Round One 4680
ラウンドワン
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2021-11-08
2021-11-08
2021-11-05
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23F Nanba Skyo 5-1-60 Nanba, Chuo-ku, Osakashi Osaka, Japan 542-0076
Summary
Round One specializes in running amusement complex centers across Japan, with centers in Kansai (southern-central Japan
including Osaka, Kobe, and Kyoto) and Kanto (eastern Japan including Tokyo) regions."
Hotels, Restaurants & Leisure
Key dates
2009-07-07
Coverage initiation
Executive summary
Core business—operation of amusement complex centers
Round One specializes in running amusement complex centers in Japan and North America. At end-March 2021 it operated 145 stores (100 stores in Japan, 44 stores in North America, and one store in Russia). The amusement services include bowling as well as games, karaoke, and SPO-CHA (abbreviation for “Sports Challenge”).
The company’s business segments consist of Japan (which accounted for 87.5% of sales in FY03/21) and the US (12.5%).
In Japan, due to the continuing decline in the market for bowling, owing to a declining population and diversified entertainment choices, the company pressed on with its program of closing unprofitable stores and opening new ones. Through these measures, the company aims to eliminate cannibalization among stores and improve profitability to maintain and improve its current profit level. In the medium-term, the company will continue to close unprofitable stores and open new ones, maintaining approximately 100 stores.
In the US, the company opened its first store in August 2010 and achieved recurring profit in FY03/16. Subsequently, it had gradually increased new store openings while aiming to increase its US store count to 120 over the medium term. However, in FY03/21, the company responded to the spreading COVID-19 pandemic by indicating that it would hold off on further decisions regarding its store openings policy until after it had determined the pandemic’s impact on consumer behavior.
While targeting a network of 120 stores in the US, Round One aims to open stores in China, Russia, and other regions, and concentrate investment in whichever market proves the most cost-effective. The company opened its first store in Russia in December 2020, and in China in May 2021. It views China as the market with the largest amount of potential, and by March 31, 2023, it plans to open a total of eight stores in China and amass expertise regarding store operation in China. Round One anticipates that other companies will enter the same line of business in China. To raise the barrier of entry for these companies, the company will limit its store openings in China to large-scale units equipped with SPO-CHA facilities while leveraging its ability to negotiate prices with amusement machine manufacturers, which has been bolstered through its experience operating more than 100 stores in Japan.
Trends and outlook
For FY03/21, the company reported consolidated sales of JPY61.0bn (-41.8% YoY), an operating loss of JPY19.3bn (versus operating profit of JPY8.9bn in FY03/20), a recurring loss of JPY19.8bn (versus recurring profit of JPY8.7bn in FY03/20), and a net loss attributable to owners of the parent of JPY18.0bn (versus net income attributable to owners of the parent of JPY4.8bn in FY03/20). By segment, the Japan segment reported sales of JPY53.3bn (-36.7% YoY), an operating loss of JPY11.4bn (versus operating profit of JPY8.8bn in FY03/20), and a recurring loss of JPY11.5bn (versus recurring profit of JPY8.8bn in FY03/20). The US segment reported sales of JPY7.6bn (-63.0% YoY), an operating loss of JPY7.6bn (versus operating profit of JPY130mn in FY03/20), and a recurring loss of JPY7.7bn (versus recurring profit of JPY33mn in FY03/20).
The company announced a revision to its full-year FY03/22 forecast in November 2021. The revised forecast calls for consolidated sales of JPY99.1bn (+62.5% YoY), operating profit of JPY650mn (versus an operating loss of JPY19.3bn in FY03/21), recurring profit of JPY6.3bn (versus a recurring loss of JPY19.8bn in FY03/21), and net income attributable to owners of the parent of JPY6.4bn (versus a net loss attributable to owners of the parent of JPY18.0bn in FY03/21).
Compared to the previous forecast, the company revised downward its sales and operating profit forecasts by JPY7.1bn and JPY5.5bn, respectively, but revised upward its recurring profit forecast by JPY930mn and net income attributable to owners of the parent by JPY3.2bn. The company lowered its sales and operating profit estimates as the negative impact from the resurgence of COVID-19 cases exceeded its expectations. It raised its estimates for recurring profit and net income attributable to owners of the parent due partly to the recording of non-operating income from subsidies by the government and local municipalities, as well as adjustments to forecasts for income taxes to reflect changes in projections of the future recoverability of losses carried forward.
Strengths and weaknesses
Shared Research believes that the three main strengths of Round One are its unique business model, strong brand name, and cash-flow generating ability. Weaknesses include its higher risks on new store openings compared with retailers, shrinking market, and slower-than-expected industry shakeout (see Strengths and weaknesses).
Key financial data
Note: Figures may differ from company materials due to differences in rounding methods.
Recent updates
Revision to FY03/22 earnings forecast
On November 5, 2021, Round One Corporation announced a revision to its full-year earnings forecast.
Revised FY03/22 earnings forecast
Reason for revision
In 1H FY03/22, the company received funds as part of an expanded subsidy program from the government and local municipalities to assist with requests for store closures and shortened operating hours. On the other hand, sales recovery in Japan was slower than anticipated due to the resurgence of COVID-19 cases. As a result, 1H sales and all profit lines came in below plan.
The company expects sales to gradually recover from Q3 onward as vaccination progresses, but still projects full-year sales to fall below its previous forecast. It also anticipates operating profit to fall in line with the drop in sales, but expects profit lines from recurring profit and below to surpass previous forecasts. Assumptions include the recording of non-operating income from subsidies by the government and local municipalities in response to requests for store closures and shortened operating hours from early May to September 30, 2021, as well as adjustments to forecasts for income taxes to reflect changes in projections of the future recoverability of losses carried forward in light of the recent COVID-19 situation.
Monthly sales data for October
Round One Corporation released monthly sales data for October.
Monthly performance
Note: Figures may differ from company materials due to differences in rounding methods.
Announcement regarding the partial acquisition of shares of SK Japan Co., Ltd.
Round One Corporation announced the partial acquisition of shares of SK Japan Co., Ltd., making the latter into an equity-method affiliate.
Round One resolved to acquire a part of common stock in SK Japan Co., Ltd. (TSE1: 7608) through an off-market negotiated transaction with two of SK Japan's major shareholders. With this, SK Japan will become an equity-method affiliate of the company.
Purpose and reasons for the acquisition of shares
Round One operates a comprehensive amusement business in Japan and overseas, and to that end it believes it is important to secure prizes that meet customer needs. This has been made all the more important by the remodeling now under way at some stores to install in each an amusement area called Giga Crane Park, with a higher number of crane game machines.
With a view to ensuring a stable supply of prizes, the company decided to buy a portion of the common stock of SK Japan Co., Ltd., which has a character entertainment business, from major shareholders Yasuko Kubo and Chiaki Kubo.
Overview of SK Japan Co., Ltd.
Name: SK Japan Co., Ltd.
Title and name of the representative: Representative Director and President Hironori Yao
Business content: Design, manufacture, and sale of character-based stuffed animals, keychains, household sundries, mobile phone accessories, and prizes
Major shareholders: Yasuko Kubo (1,881,000 shares/23.0%), Chiaki Kubo (1,608,000 shares/19.6%)
Relationship between Round One and SK Japan: Purchase of amusement prizes
FY02/21 earnings: sales JPY5.4bn, operating profit JPY225mn, net income attributable to owners of the parent JPY285mn
FY02/21 financial position: net assets JPY3.6bn, total assets JPY4.1bn, net assets per share JPY421.8
Number of shares to be acquired and status of stock ownership before and after the acquisition
Number of shares owned before transfer: 0 shares (voting rights ownership ratio: 0.0%)
Number of shares to be acquired: 2,688,000 shares
Acquisition price: JPY1,253,000
Number of shares owned after transfer: 2,688,000 shares (voting rights ownership ratio: 32.8%)
Schedule
Date of conclusion of share transfer agreement: October 22, 2021
Share acquisition date: November 25, 2021 (planned)
Trends and outlook
Quarterly trends and results
Note: Company estimates are the most recent figures.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Other includes business activities by its subsidiary in Russia and other regions.
Note:
Note:
Note: The average hourly wage is based on data for a three-month period.
Note: The average hourly wage is based on data for a three-month period.
1H FY03/22 results
In Japan, the company renovated some of its stores to include crane game parks and added crane game machines. In addition, it held remote events using ROUND1 LIVE and carried out a campaign in collaboration with Jujutsu Kaisen. In the US, sales were aided by external factors such as government stimulus programs for individuals during 1H FY03/22.
Japan
In Japan, the company renovated its Fuji, Kanazawa, Sakai Station, and Ageo stores to include crane game parks and added crane game machines. In addition, it held remote events using ROUND1 LIVE and carried out a campaign in collaboration with Jujutsu Kaisen. In accordance with requests from the government and local municipalities including implementation of states of emergency and semi-state-of-emergency COVID-19 measures, the company was subject to restrictions such as temporary store closures and shortened business hours.
Existing store sales were down 39.5% versus times of normal operation. The breakdown of sales by service was as follows:
US
Sales rose YoY on the back of external factors such as government stimulus programs for individuals. In addition, the company installed new amusement machines and reviewed amusement usage fees in light of the current economic circumstances.
Existing store sales were up 4.2% versus times of normal operation. The breakdown of sales by service was as follows:
Other
In this segment, Round One made progress in opening stores in regions outside Japan and the US.
Full-year company forecast
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Figures may differ from company materials due to differences in rounding methods.
Compared to the previous forecast, the company revised downward its sales and operating profit forecasts by JPY7.1bn and JPY5.5bn, respectively, but revised upward its recurring profit forecast by JPY930mn and net income attributable to owners of the parent by JPY3.2bn.
In 1H FY03/22, the company received funds as part of an expanded subsidy program from the government and local municipalities to assist with requests for store closures and shortened operating hours. On the other hand, sales recovery in Japan was slower than anticipated due to the resurgence of COVID-19 cases. As a result, 1H sales and all profit lines came in below plan.
The company expects sales to gradually recover from Q3 onward as vaccination progresses, but still projects full-year sales to fall below its previous forecast. It also anticipates operating profit to fall in line with the drop in sales, but expects profit lines from recurring profit and below to surpass previous forecasts. Assumptions include the recording of non-operating income from subsidies by the government and local municipalities in response to requests for store closures and shortened operating hours from early May to September 30, 2021, as well as adjustments to forecasts for income taxes to reflect changes in projections of the future recoverability of losses carried forward in light of the recent COVID-19 situation.
The following information on the company's forecast is based on the previous forecast. Shared Research will revise the information following interviews with the company.
Due to the increasing availability of COVID-19 vaccines, the company projects that sales generated by existing stores in Japan will recover to pre-pandemic levels from Q2 (July–September 2021) and anticipates that sales generated by existing stores in the US will follow suit in August 2021.
Compared to FY03/20, when impact from the pandemic was limited to March 2020, the company projects a 1.3% rise in sales, a 31.1% decrease in operating profit, a 38.2% decrease in recurring profit, and a 33.0% downturn in net income attributable to owners of the parent. Round One projects that the increase in sales will occur as growth in sales generated in the US and China offsets a decline in sales generated inside of Japan. Meanwhile, the company anticipates an uptick in profit in the US but also forecasts an across-the-board decline in profits due to a decline in sales generated by existing stores in Japan.
In FY03/22, the company plans to open 11 stores in total: one in Japan, five in the US, and five in China. It also aims to close one store in Japan. The company expects to have 100 stores in Japan, 49 stores in the US, one store in Russia, and five stores in China as of March 31, 2022.
Forecasts by segment are as follows:
Japan
Round One projects segment sales of JPY76.3bn (+43.0% YoY) and segment profit (recurring profit) of JPY3.9bn (versus segment loss of JPY11.5bn in FY03/21). It forecasts growth in both sales and profit as impact from the COVID-19 pandemic abates due to the spreading availability of vaccines in Japan.
The company’s forecast for the Japan segment assumes a gradual decline in COVID-19 cases due to the implementation of states of emergency and semi-state-of-emergency COVID-19 measures and recovery in monthly sales beginning in June 2021. In July 2021, COVID-19 vaccines will become available to the general public following the completion of prioritized vaccination for senior citizens. The company projects that performance will recover to pre-pandemic levels starting in October 2021 thanks in part to this expanded availability.
Compared to FY03/20, the company projects a 9.5% decline in segment sales and a 55.6% plunge in segment profit. Round One projects declines in both segment sales and profit because it anticipates a 10.6% decrease in existing store sales compared to pre-pandemic levels (from February 2019 through January 2020) stemming from residual impact from the COVID-19 pandemic that is expected to continue through September 2021. Compared to pre-pandemic levels, the company forecasts that existing store sales will decline 36.3% in Q1, drop 7.6% in Q2, rise 0.4% in Q3, and increase 0.4% in Q4.
Monthly existing store sales in May 2021 fell 48.6% compared to pre-COVID-19 levels (in March 2019) due primarily to the declaration of an additional state of emergency. According to the company, existing store sales in October 2021 and later were trending 10–20% below pre-pandemic levels when neither a state of emergency nor semi-state-of-emergency COVID-19 measures were in effect.
US
The company projects US sales of JPY27.8bn (+265.5% YoY) and corresponding profit (recurring profit) of JPY2.1bn (versus segment loss of JPY7.7bn in FY03/21). As in Japan, Round One anticipates that increases in both sales and profit will occur in the US as vaccines become more widely available.
Round One’s forecast assumes that restrictions in the US will be gradually lifted leading up until the end of August 2021 because vaccines are currently more widely available than in Japan. Accordingly, the forecast is also predicated upon the assumption that existing store sales will return to pre-COVID-19 levels starting in September 2021.
Compared to FY03/20, the company projects that sales in the US will rise 35.2%, and that corresponding profit will increase about 18x YoY. Impact from the COVID-19 pandemic is expected to abate in the US before it does in Japan, and the company projects that sales will rise in the US as the average between store counts at the beginning and end of the financial year reaches 47 in FY03/22 (+28.8% compared to FY03/20). Meanwhile, the company anticipates that existing store sales in the US will drop 11.0% when compared to pre-pandemic levels (from March 2019 through February 2020). Compared to pre-COVID-19 levels, Round One forecasts that these existing store sales will decline 24.8% in Q1, 6.9% in Q2, 5.7% in Q3, and 7.9% in Q4. The company expects an increase in profit in the US thanks to the rise in sales, a decline in store opening costs, and a decrease in depreciation. It anticipates a downturn in store opening costs because it only plans to open five stores in the US during FY03/22, as opposed to nine in FY03/20. Round One forecasts a decrease of over JPY200mn in depreciation primarily because it recorded impairment losses on six of nine low-profitability stores in the US in FY03/21 (impairment losses on the remaining three were recorded in FY03/20).
All US stores had resumed operations by the end of May 2021 and monthly existing store sales generated during the same month exceeded pre-COVID-19 levels.
Other regions
In other regions, the company projects sales of JPY2.1bn (about 60x YoY) and loss (recurring loss) of JPY640mn (versus loss of JPY604mn in FY03/21).
Round One anticipates ongoing sluggish performance from its store in Russia due to the COVID-19 pandemic but also anticipates that five store openings in China will cause an increase in sales generated within the same country. The company projects that losses associated with its store in Russia will account for the bulk of overall loss in other regions but also expects that costs associated with store openings in China will contribute to the expansion of this loss.
Financial condition
As of end-March 2021, the company had JPY44.9bn in cash and deposits and JPY8.8bn in guarantee deposits. Adding the total value of financing facility of JPY16.0bn secured through committed credit line agreements it had entered with various banks in May 2020, the company, in effect, has access to approximately JPY69.5bn of funds.
According to the company, monthly cash outflows during its all-store closure were JPY3.9bn in Japan and JPY600mn in the US, for a total of JPY4.5bn, and the company believes it has secured necessary cash on hand for the foreseeable future.
Dividends
For FY03/22, the company plans to pay an interim dividend of JPY10 per share and a year-end dividend of JPY10 per share, for a total annual dividend of JPY20 per share.
Results vs. company estimates
Note: Figures may differ from company materials due to differences in rounding methods.
*The company did not disclose estimates for FY03/21, citing insufficient foundation for a forecast due to lack of visibility over when COVID-19 might be contained.
Long-term strategy
Round One has not released a medium-term management plan. However, since before the COVID-19 pandemic, it has been saying that it aims for medium-term growth by focusing on store openings in the US market, and that policy has remained intact even amid the COVID-19 outbreak. Among other measures that impact earnings in the medium term, the company intends to develop and introduce new ROUND1 LIVE bowling machinery in Japan, and promote automation and systemization to reduce total working hours. In addition, in the long term, it aims to develop stores in China in particular, but also in Russia and other Asian regions.
Accelerating store openings in the US, targeting 100 stores in Japan and 120 in the US, for a total of 220
With regard to the domestic market, it plans to press on with closing unprofitable stores and opening new ones as the market continues to shrink owing to a decline in the bowling participation rate caused by a decline in the population and diversified entertainment choices. Through these measures, the company hopes to sustain its current profit level as the elimination of counterproductive intra-company competition leads to higher profitability.
The company is leveraging the lesson it learned from its US stores and is carefully vetting options with an eye to higher profitability. As of end FY03/19, it had 32 stores in the US. The company opened the first US store in August 2010, and it improved the effectiveness of store openings and operations as it accumulated experience operating stores at amusement complex centers in North America. Starting in FY03/17, the company has been gradually increasing the number of new store openings guided by this accumulated operation expertise. In FY03/19, the company opened 11 stores and plans to open 11 more during FY03/20. From FY03/21 onward, it aims to open about 20 stores per year. It plans to shorten the time required for making decisions on store openings by cutting back on management visits to potential sites. However, as of May 2021, the company indicated that it would hold off on decisions regarding its store opening policy until after it had assessed the COVID-19 pandemic’s impact on consumer behavior.
Round One aims to generate the same level of recurring profit there as it did domestically prior to the impact of COVID-19 (Japan segment recurring profit was JPY9.7bn in FY03/19), and its target is to double the consolidated recurring profit through these measures. Further, with the number of stores expanding, the company believes it is possible to ask game machine manufacturers to develop customized game machines.
Out of a total of some 900 shopping malls in the US, there are about 300 locations where Round One could establish a store when considering the populations of various areas and location quality while ignoring possible effects of stores of competitor Dave & Buster’s Entertainment, Inc. Dave & Buster’s Entertainment had 140 stores as of January 2021, and, even when assuming the addition of 10 stores per year, that still leaves ample room for Round One to reach its target of 120 stores by FY03/24. In terms of investment, the company’s basic policy is to conduct business within the limit of its operational cash flow. Financially, it plans to maintain its current level.
The company, when opening a new store in the US, leases amusement equipment worth JPY210mn and amortizes this investment over seven years. As a result, the company’s OPM usually increases from the eighth year as this expense disappears, comparing with first seven years.
Expansion into China, Russia, and other Asian regions
Once Round One reaches its target of 120 stores in the US, it aims to open stores in China, Russia, and other regions, and concentrate investment in whichever market proves the most cost-effective. In China, it plans to erect barriers to new market entry by competitors by opening large SPO-CHA-equipped stores and leveraging its over-100-store-strong domestic operations in price negotiations with amusement equipment suppliers.
As of May 2021, circumstances in Russia and China were as follows:
Round One opened its first Russian store (Kievskaya, Moscow) in December 2020. The COVID-19 outbreak remains an issue in Moscow, so related restrictions have negatively affected progress.
In China, Round One opened its first store in Guangzhou during May 2021 and is currently negotiating lease agreements in preparation for opening four stores (Shanghai, Shenzhen, and Beijing) in FY03/22. By end-FY03/23, the company aims to open a total of eight stores in China and accumulate store management expertise in the region. Round One plans to offer amusement, bowling, and SPO-CHA services at these stores. The initial investment for each store will be about JPY1.0bn (approximately JPY780mn per store in North America), and each store will have floor space of just over 6,610sqm (about 3,970–5,950sqm per store in North America).
US stores: the present and the future
Every May the company reviews the criteria to rate the performance of each of its US stores as above average, average, or below average. Since November 2019, however, it has chosen to forgo these reviews due to the impact of store closures and operating restrictions implemented in response to the COVID-19 pandemic. The last time it revised its rating criteria was in November 2019, when it released its revised full-year forecast for FY03/20. As of that time, to be rated as average under the revised criteria, US stores had to achieve gross sales of USD5.6mn, operating profit in the first year of USD0, operating profit in years 2–7 of USD900,000, and operating profit in year eight and beyond of USD1mn.
(approx. JPY780mn)
account
(approx. JPY780mn)
(approx. JPY610mn)
(approx. JPY370mn)
(first year)
(approx. JPY80mn)
(JPY0)
(approx. -JPY140mn)
(years 2–7)
(approx. JPY170mn)
(approx. JPY100mn)
(approx. -JPY40mn)
(8th year onward)
(approx. JPY200mn)
(approx. JPY110mn)
(approx. -JPY20mn)
(years 2–7)
Note: USD/JPY109. First year operating profit includes store opening costs, with the exception of those of head office.
From FY03/22, Round One has plans to open six stores in the US for which it already has lease agreements in place. It will hold off on decisions regarding its policy on future store openings until after it has determined the COVID-19 pandemic’s impact on consumer behavior.
Introduction of ROUND1 LIVE
In FY03/20, Round One introduced ROUND1 LIVE as a new feature for bowling and karaoke. This facility allows customers to focus on their games without needing to be concerned about customers in neighboring lanes by utilizing many large-scale displays. Through the addition of network (LIVE) functionality, the facility offers customers a variety of ways to use it. Specifically, customers can connect to different lanes using “LIVE de Free Matching,” a video call service. Through use of the facility’s network features, pop idols and comedians can hold “Nationwide LIVE Fan Meet-Ups” and “Nationwide LIVE Offline Fan Meet-Ups,” for which participants are recruited beforehand by connecting people in remote locations with one another.
The company is aiming to expand its customer base and increase customer numbers and sales by offering various services that connect people in remote locations through a combination of large-scale displays and LIVE functionality. These services include both online and offline fan meet-ups. In April 2019, the company raised prices at stores that feature ROUND1 LIVE by about 5% for bowling and about 2% for karaoke. In FY03/21, bowling sales were JPY12.6bn (-42.4% YoY), and comparable store sales were down 42.2%.
As for cost, total capex, which includes expenses related to automated reception machines (mentioned below), will amount to about JPY7.0bn. Expenditures for the year will rise by JPY1.1–1.2bn, comprising an increase in depreciation cost of about JPY1.0bn and a rise of JPY100–200mn in communication and electricity costs. However, the company may be able to cancel out this increase in expenses by curtailing personnel costs through progress in automation and systematization (explained in detail below).
Automation and systematization aimed at curtailing total working hours
In addition to new bowling machinery, the company put automated reception machines and staff tablets into use in FY03/20. Installing these reception machines automates store reception, while introducing staff tablets will allow customers to see which facilities are in use, confirm device statuses, and view information concerning operational changes more easily. The company devotes about 10 million hours per year to customer services and aims to curtail this figure by 10% through automation and systematization. If the time devoted to customer services is lowered by one million hours per year, this will curtail personnel costs by about JPY1.1bn, assuming total hourly expenses of JPY1,100 per part-time worker (hourly wage plus other expenses).
Launch of CRE-CHA, an Online Crane Game business
The company launched CRE-CHA, an online crane game that allows customers to operate physical crane game machines using their smartphones or PCs in April 2021. The company indicated that the total initial capital investment for crane game machines and systems necessary for online play would be JPY200mn. It aims to install about 900 crane game machines compatible with online play (about 250 amusement machines per store in Japan).
Round One aims to reduce advertising expenses as it attempts to acquire customers for the online crane game through measures such as the distribution of free play tickets at its stores in Japan. Online crane games are typically associated with large shipping costs incurred when sending successfully captured goods to customers. However, the company has implemented a system through which customers either pay shipping costs or pick up their goods at Round One stores nationwide. The company said it will offer benefits such as gameplay discounts to customers who pick up their items at stores in an effort to increase customer convenience and raise its store visitor count.
Round One anticipates that the online crane games will generate sales of JPY500mn in FY03/22. The company will aim to transform this business into a more substantial contributor over the medium term by accumulating expertise related to distribution and customer enticement. Due to the COVID-19 pandemic, performance in both Japan and the US has deteriorated during FY03/21. In response, the company aims to raise the share of its overall sales for which online crane game and other online-related sales account over the long term.
Business summary
Overview
Core business: operation of amusement complex centers
Round One specializes in running amusement complex centers in Japan, North America, and Russia. As of end March 2021, it operated 145 stores (100 stores in Japan, 44 stores in the US, and one store in Russia).
Its reporting segments are Japan (87.5% of sales in FY03/21) and the US (12.5% of sales).
In Japan, services include bowling, amusement (games), karaoke, and SPO-CHA (short for “Sports Challenge”). As the company provides a wide range of services, understanding profit and loss at each service level is difficult. As all services are provided in the same location and for the same customers, it is hard to appropriately allocate direct costs and overhead to each category.
In the US, its main services are bowling, amusement (games), and karaoke. Starting in FY03/21, the company plans to introduce SPO-CHA at new stores as well as some of its existing stores as a means of differentiating itself from competitors.
Bowling has high marginal profitability
Marginal profitability appears to be the highest in bowling, followed by SPO-CHA. For bowling, the marginal profitability is suggested to be over 90% while gaming is relatively lower due to variable costs associated with prizes in redemption type machines etc. Karaoke has a high exposure to variable costs; this service includes foods and beverage sales. SPO-CHA has a marginal profitability structure similar to bowling.
Business description
The company’s amusement centers are divided into “standard” and “stadium.” Bowling, Amusement (games), and Karaoke are the three main revenue pillars at standard facilities, while SPO-CHA is the key feature for the stadium format.
Returning to the standard format from the stadium format
Stadium added SPO-CHA to become the newer format. However, this format requires a large land area. Consequently, excluding certain stores (Sennichimae store), most stadium format stores are standalone. The company’s recent store opening strategy has been limited to tenancies within existing malls and commercial complexes. For this reason, when space sufficient for the stadium format cannot be leased, the company opts for the standard format.
Bowling (21.9% of sales in FY03/21)
Revenues are mainly derived from fees for bowling rounds, bowling shoe rentals, and vending machines sales (such as drinks and snacks). Within the company’s overall sales mix, although Bowling accounts for less than Amusement’s 50.3% (FY03/20), Bowling is the company’s core business and all stores include a bowling alley.
Nearly all of Japan’s existing bowling alleys opened during Japan’s bowling boom from the mid-1960s to the mid-1970s, and have continued to operate in their original style. Round One’s facilities were newly opened long after the boom period and feature a range of innovations, such as moonlight strike games (game rooms illuminated with black lights), which help boost bowling’s leisure appeal and differentiate the facilities from those of competitors. From FY03/09 onward, Round One has grown faster than the market, but it suffered in FY03/13 as competitors drove down prices. Growth was also sluggish in FY03/15, owing to the prolonged effect of the consumption tax hike in April 2014, and poor weather over the year-end holiday season—normally a time of peak demand. The adverse effect of the consumption tax hike lingered on. However, it seemed to be finally bottoming out in FY03/17.
Starting in October 2018, Round One began introducing ROUND1 LIVE as a new feature for bowling and karaoke, and by June 2019, it had fully installed it at all of its stores. This facility allows customers to focus on their games without needing to be concerned about customers in neighboring lanes by utilizing many large-scale displays. Through the addition of network (LIVE) functionality, the facility offers customers a variety of ways to use it. Specifically, customers can connect to different lanes using “LIVE de Free Matching,” a video call service. Management says that, through use of the facility’s network features, pop idols and comedians can hold “Nationwide LIVE Fan Meet-Ups” and “Nationwide LIVE Offline Fan Meet-Ups,” for which participants are recruited beforehand by connecting people in remote locations with one another.
Round One has a membership program that offers discounted rates for its facilities. The annual membership fee is JPY300. The membership discounted rates per game are JPY720 for general members, JPY710 for vocational and university students, JPY630 for middle and high school students, and JPY580 for elementary school and younger members. Standard non-member rates are JPY730, JPY720, JPY640, and JPY590, respectively.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Market data on a calendar year basis.