Dave & Buster'S, Inc. Business Information, Profile, and History

Company Perspectives:

Basically, a concept that was created in 1982 and has continually evolved is still best described with the same line we've always used--"There's no place quite like it." From our hand-crafted World Class Pocket Billiard Tables to the vast array of games in our Million Dollar Midway, D & B was created to provide one of the most unique entertainment outings you'll ever experience. And to perfectly complement the fun you'll also discover an outstanding variety of menu offerings and beverages.

History of Dave & Buster'S, Inc.

Dave & Buster's, Inc. is a nationwide chain of huge, adult-oriented complexes that combine restaurants and bars with dinner theater and games ranging from pocket billiards and shuffleboard to high-tech arcade games to simulated golf and virtual reality space combat. At the end of 1999, the company operated 23 locations in the United States. There were also two Dave & Buster restaurants in the United Kingdom and one in Taiwan, operated under licensing agreements.

Origins in Little Rock: Late 1970s

The story of Dave & Buster's was the story of David Corriveau and James "Buster" Corley and started in Little Rock, Arkansas. Corriveau, whose resumé included selling snow cones and cars, dealing blackjack in Las Vegas, and waiting tables, started a restaurant called Cash McCools in 1975. He sold that booming business a year later and in 1977 opened Slick Willy's World of Entertainment. The site for this 10,000-square-foot billiard and game house was in Little Rock's renovated train station.

Meanwhile, Corley had been working his way up the management ladder with T.G.I.Friday's, where he started as a waiter in 1972. By the mid-1970s he was in charge of opening new units, and he looked at the train station as a possible location. But he had always wanted to have his own place. He approached Corriveau and others for backing and opened his restaurant, Buster's, right next to Slick Willy's in the train station. The two men became good friends and soon noticed that their customers moved back and forth between their two establishments. They began thinking what might happen if they combined Dave's games and Buster's food under one roof and how big that roof might be. They spent about a year developing a rough design, then Corriveau sold Slick Willy's to raise seed money and they went looking for a location.

Developing a Concept: 1982-88

Carriveau and Corley moved to Dallas, and in December 1982 they opened the first Dave & Buster's, in a former warehouse. They spent $3 million to make the 35,000-square-foot space what they wanted and it was a hit from the beginning. The place was packed with people playing pool, cashless blackjack, and pinball or other arcade games, while drinking and eating (burgers, steaks, finger food, salads).

Over the next several years the partners refined their "fun and food" concept, expanding the site in the process with the addition of a nine-hole simulated golf range. In 1988, they opened a second location, also in Dallas, the same size as the first.

Dave & Buster's was aimed at adults. Games rented by the hour. Customers played billiards on $15,000 tables made of handcrafted mahogany and rosewood, and the shuffleboard tables met tournament quality specifications. Full menu and bar service was available in the play areas, which were spread among several dining rooms within the complex. There was also the Million Dollar Midway, with electronic, skill, and sports-themed arcade games.

A New Majority Owner: 1989-94

Now that they had the concept established, the partners were ready to open more units. But for that, they needed money. In the winter of 1989, Carriveau and Corley entered into a deal with Edison Brothers Stores, Inc., a $1 billion conglomerate operating some 2,700 retail stores, primarily in the shoe and apparel markets. St. Louis-based Edison Brothers was developing an entertainment division and invested sufficient capital in Dave & Buster's to end up owning about 80 percent of the company. Carriveau and Corley retained ownership of the rest.

With the financial backing available from Edison Brothers, the company began building. In 1991, Dave & Buster's opened its third location, in Houston. The new complex was 53,000 square feet, nearly 20,000 square feet larger than the first two. The following year, in 1992, Dave & Buster's opened in Atlanta. Two years later the company moved north, opening a 70,000-square-foot complex in Philadelphia.

Also in 1994, the company dodged a potential legal catastrophe in Texas. A State District judge found that under a new state gambling law arcade customers could accumulate their winnings (such as coupons at Dave & Buster's) from the arcade games they played and swap them for prizes worth more than $5.

A Spin-Off and Expansion: 1995-96

Each new Dave & Buster's cost about $10 million to build and furnish, and this was proving to be a drain on Edison Brothers. In 1995, the majority owner spun off its interest in Dave & Buster's to its shareholders. Following the spin-off, Dave & Buster's went public, selling nearly $30 million in stock on the NASDAQ under the symbol DANB. Andy Newman, who resigned as CEO of Edison Brothers, became chairman of the new company, with Corriveau and Corley as co-chief executives.

During the summer of 1995, Dave & Buster's announced that it had signed a licensing agreement with Bass plc to operate up to seven units in the United Kingdom. In addition to being the United Kingdom's largest brewer of beers, Bass operated Holiday Inn hotels, 4,000 pubs, and a network of bingo clubs, betting shops, and ten pin bowling centers throughout the country. Also that year, Dave & Buster's opened its first complex in Chicago, bringing the number of locations in the United States to six. Meanwhile, by the end of the year, Edison Brothers had filed for bankruptcy.

With money available from the Edison buyout, the stock offering, and a $28 million secondary offering late in the year, expansion picked up steam. Corriveau and Corbey opened three locations (Hollywood, Florida; Bethesda, Maryland; and a second unit in Chicago) in 1996, with each unit expected to generate annual sales of between $12 to $15 million. The company also entered a joint venture with Iwerks Entertainment Inc. to develop and operate Iwerks 16-seat Turbo RideTheatres at several Dave & Buster's locations. Customers would be able to watch major films while sitting in seats synchronized to the big-screen action.

The Eatertainment Niche in the Mid-1990s

But Dave & Buster's was not the only company taking advantage of the American public's hunger for fun. In addition to existing theme chains such as Hard Rock Cafe, Planet Hollywood, and Rainforest Cafe, newcomers were planning restaurant prototypes such as the $11 million Laugh Factory Funhouse with comedy memorabilia and databases of jokes, Steven Spielberg's submarine-themed Dive!, music theme eateries featuring country music or Motown, and various combinations of video arcades and virtual or real games. By mid-1996, analysts were beginning to predict oversaturation in the "eatertainment" niche and eventual consolidation.

The exception to their less than cheery forecast was Dave & Buster's, whose 1995 profits were up almost 27 percent. Although the company had a good reputation for its casual dining food, the winning factor was its amusements, which accounted for more than 44 percent of sales. Recognizing that, Dave & Buster's constantly updated its games. "We can give [game makers] a certain amount of exposure and have a kind of most-favored national status with them," a company spokesman told Investor's Business Daily in 1996, adding "We're one of the first places to get new machines."

Thus the possibility of too many giant complexes going after customers' leisure dollars did not faze Corley and Corriveau. "We were ten years ahead of `eatertainment'," Corriveau told Restaurant Hospitality in 1998. "Our average customer visits ten times a year. That sets us apart from `eatertainment,' which looks for tourists to give them a quick visit and a T-shirt sale. We set out to firmly establish and nourish a local clientele at each location."

Continued Growth: 1997-98

The year 1997 saw more big names, including Disney, Spielberg, and Sony, entering the eatertainment niche and following Dave & Buster's model of giant complexes offering food and games. Meanwhile, Dave & Buster's kept opening units--four units in 1997 (in Ontario, Canada; Birmingham, United Kingdom; Cincinnati, Ohio; and Denver, Colorado). Restaurant locations were usually in metropolitan areas with a population of at least one million within a ten-mile radius, in high-profile sites close to shopping, offices, tourist attractions, and residential areas. Often the units were located in megamalls. Opening costs now averaged about $11.5 million, of which 65 percent was related to the site's games areas.

To keep customers playing, the company introduced the Dave & Buster's Power Card to activate its arcade games. This was a declining balance card that could be recharged as many times as wanted at conveniently located "power stations" and that helped games revenue increase by ten percent.

In 1998, the company opened five more complexes, bringing its total U.S. locations to 17. One of these, in Columbus, Ohio, was in the company's new "intermediate" format of 40,000 square feet aimed at metropolitan areas of less than one million people. The company also created an even smaller format, which at 30,000 to 35,000 square feet was about the size of the original Dave & Buster's. This model would be built in smaller markets, with the first expected to be completed in 1999. Bass plc had two locations operating, in Birmingham and Bristol, England, and Dave & Buster's signed additional licensing agreements, covering the Pacific Rim (Taiwan, Hong Kong, and China), western Europe (Austria, Germany, and Switzerland) and Canada. During the year, Dave & Buster's settled litigation related to the 1995 spin-off from Edison Brothers Stores, agreeing to pay $2.244 million against all claims.

While its competitors went after families and younger adults, Dave and Buster's continued to focus on the 24 to 44 age group. The company had always attracted some corporate business, primarily private parties. In 1998 it became more proactive in this area, instituting a "Big on Business" marketing campaign to increase sales from events ranging from conferences to product intros to office picnics. It also introduced the "Company Challenge," a team-building exercise complete with referees, team shirts, scoresheets, and awards. At the end of the year, about 13 percent of the company's business was from corporate-sponsored parties. That year amusement revenue topped 50 percent of sales, which increased 42 percent over 1997.

Dave & Buster's obviously had a popular concept. Company revenues had grown significantly each year. In fiscal 1996, with nine locations, revenues reached $88.8 million with $6.3 million in profits. In fiscal 1997, with three more sites, revenues rose to $128.5 million with $8.9 million in profits. In fiscal 1998, with 17 complexes, the company took in $182.3 million and profits of $13.6 million. Whereas the average Dave & Buster's location had a volume of $10.7 million in 1995, by 1998 the figure had moved up to $13.2 million, and sales for existing sites increased six percent in 1998.

It's the Food: 1999

During 1999, the company moved to the New York Stock Exchange, taking the stock symbol DNB, and announced plans to double the number of locations in the United States (to 40) by 2002. In December, the company opened the first Dave & Buster's in Asia, in Taipei, Taiwan, and its 23rd location in the United States, in Rhode Island.

However, 1999 was a bad year for theme restaurants. Planet Hollywood filed for bankruptcy and Landry's Seafood Restaurants bought Rainforest Cafe after comparable store sales dropped ten percent. At Dave & Buster's, same-store sales dropped 2.2 percent and in August 1999 lower-than-expected profits caused the company's stock to drop 45 percent in one day.

"For the most part, theme restaurants have paid very little attention to food," Michael Beyard of the Urban Land Institute told the Denver Post. "The prevailing thought has been that it's enough to provide entertainment that is fun and visually stimulating. But without the basics, restaurants are going to fail no matter how good the theme is," he noted.

Food was only part of the picture. People also had to keep coming back. While many of the theme and eatertainment restaurants had people flocking to their doors when they opened, if customers came only once to "check it out," or as out-of-town tourists, a location would not survive. Dave and Buster's prided itself on its food, the huge turnouts at new locations, and the repeat business their older complexes did.

After the third quarter, with a 92 percent drop in earnings and same-store sales down 6.2 percent, the company announced that it would cut back on its expansion plans and increase unit-level support. It also increased its marketing and advertising budget by $4 million, hoping to build sales that way rather than by expansion and "word of mouth." As Corriveau told Nation's Restaurant News in January 2000, "Our stores enjoy a great honeymoon period when they open, but after that&mdashound 18 months to two years--they need continued attention."

2000 to the Present

In December 1999, British multibillionaire Joseph Lewis bought 1.1 million Dave & Buster's shares through his Mandarin, Inc. This brought Mandarin's ownership to 10.6 percent of the company. A month later, Texas investor Lacy Harber increased his holdings to 9.8 percent of Dave & Buster's. The company board as a whole owned about ten percent, as did Dresdner RCM Global Investors of San Francisco, the chain's biggest institutional investor.

"The people at Dave & Buster's have to be considering their own options right now, and I would think that means they have to be looking at a management-led buyout as one of those options," Bill Baldwin of Dallas investment firm Baldwin Anthony McIntyre & Boles said in the same Nation's Restaurant News article. Dave and Buster's had been around for nearly 18 years, and its concept was popular from the very beginning, as was the company's profitability. However, aside from adding new games and rides, the concept had not changed much since the first complex in Dallas. As one analyst told Nation's Restaurant News, "They might need to update and become more contemporary and hip with today rather than 1985."

Principal Competitors: Planet Hollywood International Inc.; Hard Rock Café International, Inc.

Chronology

• Key Dates:

• 1982: Dave Corriveau and "Buster" Corley open Dave & Buster's in Dallas.
• 1988: Second location opens.
• 1989: Edison Brothers Stores, Inc. acquires majority interest in company.
• 1995: Edison Brothers spins off Dave & Buster's and new company goes public.
• 1996: Dave & Buster's accelerates expansion.
• 1998: Company signs licensing agreement for Taiwan, Hong Kong, and China.
• 1999: Company moves to New York Stock Exchange.