January 29, 2023


Business leisure

Is Competitive Socialising The New Retail Casualty In Waiting?

When serious investors line up to pump hundreds of millions into crazy golf, you know something strange is going on. 

Skittles waiting at the Roxy Ball Room in Digbeth, Birmingham

Crazy golf is among the components of competitive socialising, the latest floor-filling hope for retail pitches ravaged by the coronavirus pandemic and the shift to online commerce. To both landlords and the private equity backers of concepts on both sides of the Atlantic competitive socialising’s self-consciously whacky combinations of food, booze and ball games look like a lifeline.

For private equity the appeal is simple. Awash with cash but short of high-yielding places to put it, private equity has pounced on competitive socialising like a crazy golfer aiming for a hole-in-one in Mickey’s mouth. Where the average punter sees a beer, a pizza and a laugh with friends, private equity sees dozens of scalable businesses with high social media salience, all offering relatively strong returns (high single-digit), bags of growth potential and an extremely fast return on investment (12-18 months).  

Landlords, meanwhile, see competitive socialising as little less than the answer to a prayer. Just when they had given up hope, along comes an entire market sector offering long leases (10-25 years), large requirements (10K-25K SF) and robust double-figure rents. They hardly dared dream such things were possible. Above all landlords are entranced by the promise of something which might tempt jaded, seen-it-all, done-it-all visitors back to their shopping centres and malls. Property owners are turning to competitive socialising to fill the holes left by casual dining, which are in turn filling the holes left by retail.

Yet there are so many reasons for caution. This is still an immature market with a very large number of players, few of whom have more than a few outlets. Savills data sourced before the pandemic showed 170 operators, 340 locations and just three brands with more than 10 sites. Scaling up these businesses requires some big bets on concepts with thin trading records. 

And private equity’s recent record of scaling up in the food and beverage sector is not encouraging. Its headlong rush into casual dining resulted in rapid expansion followed by widespread collapse as overextended businesses struggled to cope in ever more marginal locations.

So is competitive socialising the gift that will keep on giving? Or is it a castle made of sand?

Landlords Love It

Hammerson, the UK shopping centre REIT, was one of the first big landlords to see potential in competitive socialising. Today it has outlets of Treetop Adventure Golf in its Leicester and Cardiff centres, and when lockdown rules are eased, another will open at Birmingham’s Bullring and Grand Central.

The Treetop deal in Birmingham nicely sums up the appeal for landlords. Treetop will take a 25-year lease, something no retailer would ever contemplate, and it will occupy the 17K SF unit formerly home to U.S. retailer Forever 21. The new arrivals therefore fill a gaping hole caused by the current revolution in the retail sector.

Where once teenage girls browsed for tops there will be two indoor 18-hole mini golf courses — the Tropical Trail and Ancient Explorer — as well as a bonus 19th hole that gives guests the chance to win a free round. After, before or during, there will be pizza and cocktails and coffee from the Rainforest Roast Café. 

Treetop knows exactly how appealing it is to battle-weary landlords. “We can’t wait to be a part of the fantastic offering at Bullring,” Treetop co-founder Elizabeth Stanway said. “At our other sites we find that over 80{540ccc4681f92a8237c705b0cdebbb9da373ec200da159e6cc1fd9f393be00be} of our guests visit local restaurants, shops and other hospitality venues before or after their visit to Treetop.”

Hammerson sees it this way, too. “It’s clear that now, more than ever, consumers are looking for a memorable experience, something they can share with their friends and family. Treetop Adventure Golf delivers that in spades,” Hammerson UK commercial director Iain Mitchell said.

None of this comes without a direct cost to landlords. The Birmingham fit-out cost £2.5M, and Hammerson has not disclosed how much it contributed to that cost. Data supplied by Colliers suggests that in the UK typical landlord capital contributors to fit-out range from £400K to £750K and that long leases will come with a 12-to-18-month rent-free period. Landlords calculate that these costs, however high, beat leaving a large, prominent unit empty.

You Can’t Fake It

Courtesy of Cain International

Crazy times: The interior of a Swingers venue

“Memorable” and “unique” — words like these cluster round competitive socialising. Operators and their private equity backers are convinced the idea of a memorable evening out can be monetised. And not just monetised but converted into a reliable income-generating vehicle capable of being transplanted from one economy to another. The founders of Swingers, another mini-golf concept, and its backers at Cain International are about to make this experiment, expanding the business from the UK to up to 20 other U.S. cities.

Competitive Socialising, Swingers’ parent company, is expanding thanks to an additional $20M (£14.5M) investment from Cain International, the privately held investment firm led by Jonathan Goldstein, which first invested $38M (£28M) in the UK business in late 2018. 

Swingers will open in Washington, D.C.’s, Dupont Circle on 11 June, with a venue in New York City’s Flatiron District coming soon after. Both sites will use the same format that has made the concept such a success in the UK, combining crazy golf with popular street food from known restaurateurs, cocktails and a live DJ.

In the UK Swingers operates from 18K SF in the City of London and 20K SF in the basement of a former department store at Oxford Circus.

Swingers co-founder Matt Grech-Smith is keenly aware of the risk of expanding too far, too fast. The uniqueness of the offer is, he insists, the guarantee that this can’t happen to Swingers even if other brands fall into the overexpansion trap.

“Some business can roll out expansion cookie-cutter-style more quickly than we can. For our concept to replicate we have to make sure the DNA remains intact each time we open a site,” Grech-Smith said.

“We’re not talking about the same level of expansion as casual dining. Experience has to stay at the heart of what we do, because that is how the business stays profitable. We’ll open more sites in the U.S., but it will be in the twenties, not the hundreds. If we went further, we’d lose our customer base.”

Does this mean Swingers venues have to be sufficiently scarce to remain a special experience and that this imposes a natural limit on growth? Grech-Smith said yes. 

Other operators take a slightly different view. Whilst they look for the same demographics — strong dating culture, large student population, strong after-working-hours socialising — they think there is more scope for growth. 

Roxy Ball Room, whose concept brackets together a range of ball-based games, currently has 10 UK outlets and plans many more. Its strategy includes multiple venues in some cities (three in Leeds, two in Liverpool, two in Manchester and Birmingham) and expansion to all the major cities and some large towns. But unlike Swingers or Treetop, its concept can be resized to fit smaller markets: It operates 8K SF, 12K-15K SF and 15K-22K SF venues, meaning it can fit into markets the others could not. 

Money Talks

Bowling at the Roxy Ball Room in Digbeth, Birmingham

Private equity backers insist they won’t love the competitive socialising concept to death. Roxy’s £7.5M backers at Foresight Group said the spectre of the casual dining sector’s expansion and collapse is at the front of its mind.

Asked if the combination of willing landlords and private equity money could mean overexpansion, Foresight investment manager Rob Jones said: “I don’t think so and I sincerely hope not.”

Foresight didn’t get involved in the casual dining boom (and is very glad it didn’t) but nonetheless learned lessons.

“The crash of casual dining is still ringing in private equity’s ears,” Jones said. “We know what happened to our competitors in expanding too fast into too broad a market, putting concepts into places where they just would never work. The danger is that some competitive socialising concepts are easy to imitate, and if you have capital available, then there’s a risk. But we know you have to manage a rollout sensibly and be incredibly diligent before you open a new venue. Some of our peers might be in danger of getting that wrong, but we won’t,” he said.

One of the reasons why Jones remains confident is that he thinks growth is self-limited: There simply aren’t enough potentially viable properties in the right places.

“It’s not easy to find a prime, rectangular site with columns in the right places. You try putting a bowling alley into something irregularly shaped, it is really very difficult. So expansion is limited. It’s not as if we can put our finger on three or four prime sites in every city — not by a long shot. And when you do find a building with the perfect size and shape — a former department store, maybe – then you look at the pedestrian flows and realise nobody is anywhere near it after 6pm at night. So not ideal.”

Jones thinks this places a natural brake on expansion.

Cain International’s Los Angeles-based Global Head of Private Equity (and former Disney executive) Nick Franklin is also alive to the dangers, but also relaxed. Swingers is “phenomenally scalable,” he told Bisnow.

“Some concepts are in their adulthood, Swingers is in its infancy. We think there is a huge opportunity to grow in the U.S., then around the world by franchise or license, so there is no defined end point for this. It depends on our appetite and the management team’s appetite.

“But we have a measured but aggressive approach to expansion. We’re starting with two initial launches but digging deep into other markets as we think about how we want to execute growth. It is easy to chase too many opportunities. We want to be thoughtful.”

Games Have Losers, Too

Reliable data on the volume of private equity pumped into competitive socialising does not exist. Bisnow has spoken to participants at all levels, and the impression they share is that whilst volumes are still relatively small, it is growing exponentially. If Covid-19 vaccination is successful and more concepts are able to prove themselves this year, a further surge in private equity interest is widely anticipated. More cross-border deals, many of them in the form of franchising, are expected.

Tamweel founder Ali Aneizi, who helped broker the Swingers deal, sees scope for growth despite economic headwinds.

“With all of the current Brexit uncertainty it’s great to see a cross-border investor backing a UK business going global,” he said. “The magic of Swingers, the execution skills of Jeremy and Matt combined with Cain’s financial muscle and international footprint will turbo-charge growth. Watch these guys, they’re going to knock it out of the park.”

There could be some legal challenges to overcome first. International law firm CMS acted for Social Entertainment Ventures on a $16M fundraising round to enable growth in their stable of concepts, including Bounce, Acebounce, high-tech bingo concept Hijingo and Puttshack. SEV also owns the U.S. and Canadian rights for UK darts concept Flight Club.  

CMS partner and Head of the Leisure Practice David Roberts advised on the deal and confirms the impression that plenty of private equity and family office money is being invested in competitive socialising businesses, and that many are looking to expand in the UK but also, under licence, in the U.S.

Roberts also points to several trip hazards. “Covid, taking security over U.S. assets where you have UK lenders, having to incentivise U.S. and UK management teams with different tax structures and a very aggressive U.S. tax regime, valuation is difficult to agree, these would be some of the issues I have encountered,” he said.

Hazards are to be expected. Indeed, competitive socialising depends on hazards: Its games would not be much fun without winners and losers. The likelihood is that nobody will allow further expansion to be held back by technical obstacles, not least because an increasing number of landlords are buying into the competitive socialising sales pitch.

History teaches that this moment of maximum funder and landlord enthusiasm is when new concepts face maximum peril. Landlords are keen not to look a new gift horse in the mouth, but they would do well to remember that every game has losers.