Why market and financial feasibility studies need to be different today

Our company has completed our 33^rd consecutive year working in the out-of-home (OOH), location-based entertainment (LBE) industry, an industry that is so constantly changing that even its name has had to evolve. Initially, and unfortunately still generally referred to as the "family entertainment center" (FEC) industry, most successful venues today aren't designed for families, but rather adults. Even LBE is probably no longer an appropriate name for the industry, as most venues now need to offer much more than just entertainment to succeed. Food and beverage is now often critical to success, frequently making up more than half of revenues.

But whatever you call it, the industry is entirely different today than in its early days of FECs. There are far more types of LBEs targeting different niche markets than the FEC concept of trying to be all things to all people. The leisure/entertainment industry is now vastly more competitive than just ten years ago. This includes not just all the LBEs but also all the digital entertainment options we now have to enjoy in our homes sitting in our comfy lounge chairs.

The evolution of the industry means that the approach and methodology we used for market and financial feasibility studies in the industry's early days is no longer valid today. Back then, feasibility studies didn't need to be as complicated and in-depth as today. Back then, we identified the primary and secondary market areas based on drivetimes, physical and psychological barriers, competition, and demographics (anyone who says you only need to do it with two concentric distance circles is dead wrong),. If the market was large enough and the site good, some standard formula FEC would work. Back then, there was little out-home LBE/FEC competition, and we didn't have all the at-home entertainment options we do today.

The market area for an LBE is a function of drivetimes, competition and physical and psychological barriers, not some distance concentric circles.

Of course, today, it's a whole new ball game with multiple-type LBEs and at-home entertainment options. Plus, the consumer is entirely different than they were back then and even more different now than they were prepandemic three years ago. Entertainment alone often is no longer attractive enough to get consumers out of their homes. The food and beverage component has often taken on an equal, sometimes primary, role. It's now all about the whole experience, especially how social it is, not just the entertainment attractions like in the early days. Social media has completely changed marketing. There are far more out-of-home leisure options in most sizable markets than anyone could hope to visit. Many restaurants, fed by the foodie trend, have now morphed into what could be considered a competitive form of entertainment. Festivals and live entertainment options have exploded.

The other thing that's different today is we live in times of accelerating change. As a result, the life cycle of many things is much shorter. This is especially true for many types of entertainment attractions. They have lost their repeat appeal. So, the business model you saw working just yesterday at an LBE might be outdated by the time you replicate it. So now, to plan an LBE, it's essential to understand and consider the megatrends underway shaping consumers' values and behaviors.

That is the reason our company spends substantial time and money identifying megatrends that are shaping the future of LBEs. Any LBE we start producing for our clients won't open until the future and will need to be financially sustainable for long enough after that to justify its cost. If you plan an LBE for what is working today, by the time it opens, many of those things may no longer be as attractive.

Today, when performing a feasibility study, with many markets already oversaturated, the first issue becomes whether there's still an opportunity to attract a target niche market to some concept that will have sustainable repeat appeal. If so, what does the LBE concept need to be?

As Jim Kessler noted in his insightful blog last month, "An out-of-home entertainment venue cannot be designed to cater to everyone. We have to pick a lane by choosing a core demographic. If we design our venues to delight a specific target market and do it better than all or at least most of the other venues in our area, then we are likely to own the market or at least own a big enough slice to create a very profitable business... Choosing a target market doesn't exclude anyone from visiting our venues, but in order to be more successful we have to choose. By picking a specific demographic, it makes it far easier to figure out how to design and develop the tools and offerings needed as well as the look and feel of our venues."

There is no longer some stock formula that can be used. Each LBE has to be a bespoke formula for its chosen target market. This requires examining more than what is considered traditional LBE and FEC centers, but also looking at all the out-of-home (OOH) entertainment and leisure options and the restaurant competition in the market area. It also requires understanding the megatrends impacting OOH leisure and where they are headed, as we are planning an LBE venue for the future.