Group project of OM

Dave and Buster’s, an acclaimed sports restaurant and amusement arcade, is currently expanding their brand across the United States and recently added their 160th location in Carlsbad, California in January of 2017. Specifically, our team will be focusing on previous and current sale trends to determine a sales forecast for the new Carlsbad location. With our findings we will be able to determine the amount of sales needed for the store to maintain profitability in the San Diego area, and give recommendations on cost reduction solutions or whether to expand further in San Diego county. Because the store has not operated for a 52 or 53 week fiscal year, our sales will be forecasted based off sales from the current months the location has been opened, as well as the past sales of Dave and Buster’s lead store in Dallas, Texas. Dave and Buster’s strives to maintain viability and implementing strategies that combine both games and entertainment, quality food and drinks with exceptional customer service for all to enjoy.

History of the Organization

Dave Corriveau and James "Buster" Corley were originally two entrepreneurs who had storefronts next to one another that decided to merge their businesses (restaurant and arcade) together when they noticed their customers alternating between food and entertainment. Dave and Buster’s soon became America’s leading upscale restaurant that includes an entertainment component to their locations across the United States. According to the Dave and Buster’s webpage, the merging of the company officially happened in 1982 and it aggressively expanded into 6 different locations such as in San Antonio, Atlanta, St. Louis, Florida, Jacksonville, Rhode Island as many more were scheduled to open across the United States. Dave and Buster’s is a high-thrill facility that has an atmosphere of a sports bar, casual dinners, and arcades. Dave and Buster’s utilizes video gaming into their facility because it is evolving to become a $38-billion-dollar industry and continues to rise. The games are priced fairly and customers feel they get the value for their money. The core values of the company are to focus on customer satisfaction by providing excellent quality. Dave and Buster’s does this effectively by trying to satisfy different types of age groups. However, a parent or adult over the age of 25 must accompany anyone under the age of 21 due to the sports bar atmosphere. The company differentiates from other competitors in the market by becoming a one-stop shop for amusement, and attracts individuals with their drinks and food options. The food quality combined with entertainment and a high level of customer services allows Dave and Busters to become the front-runners amongst all their competitors. One of the main strengths of Dave and Busters is that the company has diversity and this allows an increase in stock prices. The company knows how to adapt to the many different needs of their customer’s demands, and they are a success because they acknowledge the fact that customers wants and needs are never subject to stay consistent.

Real Life Decision Problem

With the company wanting to expand their brand further throughout the United States, Dave and Buster’s planned to open six more stores in addition to the Carlsbad location this year in 2017 (Gallant). Our forecasting analysis of the Dallas, Texas lead store will determine whether or not the company should expand to more locations in San Diego County or other possible locations. We will look at data from quarter sales for the 2014, 2015 and 2016 years to forecast sales for year 2017 at Carlsbad. Our team has used the following forecasting methods in order to formulate a comprehensive prognosis for future sales; such as the weighted moving average method, the quarter moving average, a linear regression model (trend line), and the exponential smoothing technique. A completion of a seasonal forecast using data from the Dave & Buster’s guest count per quarter from the Dallas store was implemented as well.

Background Research

Dave and Buster’s believes that their “store model generates favorable store economics and strong returns by offering entertainment, food and beverages that provides certain benefits in comparison to traditional restaurant concepts” (Annual Report, 2015). According to their Annual Report for 2015, the 2014 fiscal year data showed “comparable store revenues of $10,793 and average Store-level EBITDA margins of 27.8%” that reflect this growth. The entertainment offerings had low variable costs “that produced gross margins of 86.0%” for the fiscal year of 2014 (Annual Report, 2015), and entertainment (games) accounts for 8.6% of their revenue. Dave and Buster’s found that in their business model, strong cash flows are generated and have exceeded expectations in their growth strategy. The combination of “store-level EBITDA margins, refined new store and high volume openings” (Annual Report, 2015) drove margins up to achieve the targeted average year one cash-on-cash returns at 35% and a five year average cash-on-cash returns in excess of 25% for both large and small store openings (Annual Report, 2015). With the 19 stores that were opened since beginning of 2008, they have generated an average year one cash-on-cash returns of 45.1% (Annual Report, 2015).

New York-based Rouse purchased Westfield Carlsbad, from Westfield Corp. for $170 million in November 2015, and rostered Dave and Buster’s as a new tenant to The Shoppes at Carlsbad (Hirsh,2016). Completion of multiphase renovations were to conclude by the end of 2017, however unexpected construction delays occurred. Dave and Buster’s was completed January 20th, 2017 on the lower level of the mall with renovations still needing to be made to neighboring stores. Upon opening weekend, Dave and Buster’s exceeded their target sales goals with $152,482 Friday and $165,037 Saturday, proving to Dave & Buster’s corporate executives that the Carlsbad location was a profitable choice for the company (Gallant). Because the store has not operated for a 52 or 53 week fiscal year, sales are forecasted based off current months as well as past sales at the Dave and Buster’s lead store in Dallas, Texas.

Methodology

In order to construct the most accurate and proficient forecasted sales, we applied several forecasting methods to the sales of the Dave and Buster’s location in Dallas. The following methods include the moving average method, a weighted moving average, the exponential smoothing technique, a linear regression model (trend line), and a seasonal index based off of guest count in order to determine popularity of business throughout the year. In order to execute accuracy of the following forecasts, we separated the food/beverage and entertainment sales in order to determine their individual departments prognosis. We also included the total revenue and sales forecast of each method used in order to report each quarter in a yearly unit to easily be accessible for an analysis. The acquired sales data we used to formulate the following forecasts was limited to the month of October due to the quarters being in ranges of three to four months. The sales reports for the last quarter of 2016 was not available until the end of March. For timely purposes, our team has used forecasting methods to determine the sales report for the last quarter of 2016 at the Dallas, Texas location.

Forecasting Errors

Our team distinguished the errors in the forecasting methods used with three techniques known as MAD, MSE, and MAPE. Each technique allows us to determine how accurate each of the forecasting methods are being used. MAD or mean absolute deviation, is simply calculated by finding the total average of all absolute values by subtracting the forecasted value from the actual demand. MSE or mean absolute error, is calculated by squaring the values of the MAD quantities, and then finding the overall average of those integers. Lastly, the MAPE or mean absolute percentage error, is configured by dividing MAD error by the actual demand, which gives you a percentage to evaluate. Using these techniques allows us to determine which of the following forecasting methods are most accurate in acquiring the future sales for Dave and Buster’s in the food/beverage and amusement departments.

*Please refer to Table B, Table C, and Table D for the forecasted errors calculated from the following forecast methods used.

Moving Average Method

Our team first acquired forecasted sales for 2017 by applying the moving average method. We used a range of three and four quarters, and decided to only execute the forecasted sales of the four quarter range due to the forecasted errors. The moving average method provides an overall impression of data over time. This method is executed by finding the sum of the demand in the previous periods (n) divided by the total amount of periods (n) within the range used. We distinguished the periods to be either three or four due to the sales reports dates. The sales reports are divided into four quarters, however each quarter roughly contains three months. We used the moving average method and applied it to the sales provided in Table A to distinguish the food/beverage, amusement, and total sales for 2017 in a quarterly manner. After applying the moving average method with both a three and four quarter range, we were able the determine that the four quarter range was most appropriate with a lower forecasting error. The three quarter range had the following error values:

Food/Beverage: MAD-$11,419.72 MSE-$185,745,477.83 MAPE-11.26%

Amusement: MAD-$10,237.63 MSE-$133,019,869.00 MAPE-11.54%

Total: MAD-$21,385.65 MSE-$576,881,542.58 MAPE-11.31%

Comparing the third quarter range to the four quarter, there is a significant difference in errors, as seen in Table B, Table C, and Table D.

*Please refer to Table B, Table C, and Table D for the forecasted sales determined by the moving average method for food/beverage, amusement, and total sales of Dave and Buster’s.

Weighted Average Moving Method

The weighted average method is found by dividing the sum of the weight of the period multiplied by the demand in that given period, all over the sum of the total weights. In this case we continued with a period of four quarters based on the moving average method and its accuracy based on the forecasted error. The weighted moving average is used when some type of trend may be present. Each period was given a progressive weight beginning with 1 and ending with 4. The sum of the total weights calculates to be ten. We therefore used the data given in Table A, and applied each quarter from years 2011 to 2016 with a weight ranging from 1-4 as the quarters continued in their given order date. For example, Quarter 1 is given a weight of 1, Quarter 2 is given a weight of 2, etc.

*Please refer to Table B, Table C, and Table D for the forecasted sales determined by the weighted average method for food/beverage, amusement, and total sales of Dave and Buster’s.

Exponential Smoothing Method

The exponential smoothing method is a form of the method used previously, the weighted moving average. In this case the weights decline exponentially, and the recent date is weighted most. However, this method requires a smoothing constant (𝛼) that ranges from 0 to 1, which is further subjectively chosen. The exponential smoothing method formulates forecasts by determining the last period’s forecast and adding it to the calculated difference of the last period’s actual demand by the last period’s forecast, which is multiplied by the smoothing constant (𝛼). Our team distinguished the smoothing constant by evaluating each value ranging from 0 to 1 in values of tenths, and therefore determining the value with the lowest forecasted error. After our calculations, the most applicable value for the smoothing constant was 0.6 with the following forecasting error values:

Food/Beverage: MAD-$9,238.97 MSE-$120,542,980.98 MAPE-11.32%

Amusement: MAD-$10,005.64 MSE-%154,170,470.94 MAPE-11.10.97%

Total: MAD-$18,618.33 MSE-$496,463,862.53 MAPE-10.89%

We were then able to determine the forecasted sales for food/beverage, amusement, and total sales.

*Please refer to Table B, Table C, and Table D for the forecasted sales determined by the exponential smoothing method for food/beverage, amusement, and total sales of Dave and Buster’s.

Linear Regression/Trend Line Method

The linear regression method is used by fitting a trend line that is most relevant to the data provided. The trend equation is found by plotting the data in a graphical format and determining the slope of the regression line. The slope is was represents the trend of the data, in this case the Dave & Buster’s sales report. The trend line is to project historical data points into the medium to long term range based on its slope. Our team calculated the linear regressions models in excel to find the slopes of the following relationships including food/beverage, amusement, and total sales. After plotting all the data in Table A from 2011 to 2016, our team calculated the trend lines for each department:

Food/Beverage: y = 2093*x + 60633

Amusement: y = 3216.7*x + 55385

Total: y = 5309.1*x + 116021

With the following regression lines, our team was able to distinguish 2017 forecasts sales for each department. The (x) represents the progressive quarters in each year in order to calculate the adjusted trends in sales as the years continue.

*Please refer to Table B, Table C, and Table D for the forecasted sales determined by the trend line method for food/beverage, amusement, and total sales of Dave and Buster’s.

*Please refer to Table E to see the following departments trend lines and relationships.

Seasonality Index

The seasonality index determines demand of good and commodities over the course of a typical year. The index was based on data from previous years that highlight seasonal differences in their consumptions. In order to calculate the index for food, amusement, and overall revenue, sales from year 2011 to 2016 were separated yearly and divided quarterly adding them and dividing them by the average. Furthermore, the result for each year then was added together to find the average giving us the index based off the Dave and Buster’s guest count list (Refer to Table H).

Amusement: Spring-1.07 Summer-1.00 Fall-.90 Winter- 1.03

Food: Spring-1.05 Summer-.96 Fall-.88 Winter- 1.11

Total Sales: Spring-1.06 Summer-.98 Fall-.89 Winter- 1.07

After calculations our team was able to distinguish the seasonality index and apply it to the food, amusement, and total sales and determine if the data experiences regular changes in the upcoming calendar year. Based on the guest count and seasonality index, Dave and Buster’s is expected to be busiest during the Winter season, and slowest during the Fall.

*Refer to Table F, for seasonality index solution

*Refer to Table G, for forecasted sales determined for food, amusement, and total sales by the seasonality index.

Recommendations

Predictions are concerned with future certainty, which differs from forecasting who seek for hidden signals in the present that could possibly make changes in direction of companies or societies. “Above all, the forecaster’s task is to map uncertainty, for in a world where our actions in the present influence the future, uncertainty is opportunity,” according to Paul Saffo (2007). The reality of forecasting is that they will always be wrong due it being an assumption of future events based off the expected value and the measure of error. What makes the restaurant and entertainment industry, such as Dave and Buster’s, so interesting? It is always changing. Our team of forecaster’s came up with recommendations that could improve our findings based off all strategic and planning decisions in supply chain: production, marketing, finance, and personnel.

Above all, the linear regression method had the lowest forecasting error with a MAD of only $7,188.96, a MSE of $69,898,079.39, and a MAPE of 8.75% for the food/beverage department. The amusement department was just shy of the previous departments forecasted errors, provided that the MAD was $7,767.22, with an MSE of $98,943,890.69, and a MAPE of 8.57% (Refer to Table B, Table C, and Table D to compare other forecasting errors). Based on these calculations, our forecasting team is able to interpret future recommendations for the new Carlsbad location by assuming these sales are close to accurate for 2017.

Both departments do exceptionally well in sales in the last quarter according to our forecasting, which falls in Winter, beginning the term in late January and early February. However, both departments generate the least amount of revenue in the first quarter beginning in May, and have their slowest season to be expected in Fall. We can interpret this behavior to continue based upon Dallas’s sales reports. Our forecasting team suggests to develop a more effective marketing approach to reach out to consumers during this time frame for both food dining and arcade amusement.. The slow season in Fall is expected to be caused by the academic school year and possibly savings for the holiday season. Investing in more frequent advertisement during these months would be adequate in grabbing consumer attention by offering promotions, such as student deals to encourage the student demographic majority to participate at Dave and Buster’s amusement and dining services. Majority of restaurant operators coincide that innovative technology helps increase sales and make their restaurant more productive with a competitive edge. This goes hand in hand with the arcade department as well. We recommend Dave and Buster’s to invest in new equipment for the arcade during this time frame, by purchasing the latest trending games available in the market. Although it’ll be a high debt investment in the beginning, it will have a higher return rate for Dave and Buster’s finances. A continuous demand for a consistent and effective work crew is just as important in investing along with equipment.

Customer service and employee performance are interrelated. When an effective work crew provides excellent customer service, they are exceeding job expectations. Dave and Buster’s want to provide their clientele a fun and energetic atmosphere in order to keep their brand name fresh, entertaining, and differentiated from other dining and arcade occupations. Dave & Buster’s main focus is to deliver a high-quality product and great entertainment, employee performance plays an integral role in achieving set business goals. Employees are the frontline, they are closer to the customer and can provide useful feedback about what customers value, or say if there is a discontinuity in the service provided. Recognizing employee performance is an essential aspect in the business success. Employees appreciate frequent and regular feedback motivates them to maintain consistent high level of performance. High performance by employees in these essential components will help customers experience and drive them to keep coming back. By adding an employee recognition and reward system Dave & Buster’s will have an edge in competitive corporate climate. This will strengthen their position in the industry and will bring Dave And Buster’s closer to their objected goal to increase in sales. Carlsbad location did exceptionally well during opening weekend, we can interpret they will have a successful year ahead of them in meeting projected sale goals in both departments to be just as successful as the leading location in Dallas alongside our recommendations.

References

Annual Reports. (2016, March 29). Retrieved March 28, 2017, from