past year haven’t confounded anybody. COVID crashed countless consumer behaviors. But perhaps none more so than social occasions. Crowd avoidance became the new daily routine.
And so, Dave & Buster’s recovery oscillated wildly with COVID surges and mandates. Given it’s an amusement-centric business, not a food one, there was little Dave & Buster’s could do to shield itself or innovate around limitations. Dave & Buster’s road back was always going to be tied to its ability to reopen stores.
The chain ended its fiscal year in January with 107 reopened venues. Fully operational comp stores generated sales at 67 percent of 2019 levels, representing Dave & Buster’s strongest COVID-impacted month in 12 months. In January, 85 restaurants representing about 80 percent of the brand’s reopened locations achieved positive store-level EBITDA—enabling Dave & Buster’s to post its first period of positive enterprise-level EBITDA since the shutdown of its entire store base roughly a year ago.
Thanks to stimulus checks and improving case trends nationwide, the company’s recovery carried through the first eight weeks of fiscal 2021. Sales at fully operational units pushed 74 percent of 2019 levels, and total sales reached about $150 million. Dave & Buster’s also notched its second consecutive month of positive enterprise-level EBITDA in February.
Arguably more encouraging, Dave & Buster’s reopened limited-capacity dine-in and arcade operations at 11 New York stores and limited-capacity dine-in business at seven of its 16 California venues. Meaning, it’s on the doorstep of having all 141 locations up and running for the first time.
As of today, 130 units of Dave & Buster’s footprint are open. Only nine of those are restricted from arcade use (a mandate in some markets). So 121 of the 141 are essentially full-go. And Jenkins said the total number should migrate to 138 next week, with another eight scheduled to come online, mostly in California.
This time a year ago, 22 million Americans lost their jobs in two months, unemployment shot from a 50-year low of 3.5 percent to 14.7 percent, and economic output fell by 31 percent, according to the National Retail Federation.
By contrast, more than half the jobs lost have since recovered, the Federal Reserve expects gross domestic product to grow 6.5 percent this year, and household net worth is at an all-time high at $122.9 trillion.
The Department of Labor released its job report Friday as well, with payrolls rising by 916,000 as the unemployment rate dropped to 6 percent. The former was the largest growth since August.
Leisure and hospitality payrolls lifted by 280,000 in March after an upwardly revised gain of 384,000 in February. While still three million short of pre-pandemic levels, there’s no question numbers are tracking upward, and reflect easing social-distancing restrictions and increased capacity limits at bars, restaurants, and other establishments across America.
Restaurants specifically added 175,800 jobs in March and presently employ 10.5 million people.
You can see this trajectory actively at work with Dave & Buster’s. Comp sales declined 69 percent in November, 78 percent in December, 59 percent in January, and 47 percent through the first eight weeks of the new fiscal calendar.
“Our accelerating recovery illustrates the resilience of the Dave & Buster's brand and the important role that good, clean fun plays in the lives of our guests,” Jenkins said.
A different brand on the other side
Dave & Buster’s hardly sat idle this past year, despite challenges. One key initiative revolved around establishing a “stronger, differentiated food identity,” COO Margo Manning said.
The brand will emerge with 28 menu items—33 percent fewer than pre-virus—under the label of “Inspired American Kitchen.” For Dave & Busters, it’s the most extensive update in more than a decade.
Locations recently completed the second phase of the menu change, taking offerings from 17 to 22. Completion of the third phase will occur by late May and bring Dave & Buster’s to the final 28-item target.
“We expect our menu to drive an improved guest experience and increased food attachment rate, all aimed toward increasing food and beverage sales,” Manning said.
Alongside, Dave & Buster’s introduced high-speed ovens across the system, which reduced cook times by more than 40 percent on about a third of the menu. It also anticipates installing new kitchen management system upgrades by June, with a goal to create a more seamless flow of food and reduce overall ticket times.
The speed aim make sense. Dave & Buster’s wants guests back on the floor, playing games. It’s what consumers want, too. In the past, the reality inspired things like a fast-casual taco test in Dallas and a roaming cart of options in the arcade.
Dave & Buster’s, to Jenkins’ earlier point, will complement operational improvements with a “comprehensive internal and external marketing strategy,” to tell guests about the new menu and drive trial. Inside restaurants, from the dining room to Dave & Buster’s “Wow Walls” and video screens to its midway, guests will see pictures of new dishes. And they’ll also experience a fresh digital menu that’s easier to navigate.
Externally, Dave & Buster’s plans to navigate the majority of its spend toward digital channels for the first time in brand history. Expect to see social influencers shoulder the message.
Dave & Buster’s continues to test two virtual concepts as well, “Wings Out,” and “Buster’s America’s Kitchen,” which is basically the regular menu under different branding. Combined with to-go business, the company has seen about $50,000 per store, annualized, from the efforts.
Jenkins said the business has been highly incremental. But compared to some casual-dining peers, it’s not going to move the needle as far. There are 141 locations, not 1,000. And Dave & Buster’s volume heavily mixes toward entertainment. However, this reality also lends credit to the incremental claim. It gets Dave & Buster’s food outside the four walls and to guest who probably would not have had the chain in their consideration set for delivery.
Manning said Dave & Buster’s next step is to evaluate additional ghost concepts and third-party providers beyond DoorDash and Uber Eats, as well as “working to optimize our promotional strategy to fully capture the revenue potential for these concepts.”
The third pillar evolving at Dave & Buster’s concerns an integrated guest experience, which includes updating its service model to give guests more control over their in-store journey. Notably, tablets and a mobile web platform that allow for a contactless order-pay experience. In test stores, Manning said, Dave & Buster’s noticed “encouraging improvement in check turns,” and was also able to expand the size of server sections and reduce staffing levels.
When Dave & Buster’s summer push arrives, there will be six new games in the arcade, from a four-player cooperative Minecraft Dungeons Arcade offering to a new VR attraction and life-size version of Hungry Hungry Hippos.
Although still early stage details, Jenkins said Dave & Buster’s continues to explore a sports-betting partnership to bring sports racing and daily fantasy sports where allowed by law.
“We believe this could represent a mean accelerator to our appeal as a sports-watching destination and better leverage our watch assets. We expect to bring our negotiations to a conclusion over the next several months,” he said.
For perspective, a Supreme Court decision reversed a decades-long federal ban in June 2018. Before, Nevada was the only state that offered legal sports betting. That was the case for 26 years. Nineteen additional states and the District of Columbia followed, with ESPN saying in November two dozen more were on their way.
Buffalo Wild Wings announced a deal with MGM Resorts International and its sports-betting venture, Roar Digital, in September 2019. And extended the activation earlier last month with a series of offerings, including geolocation technology to offer custom promotions and bet types for guests—a first in the industry. Simply, people can access unique betting options by coming to a Buffalo Wild Wings to do so.
Jenkins said he believes the opportunity has significant legs. “We think states are going to expand the legalization of that over time. We think it could be very complementary to our business,” he said.
Dave & Buster’s estimates it could offer online sports bettering today in about 13 locations, or three states. There are five or so other markets that have made an allowance for mobile sports betting, but present some liquor licensing challenges the company would need to work through, Jenkins said.
“This is going to be a bit, let’s say, a journey,” Jenkins said. “And we see this market in the near term could be more like 27, 30 stores out of our chain. So we're going to see how it works, but we think it's something that could be very complementary to what we do and so, we are pursuing it.”
As Dave & Busters explores the possibility, it’s committed to broadening entertainment offerings by building programming capability. The company invested in a dedicated entertainment programming function focused on creating compelling content-based events to drive broader reach and increase visit frequency, Jenkins said.
Dave & Buster’s summer marketing campaign will focus, as noted, on its new menu, drinks, and games. A second, still under development, is scheduled for November–December.
The brand also announced the retirement of board chair and former CEO Steve King after 15 years. Kevin Sheehan will take his place.