Franchise QB

Episode 101: Elliot Cole, Fantasy Claw Arcade

• Mike Halpern • Season 1 • Episode 101

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In this episode of the Franchise QB Podcast, host Mike Halpern speaks with Elliot Cole, General Manager and Franchise Development Director of Fantasy Claw Arcade. 

They discuss Elliot's journey from the automotive industry to the world of franchising, the unique concept of Fantasy Claw Arcade, and the growing market for claw machines in the U.S. 

The conversation highlights the engaging customer experience, operational insights, and the support provided to franchisees. 

Elliot emphasizes the importance of creating a fun environment and the potential for franchise owners to thrive in the entertainment industry.

Takeaways

🪄Elliot Cole transitioned from corporate roles to entrepreneurship.
🧙‍♂️Fantasy Claw Arcade offers a unique, immersive experience.
🪄The U.S. market for claw machines is growing rapidly.
🧙‍♂️Franchising provides a supportive structure for entrepreneurs.
🪄Customer engagement is key to the arcade's success.
🧙‍♂️The nostalgic factor of claw machines appeals to all ages.
🪄Franchisees benefit from lower equipment costs and comprehensive support.
🧙‍♂️Operational efficiency allows for light staffing needs.
🪄The startup costs vary based on location size and build-out.
🧙‍♂️Ideal franchisees are those passionate about family entertainment.

Chapters

00:00 Introduction
00:45 Elliot Cole's Background and Journey
03:08 The Concept of Fantasy Claw Arcade
05:57 Market Trends and Opportunities for Claw Machines
08:46 Creating an Engaging Customer Experience
12:05 Franchise Ownership and Revenue Streams
14:49 Operational Insights and Staffing
18:13 Maintenance and Support for Franchisees
21:04 Startup Costs and Financial Performance
23:57 Conclusion

https://www.fantasyclawarcade.com/franchising

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Contact me and my team with any questions along the way. www.calendly.com/franchiseguy
Mike Halpern, CAFC
mike@franchiseqb.com

This is the Franchise QB Podcast, where we empower entrepreneurs to win big in franchising. We huddle up weekly to educate our audience about the most successful small business model ever created. Franchise it! Welcome to the Franchise QB podcast. I'm your host, Mike Halpern, a 20 year industry veteran and entrepreneur. My mission is for listeners to achieve their American dreams of creating wealth and independence through franchise ownership. Every week we speak with franchisees, franchisors or vendors that support the industry. Thank you for joining us and let's get started. Joining us in the huddle today is Elliot Cole, General Manager and Franchise Development Director with Fantasy Claw Arcade. Welcome to the show, Elliot. Thanks for having me, Mike. Really excited to be here. Yeah, it's great to have you here. So you worke for Caesar's. I know you're there in Vegas. And then a company called Trend Nation, which is an e-commerce platform. And now you're with Fantasy Claw Arcade. So tell us about your background and how you found franchising. Yes, there were a few more things beyond what you just mentioned, actually. I started my career pre-recession in the automotive industry in Detroit. So if you can think back to what things were like before the '08 crash and things were booming and great until they weren't. Right. After that, I spent a few years with just various Fortune 500 companies, including Caesar's. And those experiences were pretty great for building baseline skills. I gained a lot of experience in supply chain management and analytics, but ultimately I kind of realized the corporate world wasn't where I wanted to be long term. I was looking for something much more entrepreneurial and growth focused. And it was around that time I was having that revelation that I met the founder and CEO of Trend Nation, a small e-commerce company. And that seemed like somewhere I wanted to be. So I joined his team and we scaled that e-commerce platform together until an eventual exit. So things went pretty well there. After Trend Nation, he went on to start Fantasy Claw Arcade and I found myself looking for that same entrepreneurial scaling experience again. So I joined his team yet again and I've been here ever since. So here I am today helping grow this brand through franchising. that's cool. I didn't realize that there was continuity in terms of leadership between Trend Nation and Fantasy Claw. So that makes perfect sense. It's a leader that you've already worked for and that's a pretty good testament that, you know, They've done something really well and you want to be a part of this next chapter. Um, so did you move from Detroit to Vegas when you started working for Caesar's or was that later? I'm from Vegas and yeah, when I graduated college, I landed this role in the management trainee program with a company at the time called Daimler Chrysler. That company hasn't existed in a very long time. So I went out to Detroit for that. And it was when the economy came crashing back down that I came back to Las Vegas. So I came back home. I've been out to Detroit a few times. Some of the franchise partners that we work with are based there. So I just thought I'd ask. So tell us, Fantasy Claw Arcade. I mean, it sounds really exciting and interesting. Tell us how that whole idea got started. So Fantasy Claw Arcade, it's this wizard themed pure play claw machine arcade. It's immersive, it's fun, it's family friendly. We don't do video games. So a lot of times people want to know, you have the Jurassic Park game, the other ones? We don't do video based games. It's just claw machines and claw adjacent machines. And when I say claw adjacent, things like your cut to win machines, stuff like that. Yeah. So the idea got started. It was based on the success of claw machines and claw arcades in Asia. They're very much a part of the culture over there. And you just don't see anything nearly at the same level here. So the U S market was, is a huge opportunity for this concept. And if you go onto Google trends and you look at other entertainment concepts, so ax throwing escape rooms, just regular arcades, what you're going to see is that over the last five years, those concepts are all flat to even down. You look for claw machine or claw arcade, which you're going to see is that search volume is increasing. So putting all this together, there's this really great opportunity in front of us. And a huge benefit of ours is that our founders are all successful entrepreneurs and their backgrounds really play well into this. They've done franchising, retail operations, sourcing, brand building. It's really the perfect mix to scale this kind of concept. So is kind of Japan where this all started, was somewhere else in Asia? Cause like you mentioned, I know there's a lot of success, you know, internationally and it's like, wow, why don't we have that here? And you know, that was kind of the Genesis for the idea. Um, is Japan kind of like main and main for where claw arcades are having a tremendous amount of success? They're the biggest in Japan for sure. It all started in Japan back in the 70s. They call them UFO catchers. It's gained traction in other countries as well. So if you're in Vietnam, Korea, or even China, pretty much all of these Asian countries, there's a ton of demand for claw machines. just, they love them over there. Yeah. Well, I wonder, I did see that, that, that graph that kind of shows the search volume for claw is way above all the other ones that are stagnant and Maybe it's just you can't get those anywhere else. Like you can play video games at your house. You can play them on your phone. mean, like I think that's probably put a big dent in the kind of in-person arcade business, but yours is like this visceral experience that people have when they like step into a place and they compete to kind of win a prize. Yeah, absolutely. So Elliot, why claw machines and why now? What we're seeing in the U S is that mall landscapes are shifting. there's very much increasing demand for entertainment, wellness, and F&B concepts. So if you take a look at claw machines, it really hits at that entertainment concept. It's in demand, it's trending, and also when you drop a token in the slot, there's a nostalgic factor to that. You hear the clink, you get to operate the controls, it takes everyone back to when they were kids, it also appeals to kids now, it's fun for the whole family. So when you combine all of that with these increasing search volumes, claw machines are just very much coming into their moment. Yeah. And you mentioned the mall. I mean, the mall landscape, I mean, to a layman, like I'm not in the retail business, but they're changing. There's all these vacancies that are getting replaced with entertainment venues. So from your perspective, how are the shopping mall landscapes changing and what sort of entertainment options are these like landlords looking for? Yeah, so every established market, every metro area, there's going to be multiple shopping malls that are doing really well. You hear a lot of gloom and doom about shopping malls going under, but that's just not the case. There may be some lower tier ones that aren't doing well, but overall, malls are very much thriving, but they're shifting. So if you look at the composition of malls in the United States, 90 % of the tenants are retail. That means only 10 % is left over for entertainment, food and beverage, things that drive people in for non-retail opportunities. So in other countries, they're way more focused specifically on entertainment, wellness and F &B. So if you take an extreme example in Dubai, in their malls, something like 30 % of what they have there, entertainment, F &B. So the retail anchors are shrinking. Department stores are very much in decline, but malls actively want experiences that drive foot traffic, dwell time, and repeat visits. Like over the past decade, you've seen these e-retailers like Amazon and Walmart taking over what used to be in the mall. You just don't go there as often because they make it so frictionless to order something and return it. up shipping and all that. So I can see how you have to create reasons for people to leave their house and go somewhere and do something and you fit right into that segment. for someone that hasn't been to Vegas or hasn't visited one of your locations, what's it like when you walk into a fantasy claw arcade? We design our arcades to be experiences. So there's an immediate wow factor when you walk in. We have a wizard theme. So, Fantasy Club Arcade, you look at our logo, it's got this wizard on it. That theme runs throughout everything we do in the arcade. It's on the walls, it's in the machines. Everything is branded around this concept, and it's very much different from what you see with other players in the space. We have lights, we have music, there's excitement. We want customers to come in and feel it, not just look around and have a transactional experience. There's rows of claw machines. They're lined up like treasure chests, just waiting to be won. People light up instantly. It's designed to spark engagement and play. And you absolutely see it the moment people walk through the door. It's often that someone will be walking by and maybe they didn't even know we were there, but they see everything going on and they just turn and beeline straight into the store. They want to see what we have and they want to play. Yeah, I I've seen some images and videos of your shops and I don't know how anybody can walk by without noticing. So I think that's a good thing for your brand. So let's talk about the business. If someone wants to become a franchise owner, what are the revenue streams? I mean, it would seem pretty intuitive, but I'd love to kind of learn a little bit more about the different revenue streams that exist within your model. Yeah, the primary one is token purchases. So when somebody comes into the arcade, They purchase tokens and that's what they use to play the machines. Now, we offer these promotional packages and we design them to maximize joy and engagement. So it's not like someone's just walking in and tapping a token exchange machine and getting $10 worth of tokens and walking around. We very much want people to interact with our staff. We have additional things that we throw in with promotional packages beyond just bonus tokens. So... That's our primary revenue stream. Beyond that, we do have a trade-up counter where if people want to accumulate a bunch of different plush as they're playing and they want to trade it up for a bigger one, they can absolutely do that. And then we have drink and snack sales, we do birthday parties and group events. So there's different ways to generate revenue with this concept, but it is primarily token purchases. Now you're mentioning tokens specifically, so instead of using like the card readers, you guys intentionally go with tokens to make it more of that visceral experience? Yeah, absolutely. There is that nostalgic feel of holding the tokens and dropping in the slot, and it also plays into our theme. So we have this wizard medieval magic theme. And if you've ever watched any movies about medieval area, Lord of the Rings, you get the gold pouch and they plop in your hand as payment. you purchase tokens, comes in this pouch that you plop in your hand. It feels like you just won this bag of gold and you're going around and you're spending it in the machines. It just plays into our vibe really well. Yeah, that's really cool. So, um you know, what are the benefits of going with Fantasy Claw Arcade? If there's any skeptics out there, they're like, well, I can buy my own claw machines and start this on my own. um What do you say to them? What are the benefits of being with your franchise system? Yeah, the biggest one is the value we provide for our franchisees. So we're vertically integrated. So we work with our own factory, produce machines branded specifically for us. And what I can tell you is I've been to the trade shows. I know what you'll spend. on a claw machine if you buy one through a domestic distributor, it's going to come with their branding, it's not going to be specific to you. And it's going to be a lot more than you might think. We provide the claw machines roughly 40 to 45 % cheaper than what you'll get for us from us distributors. And right now our assortments about 15 different branded machines designed specifically for our concept. So the price that we can get your store open for is going to be cheaper than you could do on your own. And all of our prize counters and prize shelving, everything is included in this to standardize the look and feel and have that captivating, engaging look when you walk in. So it really ensures that every arcade delivers just a really consistent and polished experience and adheres to the brand standards. Yeah. And we'll get to the startup costs here in a little bit. is that 30 to 40 % savings is going to be really significant in an equipment heavy business like Fantasy Claw. uh So, I mean, you mentioned you help franchise owners with things like sourcing prizes and how to operate. uh It sounds like a pretty turnkey offering. Is that a pretty accurate way to describe it? Yeah. And I mentioned that we started off planning to scale this from day one. So everything that we're doing is very well and thoroughly documented. So we have a playbook that we can hand off and say, here's how you operate the arcade. So it's been tested, we know it works, and we always make it better, we're always improving it. So you have the full operation manual, step-by-step SOPs. We have data-driven analytics, so we get data from both our POS system and our machines, so we could tell you, here's what people are playing, here's what they like, here's where we should expand the assortments. We offer... seasonal promotional prizes, we have our own house branded merchandise, we have ongoing support for tech, servicing, marketing. So we really are designing this thing to be plug and play. No experience necessary, we can show you how to run it. We want franchisees to know and to feel that they're supported every step of the way. Yeah, I mean, let's talk about operations, right? I think the assumption is that when you invest in something, so much equipment, you don't have a ton of labor. So Elliot, how complicated is it to operate a fantasy claw arcade? What's the staffing model look like? So it's not very complicated at all. Staffing, it's typically pretty light. I would say two to three employees per shift. On the weekends, if it's really busy, you would definitely have that three and maybe even four if you're in peak seasonality. During the midweek, if it's in the morning and slower time, you might even be able to get away with So you don't need a ton of staff for this concept. It's very scalable. Once the store is running, you can expand things pretty easily. The operations are very streamlined. The machines are durable. Once you get everything configured, it pretty much runs itself. The staff are needed for sales. But once a sale occurs, our staff are trained to walk around the arcade. We don't want people to come in and not win, which sounds counter to the why would you want people to just give you their money, walk out? That's not what we're about at all. We want people to come in, enjoy themselves, win and come back another day. So if someone's not having that experience, our staff are trained to recognize that and offer help and whether that means we give them some additional tokens, or we fluff up the inventory inside the machines to make it. easier to grab. There's different things we can do. But, you know, there is staff there. So it's not like you're just running a vending machine, but it's pretty light. And, you know, this whole thing is designed for entrepreneurs who either want a single or multiple locations because one store manager can easily oversee multiple locations in their area. And the reporting that we have, it makes it really easy to keep tabs on how an individual store is doing or an entire book of stores. Well, it's nice to know that they're designed for users and guests to have some success. Cause back in the day, when I used to play the claw machine, I can go through 10 bucks and I'm not going to win anything. And I know I'm not going to anything. And my kids, have one in college, one in high school. And when they were little, it's like, come on, you're not going to win anything. So I like the fact that you're trying to create a feeling where people are like, Hey, they're going to tell their friends, you know, there's something to show for it at the end. have this like. souvenir to take home. So I think that's pretty cool. um So do the franchise owners or the manager of the shop or the employees, do they deal with issues when it comes to maintenance of the machine and things like that? Are they trained to kind of repair those? Do you have a separate contract with like a local repair person that can come in if anything goes kind of sideways with one of the machines? All of the above. So there's different levels of tech support, if you will. There's common error codes where we can train the staff on how to resolve them and get the machine back up and running. But as with any mechanical machine, everything is going to need maintenance. Eventually, some parts going to fail. So we do partner with technicians in the area to come in and service the machines. In Vegas, it's pretty great because, you know, think about how many slot machines we have here in town. We were able to find people who knew how to fix mechanical machines just because there's so many people who know how to fix lot machines, but we can find these in any market. Basically, anywhere there are vending machines, there are ATMs, there's always going to be people who know how to fix them. And ultimately, it's a very transferable skill set to something like a claw machine. Yeah, makes sense. So let's talk about the cost to get in, the Item 7, $275k to $492k. What's all included in that package? And I know that range of cost is going to vary based on the footprint. I think the one in Vegas is over 4,000 feet. So tell us a little bit about the range of the size that you guys can kind of move into and what's included in that startup cost. So that is the entire cost needed to open the store. So from the day you sign the franchise agreement to the day you open, you should expect that range. Now, the two biggest factors in there. It's what you just mentioned, one, the size of the arcade, but two, the level of the build out. So with the arcade build out, you have the leaseholder improvements, you have signage, you have decor, you don't need to go to overboard. And what I mean by that is if you come into our Vegas store, looks, it looks great. It's, it's clean, it's fresh. The walls are branded with all of our decals. It doesn't take a lot to do that. You know, we're not opening up walls and rerouting this and changing that. You can move in pretty inexpensively by putting up the wall decals, hanging the sign out front. If the store floor is in good, clean, presentable condition, you can roll with that. And the machines themselves have a lot of lighting on them, so that helps quite a bit too. The biggest expense you're going to have in the build-out is electrical. So every machine has to be plugged in. So you have to make sure, one, you have enough power outlets throughout the store, and two, that the panel is big enough to support it. So expect to have some expense there on the electrical. But then the next big expense is directly related to the size of the arcade itself. So if you think about it, a standard claw machine, it's roughly three feet by three feet. So think about filling up a 1500 square foot location with these machines. So with a 1500 to 2000 square foot location, you're going to have about 65 give or take machines. As you mentioned, our Vegas flagship store It's 4,500 square feet. We have 130 machines. So if you think about the cost involved with opening something that has 60 machines versus 130 machines, that's going to be a big cost. So the size of the arcade itself is really going to determine where you are in that scale. But beyond that, it also includes your initial prize inventory, your training and launch support, your initial marketing package, working capital so that you can stabilize early operations. It's everything you need from signing to opening. Yeah, no, I appreciate that. That makes sense. So can you share any item 19 financial performance with us today in terms of like how they have performed historically there in Vegas or elsewhere? Yeah. So in our Item 19, we launched our first store in the middle of last year. So Item 19, if you're looking at it, it shows $667,000 of revenue, but that's a partial year. Our target AOV is going to be higher than that. We're targeting $800,000 for a whole year for a location and our EBITDA margins, it's about 20%. And on top of that, our AOV, it's about $40, a little more than that, but the unit economics of this concept are very strong compared to a lot of what you'll see with other entertainment franchises. Yeah. And I guess one of the cost items you mentioned is electrical. That's probably a lot. typically expect in a retail environment just because of the pull and the demand from those machines. Right. Yeah. Very cool. um So what's your footprint like right now? I know you're early on, you're an emerging brand, you're recent to market as a franchise system. You have the one there in Vegas. um What else do we have in terms of operational units and units that are coming soon? So we have two stores here in Las Vegas. We opened our first one last year. We opened our second one earlier this year. We have a third location opening in Honolulu in a couple of weeks. We're basically right there. We are looking at some additional opportunities for later this year. I can't quite talk about them just yet, but know that they're in the pipeline and you know, we're talking to prospective franchisees in various markets and we're looking to spin some up very soon. Yeah. So that's the good news. You have a lot of white space to find like candidates that can develop a market, which is pretty cool. So who are you looking for? Like who's the ideal candidate? to become a Fantasy Claw Arcade franchise owner? Sure. So if you take a step back, we're in the entertainment business. So you have to want to be in the business of family fun. So we're looking for entrepreneurs who want to be part of an engaging, interactive business. You're talking with customers, you're making people happy. There's so many entertainment concepts out there. So for someone to bring their entertainment dollars to you, there's an expectation that you'll deliver. So we need people who believe in that mission. We don't need arcade experience prior to this. The training, the playbook, everything we provide makes it truly turnkey. ideally, we'd love to partner with people who want to open multiple stores. We're fine with individuals focused on running a single location, but we want to make sure that they have the financial backing to support themselves in this process. This has been awesome. In fact, I'm going into my younger son's high school to their entrepreneurship class to give a presentation on the franchise landscape and my role as a franchise consultant. And I'm going to include Fantasy Claw Arcade, because I think they'll start paying attention when they realize businesses like yours are actually franchise systems. So I will weave that into my presentation. But Elliot, it's been great. Anything else that you want to add to the mix today before we wrap up? Yeah, I just want to emphasize that Fantasy Claw Arcade, it's fun, it's engaging, and we've built it to scale. We're not necessarily looking for passive transactional partners. We want entrepreneurs who really want to connect with their communities. For this concept, the timing is perfect. Malls want it, customers love it, and we've built the systems and processes to make this truly turnkey. So... This resonates with you. Please reach out and let's bring a Fantasy Claw Arcade to your city. Yeah, it sounds like a really, really cool concept. Looking forward to checking it out. And if anyone listening would like to connect with Elliot and his team to learn more about becoming a Fantasy Claw Arcade franchise owner, contact me at FranchiseQB.com or on X @ QBFranchiseQB and I'll get you connected. Thank you so much Elliot for taking the time to get in the huddle with us today. Certainly. Thanks Mike. I appreciate you having me here. You got it. Thank you for listening to the Franchise QB podcast where you're at the helm of your future as a franchise owner. If you enjoyed the content, please rate the show and recommend it to anyone that might be interested in franchising. Make sure to visit FranchiseQB.com to subscribe to my newsletter and for an actionable playbook to go from walk-on to legend in your new business. Follow us on Twitter @QBFranchiseQB and join us every week for a new episode. See you next time. Visit FranchiseQB.com. take the next step of your journey towards wealth, independence, and franchise ownership. And remember, when working for the man gets old, you must do something bold. Thank you for listening.