Executive Summary
This report provides an in-depth analysis of the Competitive Social Entertainment sector, with a focus on recent trends, performance, and future outlook. The analysis includes insights into Topgolf’s potential spin-off, the driving factors behind the growth of this sector, and the impact of shifting consumer preferences. Additionally, it highlights the strategic position of EMERGING Fund as a leader in the technology-driven transformation of the restaurant and entertainment industries.
Topgolf: Strategic Considerations and Market Position
Overview
Topgolf, a leading player in the Competitive Social Entertainment sector, is under consideration for a spin-off by its parent company, Callaway. This move comes after weaker-than-expected same-venue sales and a downward revision of revenue and profit forecasts for the year.
Sector Performance
Despite the recent challenges faced by Topgolf, the Competitive Social Entertainment category remains robust, outperforming both casual and fine dining segments. The sector’s strength is not a reflection of Topgolf’s issues but rather the broader economic environment. Competitive Social Entertainment continues to be a bright spot, driving growth in consumer engagement.
Strategic Rationale for Spin-Off
Topgolf operates on lower margins compared to Callaway’s high-margin golf equipment segment, creating a conflict between the two business models. This disparity makes Topgolf a prime candidate for a spin-off, allowing each entity to focus on its core strengths and market opportunities.
The Rise of Competitive Social Entertainment
Definition and Concept
Competitive Social Entertainment venues combine traditional games or sports, such as table tennis and mini-golf, with a vibrant atmosphere that includes music, food, and drinks. These venues are designed to create shared experiences among guests, making them a popular choice for social outings.
Growth Drivers
The sector’s growth is fueled by consumers’ desire for shared, inclusive experiences. According to Graeme Smith, Managing Director at AlixPartners, experiential leisure is becoming more inclusive, catering to those who seek social interaction without the emphasis on alcohol consumption. Additionally, the shift from late-night outings to daytime activities has further boosted the popularity of these venues.
Performance Analysis
Family entertainment and experiential dining outperformed expectations in 2023, a trend that is expected to continue through 2024. Consumers increasingly favor these experiences over traditional dining, which has reached a saturation point and seen a decline in recent years. However, the rapid growth observed in 2022 and 2023 is beginning to stabilize, with 2024 marking the first year of comparability to pre-COVID levels.
Future Outlook: Expansion and Opportunities
Market Expansion
Social and Competitive Entertainment concepts are expanding rapidly, with over 600 new locations opened in North America since 2019. Much of this growth is driven by concepts that were relatively unknown five years ago, indicating a strong appetite for innovation in this space.
Strategic Confidence
As the demand for elevated out-of-home social experiences grows, many management teams in themed bars and experiential businesses are reassessing their expansion plans. The confidence in this sector is evident as more companies are returning to the expansion trail, capitalizing on the continued growth in experiential leisure.
The Right Concept
Several factors contribute to the success of a concept, but the most crucial variables include 1. Frequency, 2. Reach, 3. Check Average, and 4. Differentiation.
Frequency measures how often a guest visits a location within a year. For competitive social entertainment concepts, a frequency of 3+ visits annually is highly encouraging. For context, McDonald’s, one of the leaders in the restaurant industry, sees an average customer frequency of 44 visits per year.
Reach evaluates how far customers travel to access the concept. Typically, you would analyze the distance that encompasses 80% of your customer base. For example, if 80% of your customers come from within a 12-mile radius, that distance represents your reach.
Check Average reflects the average spend per customer. Generally, a higher check average indicates a premium or unique offering, which is often a positive sign.
Differentiation is increasingly vital as more competitors enter the market. Ideally, concepts feature proprietary technology or offer an experience that cannot be easily replicated.
About EMERGING Fund
EMERGING is a growth capital fund leading the technology-driven transformation in the restaurant and entertainment sectors. Our mission is to reshape the industry with the backing of top-tier investors, many of whom are influential entrepreneurs who have scaled their food & beverage companies to industry-leading valuations, including several surpassing the multi-billion dollar mark.
