How to start an arcade business – the key steps

The coronavirus pandemic led to many UK businesses in the entertainment industry closing their doors. Only in the last few weeks have some started to re-open under strict social distancing guidelines (meaning significantly reduced capacity and revenue).

It is yet to be seen how many ultimately survive and indeed prosper. Having a USP will become even more important and a niche market will also help.

Before the doom and gloom of coronavirus, video game arcades were on the rise in the UK and unlike a lot of entertainment venues, it is entirely possible to safely social distance in these spaces.

As such, it’s likely that in the coming years we will continue to see them continue to grow in popularity, especially amongst adults who remember them the first time round (in the pre-console era).

It may seem an interesting proposition but for many entrepreneurs, opening an arcade is a childhood dream but it’s also one that is looking increasingly lucrative if you can get it right.

In this guide, we’ll look at what’s involved in starting an arcade business in the UK.

Money Matters

The first think to note is that nearly every new business requires significant initial investment and setting up an arcade would be no different. You will need to establish a clear idea as to your initial outlay, ongoing costs, projected income, and potential break-even point.

Costs to consider would include: premises, renovation/decoration, staff wages, arcade machines, insurance, off-site storage, repairs and replacement of machines, security, food and drink (if applicable), license costs and more. Once you have a fully costed budget and cashflow forecast, you can decide the viability of the concept and use it to drive your overall business plan.

You need to make sure that when you launch your business you have all of the required licenses and insurance.

Company Setup

As part of your business plan, you will need to decide with what kind of entity you wish to run the arcade. You could look at running it as a Sole Trader, a Partnership of some kind, or even forming a limited company.

Each of these options have their own pros and cons depending on the scale and turnover of your operation, so you should consider them closely and take professional advice. It’s likely that if your business is of a certain size or gets to become a certain size, then you will need to go limited at some point.

Part of this step will also involve deciding on a name for your venture and making sure you settle on a strong brand image and get your marketing plan in place.

Location, Location, Location

This is possibly the key decision. Where you base your arcade is going to play a major part in your success.

You will need to strike the tricky balance between somewhere with decent access (and potentially some existing footfall) and somewhere where the rent or purchase price is not too high. This trade-off between access to customers and cost is something you will have to consider closely before opting for the best location on-balance.

Facilities and Extras

Is your arcade going to be just that? Or do you plan to have a bar/café/restaurant as part of the premises? This will obviously bring additional income streams but will have corresponding costs.

Perhaps you could look into having a third-party running the café or bar within the premises to keep the costs down? Potentially, you could even look at offering space to a well-known brand such as Costa or Starbucks or even a McDonalds?

Whatever you decide, your premises will also need to have toilets for customers and staff and these will need to be cleaned and maintained.

Who is your Target Market?

Essentially, you have two target markets to choose from. If you want families including younger children to be your main audience, a more traditional arcade would be appropriate.

The alternative is a more ‘gamer’ focused arcade wherein you want the serious gamers and fans of all things retro to be your principal audience. Or perhaps there is a way of having a bit of both?

Once you have you have decided on this, you will need to put a great deal of effort into how to reach them. This includes advertising, promotions, market-research and so forth.

Equipment

So where are you going to get your arcade game machines? How many do you want? Are you going to rent them or buy them, and on what terms? This is a central aspect of the business as without the machines, you are not going to get very far.

The majority of arcade machines will cost between £1000 and £5000 apiece to purchase. This means that even a fairly modest selection of 25 machines could potentially cost in excess of £100,000.

If this is far out of reach, it is worth looking at the rental/lease options that are available. Clearly this is helpful in that it reduces initial capital outlay but at the same time will increase ongoing costs.

One of the other benefits is that the leasing option will usually include some sort of maintenance deal, which is less likely to be the case with outright purchases.

What machines/games do you want in your arcade? You will want the big names to attract the punters – but these will come with a premium. Some of the all-time classics that will probably warrant that little bit extra include Street Fighter 2, Donkey Kong, Mortal Kombat, Sega Rally, Tekken, and Space Invaders.

Competition

As of 31 March 2019, there were 1,438 adult gaming centres operating in Great Britain [1]. It is crucial to know your competition before you enter any market, so extensive initial research is key.

Find out who your competitors are, where they are based, what they offer, what they charge and how they attract customers. Once you have this information, you can look at how to make yourself unique and even how to poach their customers.

Pricing Plan and Structure

Clearly, to some extent this depends upon the types of machines you choose but you will need to decide whether you opt for a traditional pay-per-play plan or some sort of hourly rate.

Perhaps there is also scope for memberships at different price points with different benefits. It is well worth checking how your competitors deal with this aspect of the business.

Staff

You will probably not be expecting to run this all yourself so staffing may well be a significant cost and it will also take time and resources to find suitable team members.

In an ideal world, you will want employees with an enthusiasm and fondness of arcades so that they understand how they work and ‘get’ the mind-set of your clientele.

Web Presence, Promotion and Advertising

Once you have your business plan established and have made the decision to press on with the venture, you will need to establish a web presence and promote your business. It would make sense to advertise on gaming websites and in publications that are read by your target audience.

Good luck with your venture!