Tapping into a flourishing area of the leisure economy
As is obvious to anyone who grew up visiting arcades and bowling alleys, SBE is not a new idea but rather a mainstay of mid-to-late-20th-century leisure. Much of the category has been long run by independent operators who (with obvious exceptions such as theme parks) were focused mainly on satisfactory delivery of the central offering rather than commercial development. However, this began to change in the decade preceding COVID-19, when entrepreneurs applied established disciplines from restaurants, retail and other service industries to build more engaging, revenue-generating propositions, and rolled them out across corporate networks with consistent service delivery.
Since then, operators have raised food and beverage standards and added new paid activities, broadening the footprint of these locations within consumer leisure time and improving accessibility. Creating birthday packages, corporate products and other segment-specific offers has broadened the category’s appeal. Elevated service and safety standards have improved the consumer experience, while the use of precision marketing efforts has boosted traffic. These developments dovetail nicely with the growth of the experience economy as consumers have shifted spend from goods to memorable activities.
Leading operators, for example, have taken a collection of enduring, beloved yet basic activities like go-karts, mini golf and karaoke and updated them to polished category-killers that deliver much higher yields alongside impressive customer satisfaction scores. These developments have also enabled newer formats, such as darts and indoor driving ranges, to develop in a similar way. The broader appeal of these models has provided the category with opportunity-laden expansion and has given investors more attractive, investable growth assets with global potential.
Smaller independent operators can sell to larger groups or adapt to the changing landscape. The long-tenured sole traders that do not adapt, however, are at risk of absorption or displacement.
With the rise of site-based experience popularity has come new formats like activity bars (think mini golf, darts, arcade or bowling, combined with a bar and under one roof), family entertainment centers (soft-play, trampoline parks, indoor rock climbing, etc.) and tech-enabled offerings (like laser tag, virtual reality rooms and indoor skydiving). While some of these new formats may ultimately lack durability due to shorter-term appeal (e.g., axe throwing), limited variability (e.g., indoor skydiving) or other factors, it’s clear that the long-term consumer spending shift from material goods to experiences will ensure this category remains robust.
While COVID-19 brought many SBE businesses to a temporary halt, we have seen them prosper again during the recovery period as consumers pivot back to out-of-home social experiences (see Figure 3).
