Opening an Arcade – Feasibility Study
Opening an Arcade - Feasibility Study
I am going to carry out a feasibility study into opening an arcade. The arcade will be named "Big Money" and will be located in Glengormley, which is a small village on the outskirts of Belfast.
Glengormley is a constantly growing and developing village with an expanding youthful population. An arcade with a variety of machines and snooker tables would be good for the area because it will create a small amount of employment, attract more people to Glengormley and give people somewhere to go.
My reasons for choosing this are because as a young person living in Glengormley I find that there is a lack of decent places especially arcades for people aged 16 to 50 to go. I am also very interested in fruit machines and enjoy playing them as well as playing snooker and pool so I think that by opening an arcade a lot of people could benefit from it.
For my investigation I intend to analyse both the practical and financial aspects of starting a new business. I will break my report up into three parts: market analysis, financial feasibility, final evaluation and conclusion.
Analysing the market is one of the most important aspects to consider when starting a new business. In my market analysis section, through effective market research I hope to establish that there is a demand for this type of business. I will use both primary and secondary research in doing this. In my primary research I will include questionnaires and market mapping. Under secondary research I will look at web sites suppliers as well as competitors. I will also visit the local competitors and try to organise interviews with the workers and customers. Effective market research will help to determine the potential of the idea.
I will then analyse the financial feasibility of the business. Firstly I will examine the start-up costs necessary for the arcade and also the sources to finance these costs. I will then create balance sheets and study the profitability of the business through methods such as cash flow forecasting and a profit and loss account among other methods.
In the final section I intend to evaluate the work I will have carried out during the project. My primary purpose of the investigation is to prove that an arcade is feasible for the area and could be managed profitably on a daily basis.
MARKETING OBJECTIVES
My main overall long-term goal of the business is to become profitable on a day to day basis.
My target market will be people aged over 16 and the principal short-term objective of the business is to obtain a market. The attraction of a business of this group I feel will be essential in the first year to break even. After these first goals have been achieved new targets will be set for the advancement of the business.
Maintaining market share is essential to accomplish the long-term aim of the arcade. For any chance of this machines will have to be updated regularly to adapt to changing consumer tastes and fashions. The greatest objective is to maximise profits Another objective would be to seek to increase the arcade's market share if not dominate the market.
An ongoing target of the business is to improve the image of the arcade and how the public perceives it. An image of a well-managed established arcade that satisfies the needs of its customers fully would be preferable.
MARKET RESEARCH
Market research is very beneficial to my business, as I can analyse the market place within Glengormley. This will allow me to see the size of the market, available market share and the competitors located within the market place. I can also use market research to identify particular segments within the market place that other firms have overlooked or not perceived. I can use market research to analyse future trends within the market place, perceive times of recession and anticipate changes within the market that could affect my business. Its most important advantage is that it will allow me to build up a consumer file, discover their likes and dislikes, their needs and whom my firm needs to target most to be successful.
In using market research I will also be able to analyse the potential strengths and weaknesses of my competitors, and in doing so set up benchmarking targets to which the performance of my business can be measured.
Primary research or field research involves collecting data that does not already exist. I will be sending letters and e-mails too different companies, as well as conducting a questionnaire to obtain information. I intend to have mostly closed questions (quantitative). However, some questions will be left open (qualitative) to allow the individual to give their opinion. I will attempt to take a random sample of the target market. Another advantage to questionnaires is that the are quite cheap. Other methods of primary research include personal interviews and postal surveys etc. These however are likely to be expensive and time consuming.
Secondary research, or desk research, involves using data that already exists. This could include market intelligence reports retail audits among various other things. I will be viewing web sites of various arcades and suppliers as well as visiting some local arcades to help gather data.
MARKETING IMAGE
In recent years firms have started to appreciate how important their image is, many firms have also seen the benefit of showing responsibility to the people involved in the business activity, such as customers, employees and suppliers. This has happened because:
* Legislation has been passed which adheres to consumer considerations.
* There have been changes in social attitudes.
* Competitive pressure has forced businesses to take into account the needs of potential stakeholders.
In order to promote the image of my business I must use the necessary and most effective advertising, to promote both what the arcade provides and also show how it is competitively better than other rival firms. The image that I would like to be promoted of my arcade is one of high quality at competitively low prices. As well as providing a friendly service to build up a high customer loyalty.
In order to achieve this desired image my advertising must be effective, and this can be achieved by primarily above the line promotions. Although it is more costly, it is more effective and incorporates such methods as television, radio, newspapers and magazines. I believe the best method would be weekly advertisements in the local newspapers with special offers and also advertisement on a local radio station. I will also distribute fliers in the first few weeks of the opening of the store.
The main image I want to pursue is of a friendly store that takes most ...
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In order to achieve this desired image my advertising must be effective, and this can be achieved by primarily above the line promotions. Although it is more costly, it is more effective and incorporates such methods as television, radio, newspapers and magazines. I believe the best method would be weekly advertisements in the local newspapers with special offers and also advertisement on a local radio station. I will also distribute fliers in the first few weeks of the opening of the store.
The main image I want to pursue is of a friendly store that takes most adherently the needs and views of the customer; this will allow the arcade to build up good customer relations and a good reputation within the community.
I also want the arcade to project an aspect of modernisation, and I hope to achieve this by having up to date machines an on-line website. Through the website members will be able to access hints for most of the fruit machines and there will be downloadable games as well as prizes and special offers.
MARKETING MIX
The marketing mix refers to those elements of the firms marketing strategy which are designed to meet the needs of the consumer, and the necessities of the business.
The marketing mix falls into four main parts: Product, Price, Promotion and Place.
When producing the marketing mix I will need to consider the following factors:
* The types and number of services offered;
* The market I am selling into. i.e. my target market;
* The degree of competition;
* The marketing mix of my competitors.
Product: A product is something that is offered to the market. In the arcade my product is the machines and snooker tables. In my arcade I will have 10 poker machines. I will also have 50 fruit machines, twenty 20p play-£15 jackpot, twenty 5p play-£5 jackpot, eight 30p play-£15 jackpot and two 25p play-£200 jackpot. All these fruit machines will be replaced with up to date and new machines every few months. I will have two skill win prize machines: 'Who wants to be a millionaire' and 'The Weakest Link.' There will be three twin sit down racing games and ten arcade games that will be changed on a regular basis. I will also have 6 full-size snooker/pool tables, 6 small coin operated pool tables and 2 air hockey tables.
Promotion: This is an important aspect of a businesses marketing strategy. It will allow me to present the right image, what the business offers and to show the consumers that my business is competitively better. It will also promote the business as a reputable, recognised name and strengthen its position in the market. There are two types of promotion: above the line and below the line. Above the line is more costly and you have less direct control, but it is more effective, reaches a larger consumer audience and includes such methods as radio, television and newspapers. While below the line promotion is less expensive, you have more direct control over the area you wish to promote to, and it includes fliers and direct mail advertising. I have decided that it would be beneficial to use elements of both types of promotion. I will place weekly adds in the Belfast Telegraph, have a small advertisement on the local radio station 'Cool FM' as well as distributing fliers through out Glengormley.
Price: This plays critical part in marketing activity. An incorrect pricing policy could reduce the number of customers and lose revenue. The poker and fruit machines already have set prices but can be changed if necessary i.e. 30p play-£15 jackpot. The pool tables, air hockey and video games etc. will match competitors prices and the full size snooker/pool tables will be slightly cheaper than competitors prices.
Place: This is the term given to the distribution of the product. My outlet of distribution is an amusement arcade building, situated in the centre of Glengormley. It needs to be safe and kept clean. An attractive sign could further attract new customers.
LOCATION AND PROPERTY
Choice of location is one of the most important long-term decisions owners have to make. There are a number of factors that have to be taken into account when choosing a suitable location for the business.
Size of premises: A large amusement arcade is necessary to offer more machines than the local competition. Therefore a large building is inevitable.
Street visibility: In order to attract new customers a building that is easily visible and accessible could be beneficial, preferably overlooking the main road through Glengormley.
Parking facilities: A quite large car park would be useful for the convenience of those customers that drive. It could also be of use to members of staff.
I have decided to locate my business in a big disused building in the centre of glengormley, it is easy to see, easily accessible and is across the road from Mc Donald's and the Movie House . I will be renting this building for £800 a month.
MARKET MAPPING
Sole Trader
Franchise
Private Limited Company: Ltd
Public Limited Company: plc
Movie House
Yes
Sportsbowl
Yes
Portland Arcade
Yes
Classic (Snooker Hall)
Yes
Mc Donalds
Yes
Pizza Hut
Yes
KFC
Yes
Papas Kitchen
Yes
Tescos
Yes
Bakery
Yes
Off Licence
Yes
Maxol Garage
Yes
Shell Garage
Yes
Pub
Yes
Post Office
Yes
Moghul
Yes
COMPETITORS ANALYSIS
The Movie House: This is quite a big cinema with 6 screens and is an appealing option to all members of the public. It is most popular during the showing of a high profile new release and tends to lose business when the films become outdated. Although our customer bases are not necessarily the same, at certain times this option could possible attract my customers. It also has advantages such as advertising on the radio and in local newspapers, and it is the only cinema in Glengormley.
The Sportsbowl: The facilities here include snooker, pool, video games, air hockey and about 25 fruit machines. Its main attraction however is ten-pin bowling. This is a well-established private limited company and will definitely be the most difficult to compete against. The Sportsbowl also has advertising campaigns on the radio and in local newspapers. However, the facilities inside especially the snooker and pool are very expensive and because of the high prices are less appealing to younger people.
The Classic: This is quite a small snooker hall with quite a few full size snooker tables which are a bit big for younger people and more appealing to adults that are quite good at snooker. It only has one pool table, this means that people have to often queue up and wait to get a game of pool. The Classic also has 6 fruit machines on the premises but they are all 25p play and are restricted to over 18's. This business has the advantage of a membership scheme that commits its loyal customers and it offers quite low rates for playing snooker. I don't really see this business as a great threat as it has little promotion and is hard to see from the centre of Glengormley.
Portland Arcade: This is a small gambling arcade for over 16's that has 20 fruit machines and two pool tables. It also has two televisions both with Sky Digital for its customers. It has the advantage of being on the market before me creating a regular group of loyal customers. However, it has a bad reputation and it is a small building, which is not on the main strip of Glengormley. It may create a little competition.
Although there is a range of competition, I hope that Big Money will be more appealing than its competitors because it will be newer and more up to date with a wider variety of facilities and machines.
SAMPLING METHODS
To carry out a survey of every single potential customer would be impractical, time consuming and costly. Therefore only a sample of the population is needed to collect enough data to establish a clear idea of consumer views. The two main concerns of sampling are to choose the right people and the right number for the questionnaire. There are three main types of sampling.
Random sample: This method, selected at random, gives everyone in the area an equal chance of being selected. Its main advantage is that bias cannot be introduced when choosing the sample. However, unfortunately this technique assumes that all members of the group are homogenous, which is not always the case. Also it is not a representative sample and can be quite costly and time consuming.
Stratified random sample: Researchers prefer this process because it makes the random sample a more accurate portrayal of the whole group. The sample is divided into segments or strata and only those persons with certain characteristics are required.
Quota sampling: This is my preferred method. I would like an equal number of men and women to participate in the questionnaire. Once the target from each sex is reached no more persons from that group can be chosen. I am able to stand in Glengormley and interview whoever comes along as long as I achieve the correct quota. This technique is cheaper to operate than the other methods. Market research companies usually use this technique. The criticisms of this method are that the results are not statistically representative of the population and are not randomly chosen.
TEST QUESTIONNAIRE
Q1. What age are you?
____________________________
Q2. How often would you go to an arcade?
___________________________
Q3. What do you think of the current arcade facilities available in Glengormley?
___________________________________
Q4. What facilities would you like to see within the arcade?
________________________________
Q5. Would you prefer if there were a membership scheme offered that gave members special offers and discounts? (Please circle appropriate answer)
YES NO
(If 'NO' please go to question 8)
Q6. How much would you be willing to pay for a year's membership?
______________________________
Q7. At what times would you prefer that the arcade was open?
_______________________________
QUESTIONNAIRE
I am currently an A- level student studying business studies at St. Malachy's College. And for my coursework I am carrying out a feasibility study into opening an arcade in Glengormley. It would be very helpful if you could please take the time to fill in this questionnaire, thankyou.
Q1. What age category do you fall into? (Please circle the correct answer)
Under 16 16 to 25 26 to 40 Over 40
Q2. How often would you go to an arcade? (Please circle the correct answer)
Daily Weekly Monthly Never
Q3. What do you think of the current arcade facilities available in Glengormley? (Please circle the correct answer)
Very Good Good Reasonable Bad
Q4. If a new arcade were opened in the centre of Glengormley would you be interested in using it? (Please circle the correct answer)
YES NO
Q5. What facilities would you like to see within the arcade? (Please circle the appropriate answer(s))
Snooker/Pool tables Televisions Fruit Machines Poker Machines Video Games Air Hockey Table Tennis Tuck Shop
Q6. Would you prefer if there were a membership scheme offered that gave members special offers and discounts? (Please circle appropriate answer)
YES NO
(If 'NO' please go to question 8)
Q7. How much would you be willing to pay for a year's membership? (Please circle appropriate answer)
£0> £2 £2>£5 £5>£8 Over £8
Q8. At what times would you prefer that the arcade was open? (Please circle appropriate answer)
9am to 9pm 11am to 9pm 9am to 12am 12pm to 12am
Thankyou for taking the time to fill in this questionnaire.
QUESTIONNAIRE RESULTS
LEGAL STRUCTURE
To start up an arcade I will firstly have to meet several laegal requirements. I need a change of use permission from DoE planning, a fire certificate from the fire brigade, building control approvals from the local council and gaming permits from customs and excise.
I also have the choice of either setting up the business as a sole trader or a partnership. A sole trader is the simplest and most common form of private sector business.
There are many benefits to both. The benefits to a partnership include specialisation, meaning partners do the jobs they are best at. Partners share the workload and exchange ideas and opinions. Initial capital outlay costs can be shared. This is the most appealing aspect because it usually means that the business is more financially secure. Less money has to be borrowed, thus the business is less highly geared. Liability for the business is shared among partners. There are also some limitations to this structure. All profits have to be shared amongst the owners. Partners may have differences of opinion and disagree on the running of the business. Any descision made by one partner on behalf of the company is legally binding.
I think that I am better suited as a sole trader, mainly because I like to work alone and make my own descisions. I will have complete control of the daily running of the business with no interference. Another advantage is that I would get to keep all after tax profit profit myself. The hours I work will also be flexible to suit myself. Disadvantages, however, include unlimited liability and the difficulty in raising finances. The business will be more highly geared than it would be under a partnership.
MONTHLY COSTS
WAGES: I intend to employ a total of 8 workers. 2 Full time employees that will work 40 hours each per week and 6 part-time workers that will work roughly 14 hours each per week. I will be paying the full time employees £6.00 per hour and the part time employees £4.50 per hour.
2 Full-time employees: £6.00 £480.00
x 40(hrs) x 52(weeks)
£240.00 £24960.00
x 2(workers) / 12(months)
£480.00 per week £2080.00 per month
6 Part-time employees: £4.50 £378.00
x 14(hrs) x 52
£63.00 £19656.00
x 6(workers) / 12
£378.00 per week £1638.00 per month
I am also taking my own wages into account in my monthly costs, which will be £3,500 per month.
£2080.00
£1638.00
+ £3500.00
£7218.00
Therefore my monthly wage bill will be recorded in my accounts as £7218.00
RENT OF MACHINES: I will have 10 poker machines. I will also have 50 fruit machines, twenty 20p play-£15 jackpot, twenty 5p play-£5 jackpot, eight 30p play-£15 jackpot and two 25p play-£200 jackpot. I will be buying the poker machines for £1000 each and I have decided to rent the fruit machines and arcade games so they can be easily changed every few months so that people will not get bored playing the same machines all the time. The rental of the twenty 20p play machines will be £26 a week per machine, the twenty 5p play machines will be £18 a week per machine, the eight 30p play machines will be £28 a week per machine and the two 25p play machines will be £30 a week per machine. The two skill win prize machines will cost £20 a week, each. The ten arcade games will cost £12 a week per machine.
20p play-£15 Jackpot: £26.00
x 20(machines)
£520.00
x 52(weeks)
£27040.00
/ 12
£2253.33 per month
5p play-£5 Jackpot: £18.00
x 20(machines)
£360.00
x 52(weeks)
£18720.00
/ 12
£1560.00 per month
30p play-£15 Jackpot: £28.00
x 8(machines)
£224.00
x 52(weeks)
£11648.00
/ 12
£970.66 per month
25p play-£250 Jackpot: £30.00
x 2(machines)
£60.00
x 52(weeks)
£3120.00
/ 12
£260.00 per month
Skill win prize machines: £20.00
x 2(machines)
£40.00
x 52(weeks)
£2080.00
/ 12
£173.33 per month
Arcade games: £12.00
x 10(machines)
£120.00
x 52(weeks)
£6240.00
/ 12
£520.00 per month
£2253.33
£1560.00
£970.66
£260.00
£173.33
+ £520.00
£5737.32
Therefore the monthly bill for machine rental will be recorded in my accounts as £5737.32
I will also have to pay £850 rent, £1000 for electricity, £100 for advertising and a £30 phone bill each month.
Therefore my total monthly costs are £7218.00 + £5737.32 + £850 + £1000 + £100 + £25 = £14930.00 per month
OTHER COSTS
MACHINES: 10 poker machines at £1000 each = £10,000 2 twin seater 'Sega rally' machines at £4295 each = £8590
twin seater 'Ridge racer' machine at £1995
£10,000 + £8590 + £1995 = £20,585
SNOOKER/POOL TABLES:
4 coin operated pool tables at £995 each = £3980
2 coin operated American pool tables at £1295 = £2590
6 12ft Snooker tables at £3915 each = £23,490
£3980 + £2590 + £23,490 = £30,060
I will also be purchasing 2 Air hockey tables at £1295 each = £2590 and I will be paying £20,000 for the refurbishment of the building, this will include decorating and furniture.
£20585 + £30060 + £2590 + £20000 = £73235
These costs add up to £73235.
My start up costs for the first month will be: £14930.00
+ £73235.00
£88165.00
I will then have to pay £14930.00 each month, after the first month, which I have included in my start up costs. This comes to a total of £164230 for the first year and £179160 for every year after that. My total costs for the first year are £88165 + 164230 = £252395.00.
MONTHLY INCOME
MACHINES: I have done some research by visiting some arcades and going on the internet and I have been able to roughly work out how much each mahine makes per day. These are the figures that I will be using for my accouts: 5p machines with a £5 jackpot make £15 each a day; 20p machines with a £15 jackpot make £35 each a day; 25p play machines with a £250 jackpot make £70 each a day and 30p play machines with a £15 jackpot make £40 each a day. The poker machines are 10p a play and make £25 each a day. The skill win prize machines are £1 a play with a £40 jackpot and make £10 each a day. The 'Sega rally' machines are played 30 times each at 50p per play and the 'Ridge racer' machine is played 20 times a day at 50p per play. The 10 arcade games are 20p per play and make £5 each a day.
5p play-£5 Jackpot: £15.00 £2100.00
x 20(machines) x 52(weeks)
£300.00 £109,200.00 per year
x 7(days) / 12
£2100.00 per week £9100.00 per month
20p play-£15 Jackpot: £35.00 £4900.00
x 20(machines) x 52(weeks)
£700.00 £254,800.00 per year
x 7(days) / 12
£4900.00 per week £21233.33 per month
25p play-£250 Jackpot: £70.00 £980.00
x 2 (machines) x 52(weeks)
£140.00 £50960.00 per year
x 7(days) / 12
£980.00 per week £4246.67 per month
30p play-£15 Jackpot: £40.00 £2240.00
x 8(machines) x 52(weeks)
£320.00 £116,480.00 per year
x 7(days) / 12
£2240.00 per week £9706.67 per month
Poker machines: £25.00 £1750.00
x 10(machines) x 52(weeks)
£250.00 £91000.00 per year
x 7(days) / 12
£1750.00 per week £7583.33 per month
Skill win prize: £10.00 £140.00
x 2(machines) 00 x 52(weeks)
£20.00 £7280.00 per year
x 7(days) / 12
£140.00 per week £606.67 per month
Sega Rally: £0.50 £210.00
x 30(plays) x 52(weeks)
£15.00 £10920.00 per year
x 2(machines) / 12
£30.00 £910.00 per month
x 7(days)
£210.00 per week
Ridge racer: £0.50 £140.00
x 20(plays) x 52(weeks)
£10.00 £7280.00 per year
x 2(machines) / 12
£20.00 £606.66 per month
x 7(days)
£140.00 per week
Arcade games: £5.00 £350.00
x 10(machines) x 52(weeks)
£50.00 £18200.00 per year
x 7(days) / 12
£350.00 per week £1516.67 per month
The total income from the machines is: £9100 + £21233 + £4246.67 + £9706.67 + £7583.33 + 606.67 + £910 + £606.66 + £1516.67 = £55509.67 per month.
SNOOKER/POOL TABLES: I have also done some research to work out how much money I will make from the snooker and pool tables. I will be pricing the 12 ft snooker tables at £3.50 per hour, this is cheaper than my competitors, the sportsbowl and the classic, and this should help me get more customers. I have worked out that each table will be used 7 hours a day Monday to Friday and 9 hours a day on Saturdays and Sundays, this is a total of 53 hours a week per table. The coin operated pool tables will be 50p a game, I think that this is a reasonable price, and it is the same as my local competitors. I have worked out that there will be 30 games played on each table Monday to Friday and 50 games played on each table on Saturdays and Sundays, this is a total of 250 games played on each table a week.
2ft snooker tables: £3.50 £1113.00
x 6(tables) x 52(weeks)
£21.00 £57876.00 per year
x 53(hours) / 12
£1113.00 per week £4823.00 per month
Coin operated pool tables: £0.50 £750.00
x 6(tables) x 52(weeks)
£3.00 £39000.00 per year
x 250(games) / 12
£750.00 per week £3250.00 per month
AIR HOCKEY TABLES: The air hockey will cost 50p a game and I have worked out that there will be 15 games played per table a day, this is a total of 105 games played per table a week.
Air hockey: £0.50 £105.00
x 2(tables) x 52(weeks)
£1.00 £5460.00 per year
x 105(games) / 12
£105.00 per week £455.00 per month
The total income from the snooker and pool tables, and the air hockey is: £4823 + £3250 + £455 = £8528.00 per month
Therefore my total monthly income is £55509.67 + £8528.00 = 64037.67. I have also estimated that I will make an extra £2000 in each of the summer months of July and August.
START UP COSTS
These are the estimated start up costs for the first month:
Personal Finance £40000.00
Bank Loan £50000.00
Rent of premises: £850.00
Refurbishment: £20000.00
Advertising: £100.00
Pool Tables: £6570.00
2ft Snooker tables: £23490.00
Twin Racing games: £10585.00
Poker machines: £10000.00
Fruit machines: £5043.33
Skill Machines: £173.33
Arcade games: £520.00
Air hockey tables: £2590.00
Wages: £7218.00
Electricity: £1000.00
Phone bill: £30.00
Total costs: £88169.66
SOUCES OF FINANCE
In order to start up this business I will need quite a lot of money. I have £40,000 of my own money and I will be getting a bank loan of £50,000 which has to be paid back at a fixed interest rate of 9.9% over 5 years.
9.9% of £50,000 = £4950
£50,000 + £4950 = £54950.00 total amount paid;
£54950.00 / 5 = £10990.00 per year;
£10990 / 12 = £915.85 per month.
Candidate No. 5138 1 Centre No. 71149
