Money-Growing: Waiting for the Second Wave

The share of entertainment facilities in the Moscow and Russian economy is still too small, when compared with the entire real estate sector, while such a specific sphere as bowling is but an islet in the sea of business.

In the years since the first bowling club to open in Moscow under market conditions and Russia officially recognized bowling as a sport in 1997, as many as 300 players have become professional players; the Federation of Sport Bowling of Russia (FSBR) has been established; 407 bowling centers, including 95 in Moscow, have opened.

For Muscovite consumers who make $500 to $800 a month bowling has become one of the most favored types of entertainment. According to project developers, the game covers a wide age range, which is enough to make bowling alleys a profitable business.

In the late 1990s and early 2000s the bowling business was ‘super-profitable’, according to entertainment industry experts. However, the first wave of the bowling boom subsided in the capital. “The peak of super profitability was passed two years ago, and these days curling is much more popular. Today it makes sense to build a bowling center with 12 or more lanes,” says Aleksandr Balabind, director general of Severin Development, a company specializing in the construction of entertainment facilities.

Meanwhile, development of the sector continues, and market players are now anticipating a second wave of the bowling boom. According to Brunswick Bowling & Billiards, Moscow has 800 bowling lanes and 13,000 players per lane. The director general of VIA Bowling Products Russia, Andrei Shmyrin, believes that, on the whole, the market is growing in Russia.

In Moscow the market can be represented by a sine curve – the peak of the first wave has already passed and today we are witnessing a recession which will again be followed by a new rise, as the second wave begins.

During the second wave the number of bowling lanes is likely to reach 1,500 to 1,700, and only then will the market be saturated, in accordance with forecasts made by market experts. In total, there are 2,000 lanes in Russia; as many as 7,000 are needed to fill the market. Once this level has been achieved there will be 25,000 to 30,000 players per lane.

Today this figure stands at 60,000 and in the early 2000s there were 300,000 players per lane, that is, they were forced to stand in line. By comparison, in the United States there are 2,000 players per bowling lane and 10,000 in Europe. But market participants believe that even elsewhere around the globe the bowling industry has not reached its final stage of development either.

Sergei Kalinovsky, general director of Volshebnaya Planeta (Magic Planet), a company that manages the Katapulta (Catapult) entertainment complex at the Atrium retail center, says that bowling is likely to remain a vacant niche in Moscow for another five years or so. “One cannot say that that niche has been filled in the capital,” agrees Daria Domostroyeva, a public relations manager at the Kosmik entertainment center. “At the same time, it is obvious that the market is about to be saturated.”

The situation is somewhat different in the regions, which, as is generally agreed, are two or three years behind the capital, and hence, opening entertainment facilities there is particularly profitable. “Remember Moscow’s first-ever McDonald’s restaurant and the stir it caused! A bowling alley creates roughly the same sort of effect in the provinces,” says Sergei Kalinovsky.

Today there are over 200 bowling alleys in 50 cities across Russia, with the market growing by at least 50 alleys per year, according to Brunswick Bowling & Products.

“Considering the successful operation of bowling centers in such [remote Russian] towns as Blagoveshchensk, Lysva, Kirishi, Nakhodka, Petropavlovsk-Kamchatsky and many others, we can say that absolutely any town with a population of over 50,000 is an appropriate venue to open a bowling alley,” says Karina Malikova, general director at Brunswick Bowling & Billiards, Russia & CIS.

“While several years ago most requests [for bowling equipment] came from Moscow, lately this tendency has changed, and today over 70 per cent of the requests come from the regions. Proceeding form that we can say with confidence that the regions are the key locomotive of the development of bowling in Russia.”

Advantages of Co-Existence

An argument about whether bowling is a sport or entertainment could last for hours. Undoubtedly, even the design of bowling alleys is influenced by the audience’s preferences and if bowling, indeed, was a sport in Russia, those centers would most likely resemble gyms or vast warehouse facilities with an enormous amount of lanes.

The concept of bowling alleys worldwide is shaped by cultural traditions and the attitude towards bowling in general. In Muslim countries, where the sale and consumption of alcoholic beverages is banned, bowling alleys do not sell alcoholic beverages; hence there are no bars on their premises. Bowlers in the United States, where the sports movement is highly developed, prefer centers with a minimum of additional entertainment facilities and plenty of lanes where they can focus solely on their game.

In Russia only five per cent of all bowlers are professional athletes. Of course, the Federation of Sport Bowling of Russia (FSBR) does hold pompous competitions such as the World Ranking Masters 2004. And yet, all Moscow’s bowling operators and bosses of bowling alleys unanimously agree that most Russians view bowling rather as an evening out like a visit to a night club.

Most bowling clubs in Moscow are exquisitely decorated and include additional facilities such as cafes, sports bars, restaurants, slot machines, billiard rooms, children’s play areas and even cinema halls. Of course, the scale and variety of these additional services depends on the target audience and location.

According to Sergei Kalinovsky, multifunctional entertainment facilities are more appropriate in the city center within the Garden Ring, while sports-oriented centers would fare better closer to the outer limits of the city. So far, the only large sports center for bowlers in Moscow is said to be Megasfera in Belyayevo. A 50-lane bowling center is also due to be built at the Olimpiysky sports complex.

Be that as it may, the market participants unanimously note a tendency towards the development of multifunctional bowling clubs and alleys on the premises of major entertainment complexes and large retail centers. Hence the bowling alleys at the Samolyot and Champion entertainment centers, as well as at the Okhotny Ryad and Atrium retail centers.

The advantage of developing multilevel clubs is obvious, as consumers grow more used to a wide choice of entertainment services offered at a single location.

As regards bowling alleys within retail centers, this phenomenon is still new for Russia. Sergei Kalinovsky considers a bowling alley within the entertainment zone of a retail center to be a good anchor client. Entertainment facilities tend to attract more customers to large shops, while with a bowling alley in place such areas become an even strong magnet.

In Kalinovsky’s opinion, entertainment complexes have a good outlook in Russia provided the concept is well thought-out. Such an approach brings about the so-called synergy effect, whereby one part of the complex depends on the other. In other words, a restaurant is profitable because there is a discotheque nearby, and the discotheque does well because there is a bowling alley; consequently, the overall profitability of the complex increases substantially while the payback period of the project is reduced.

“In the West bowling alleys are often a part of retail and entertainment centers,” says Feliks Karasyov, a leading consultant with the Kachalov and Colleagues agency. “We see now that Russia has chosen the same path. It will be namely during the second wave of bowling that such complexes will take off. The incomes Moscow consumers’ have reached the required level, while bowling as a type of entertainment has a wide target audience.”

Another reason why building bowling alleys within large retail and entertainment complexes is preferable in Russia is that developing a club that specializes solely in bowling facilities is less remunerative, and moreover it is difficult to secure a site for such a project. According to Andrei Shmyrin, bowling alleys bring profit as long as annual rental charges do not exceed $150 per square meter, and those kinds of rates are charged only in remote districts of the capital or at retail centers.

Karina Malikova believes that the complicated procedure of purchasing land plots and securing approval from the authorities for such projects ward off investors, who instead opt to fit out bowling alleys either on properties undergoing reconstruction or on the premises of major complexes. Brunswick receives a lot of requests to equip bowling facilities at movie theaters, hotels, on residential estates, etc. Competition in the sector is growing, and bowling operators have to adjust their marketing strategies and projects in order to win customers.

Shortage, Turnover, Profits

Russia’s bowling market is dominated by domestic investors, according to Karina Malikova, while for foreign companies Russia’s entertainment industry is still fraught with a multitude of risks. Usually, bowling alleys attract oil businessmen, retailers, telecommunications operators, as well as individuals or companies seeking to diversify their businesses.

A problem operators of chains are confronted with most in Moscow is finding a suitable property. A bowling alley will only be profitable if it operates at least 16 lanes and is equipped with functional facilities (cafes, bars, etc.), which requires a total space of 1,500-2,500sqm.

To begin with, finding such a property for rent is rather difficult, especially in areas with a large number of people. Secondly, building a new property from scratch only pays on the outskirts or in the regions which is exactly what developers do. That is why many market participants complain about the shortage of space. Otherwise, chain operators, as a rule, experience no problems with managing bowling alleys.

Private investors who open bowling clubs usually enter the sector having already secured a site or a property, but knowing little about bowling equipment and lack the skills required for managing such facilities.

Location, management and equipment are key factors for success in bowling, market participants maintain.

Launching a bowling center in the capital may require the investments from several hundred thousand dollars to several million, according to Brunswick Bowling & Billiards. A single lane brings in annual receipts of $35,000 to $60,000.

The income from bars and restaurants that operate within a multifunctional club amounts to 80 to 100 per cent of the profits of a bowling alley. The total annual turnover in Moscow runs up to $80 million, $200 million across Russia. Building a small bowling alley, with 4 to 6 lanes, in the province, will cost $300,000 to $400,000, according to Sergei Kalinovsky. A bowling center with 12 to 16 lanes requires $1.3 to $1.5 million, says Andrei Shmyrin. Payback on construction of a separate building takes approximately 2.5 years.

The History of Bowling

The largest bowling alley in Russia is situated not in Moscow but in St. Petersburg – the 36-lane Bowling City. Moscow’s biggest and most popular alleys are Samolyot with 34 lanes, Kosmik (32 lanes), Kurazh (32), Champion (30), Apelsin (30), Katapulta (24), Megasfera (24), Planeta Bouling (Bowling Planet) at the Kolomenskaya metro station (23).

Many players consider the Kosmik bowling center to be the first “real” club that opened after perestroika, and not under the Soviet regime. Kosmik was, indeed, one of the very first bowling alleys to be opened against the backdrop of the 1998 financial crisis. However, a year earlier another bowling alley – the 8-lane Alex – opened at the Central House of Tourists. It was headed by a former mechanic, an employee of the Kosmos Hotel, who had run one of the few Soviet-era bowling alleys. Needless to say, most Russians were unaware of its existence.

Alex was tremendously popular and charged its guests $50 per hour. Kosmik, for its part, experienced serious difficulties during its first year of operation. “Because of that [consequences of the financial crisis] the payback period of the project exceeded three years,” says Daria Domostroyeva. “Besides, we kept on re-investing in expanding the complex and built 16 additional lanes, opened a billiards room with 20 tables, opened one more restaurant with 250 seats and a summer parlor.” Today Kosmik is a 3-storied multifunctional center.

The size and reputation of a club are determined by the number of lanes. Other important criteria are equipment, the quality of service and management. A poll held by VIA Bowling Products shows that customers rate clubs, firstly, by their proximity, secondly, by the quality of services, and only then by the prices.

Moscow’s clubs charge bowlers $10 to $50 per hour. By comparison, in the U.S. players pay $3 to $5 for a game, not an hour. Moscow experts agree that charging players for a game is not profitable as some smart players will deliberately protract the game for hours, sipping beer for most of the time.