Financing

Dave & Buster's believes better food will yield better sales

The eatertainment chain is working on upgrading its menu offerings to bolster food attachment. But it is also planning to raise gaming prices to improve profits.
Dave & Buster's
Dave & Buster's wants to improve its menu offerings. | Photo: Shutterstock.

Dave & Buster’s, the eatertainment chain, has been more entertainment and less eater of late. The company wants to change that.

Customers at the food-and-games chain over the years have ordered less food to go with their games. So the Dallas-based chain has been testing and implementing menu upgrades, with the third phase of that plan set to be implemented chain-wide on April 15.

Executives told analysts on Tuesday that they expect this menu will yield a mid-single-digit increase in food and beverage revenue per check, thanks to higher customer satisfaction.

“We see a tremendous opportunity to improve the overall quality and service model of our [food and beverage] offering,” CEO Chris Morris told analysts, according to a transcript on the financial services site AlphaSense.

“We know our company has lost attachment over the past decade. We believe the steps we are taking to improve our food offering and service model will go a long way towards recapturing our historically higher levels of attachment.”

The company's share price soared 11% in morning trading on Tuesday.

Dave & Buster’s is a pioneer in the eatertainment sector, which combines entertainment offerings with traditional restaurant fare. The chain features a sports bar with an adult-centric arcade.

That’s great for profitability. Games generate 90% gross profit and require far less labor than food.

Perhaps unsurprisingly, that’s been a major focus of the company over the years. About two-thirds of the chain’s revenues come from its entertainment division.

Yet the restaurant industry is competitive. And the sector in which Dave & Buster’s operates has been attracting a growing number of competitors that promise better food offerings. Upgrading food may be a competitive necessity.

There are signs that the company’s efforts on that front are working. Food and beverages represented 36.8% of the chain’s revenues in the quarter ended Feb. 4, up from 36.1% in the same period a year ago. For the full fiscal year, food and beverage as a percent of sales increased 40 basis points, to 34.9% of revenues.

“We’re simply being very smart about the products that we’re offering,” Morris said. “And doing it in a way to where the guest is selecting items that they see real value in and doing it in a way that also drives check.”

The higher food revenue came despite some weak sales in the quarter, largely due to weather. Same-store sales at Dave & Buster’s and its sister concept Main Event fell 7% in the period. The company said it was due to store closures and partial closures in January, when weather was difficult.

Regardless, profitability improved. EBITDA, or earnings before interest, taxes, depreciation and amortization, when adjusted for one-time events was 25.3% of revenue in the fourth quarter, up 9.7% compared with the same period a year ago. Since 2019, the company’s EBITDA margin has increased by 380 basis points.

Better food should help. So, too, could higher prices for games. While the company is focused on food, it is also testing price increases for those games. Dave & Buster’s has launched a variety of tests on pricing, and also added tiered pricing on its Power Card in February.

The stores with the highest price increases have reported the strongest sales, Morris said. “We have a lot of confidence that we’ve not only been able to pass through price in the right area, but do it in a way where the value proposition is held intact,” Morris said.

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