Dotty's: A Great Nevada Success Story
I wrote recently about crony capitalism - where the government using its powers to support a business or industry against its competitors - and how Station Casinos has abused its political clout andconspired with the government to hamstring Dotty's Neighborhood Taverns.
This is a textbook example of how the government wrongly sticks its nose into the free market where it doesn't belong.
Anyway, Howard Stutz of the Las Vegas Review-Journal has a great story in the newspaper today detailing the history of Dotty's and outlining some of the secrets to its success. In case you missed it, I've included the article below.
If you really want to create jobs, the Dotty's story tells you all you really need to know - just get the government the hell out of the way of job-creating entrepreneurs such as Craig Estey and Mike Eide and stop trying to pick winners and losers in the marketplace.
Chuck Muth
Nevada's #1 Irritator of Liberals
I wrote recently about crony capitalism - where the government using its powers to support a business or industry against its competitors - and how Station Casinos has abused its political clout andconspired with the government to hamstring Dotty's Neighborhood Taverns.
This is a textbook example of how the government wrongly sticks its nose into the free market where it doesn't belong.
Anyway, Howard Stutz of the Las Vegas Review-Journal has a great story in the newspaper today detailing the history of Dotty's and outlining some of the secrets to its success. In case you missed it, I've included the article below.
If you really want to create jobs, the Dotty's story tells you all you really need to know - just get the government the hell out of the way of job-creating entrepreneurs such as Craig Estey and Mike Eide and stop trying to pick winners and losers in the marketplace.
Chuck Muth
Nevada's #1 Irritator of Liberals
Posted July 26, 2014 - 5:44pm
Dotty’s taverns are simply complex
Dotty's
Owner and Founder Craig Estey speaks during an interview with the
Review-Journal at Dotty's corporate offices at 3645 Losee Road in North
Las Vegas on Wednesday, July 16, 2014. (Chase Stevens/Las Vegas
Review-Journal)
By HOWARD STUTZ
LAS VEGAS REVIEW-JOURNAL
The
160,000-square-foot North Las Vegas warehouse and headquarters of
Nevada Restaurant Services — parent company of the Dotty’s chain of
taverns — is a cross between Costco, Home Depot, a slot machine
manufacturing plant and a direct-mail house.
Everything making up a Dotty’s — think a grandmother’s house with gambling devices — sits in the warehouse.
Near
the building’s executive suites is a full-scale Dotty’s mock-up,
complete with free-play slot machines and a kitchen counter filled with
snacks, used to train store managers.
The centralized office is one secret behind Dotty’s success.
Craig
Estey, founder and president of Nevada Restaurant Services and the
creative force behind Dotty’s, said controlling “everything that that
customer touches” is a sign of efficiency.
“Our
business philosophy is to maximize revenue per store, and we do that by
taking care of the customer,” Estey, 61, said during a 90-minute
interview and tour of his company headquarters. “There are two ways to
make money in business; increase revenue and decrease costs. We try and
do both.”
Privately
held Dotty’s is viewed as one of Nevada’s most successful gaming and
tavern businesses, with more than 300,000 customers in its player
database.
But
its business model — offering minimal food and beverage choices with a
heavy focus on gambling — has been hotly debated since 2010, when
locals-oriented gaming companies prompted government bodies and state
gaming regulators to enact laws and regulations aimed at slowing the
company’s growth.
Estey
largely remained in the background during the debate as his longtime
lieutenant, Mike Eide, 64, Dotty’s chief financial officer and chief
operating officer, took center stage.
In
his first extensive comments since the debate, Estey moved to dispel
misconceptions about his business. For example, although each Dotty’s
has only one or two workers on duty at any time, each store supports 10
jobs — warehouse workers, accounting personnel and security, all based
at the corporate headquarters.
“It
bothers me when people say we don’t hire people,” said Estey, adding
that Nevada Restaurant Services will soon have 1,500 employees.
“The
frustrating thing during the ordeal has been the nontruths,” Estey
said. “They really slammed us. My customers aren’t stupid, and neither
(are) anyone else’s customers. If you’re not offering what the customer
wants, they should have the freedom to go anywhere else they want.”
CAREFUL PLANS
Some people may see Dotty’s as a chain of taverns, but there’s a purpose for everything in its detailed business plan.
The idea was to create a place for middle-aged women turned off by male-dominated taverns.
Windows
at Dotty’s allow natural light to filter into the brightly lit rooms
where countertops and end tables are adorned with checkerboard table
cloths and artificial plants. Slot machines and comfortable chairs are
distributed throughout.
Televisions
are tuned to news channels and programs that favor female audiences,
such as “The View” and “The Ellen DeGeneres Show.”
The
Dotty’s business model is an enigma to rival tavern operators, who
initially fought the concept but lately have introduced knockoff brands,
such as Jackpot Joanie’s and Molly’s Tavern.
“They
don’t do what we do,” Estey said. “We’ve been doing this for 22 years.
The business has changed. You can’t just plug in 15 machines and think
it will work.”
Estey
declined to reveal monthly or annual revenue figures. Eide said the
average Dotty’s customer visits three or four times week for 20 to 40
minutes, and spends $20 to $30.
“We really don’t know how that’s different (from the competition),” Eide said.
Dotty’s
debuted in Las Vegas in 1995, in a shopping center at Tropicana Avenue
and Maryland Parkway. The company has grown expeditiously since the
mid-2000s.
There
are now 120 Dotty’s statewide, including 80 Dotty’s taverns with 15
slot machines each and 27 nonrestricted Dotty’s that average 40 slot
machines per facility. The company also manages the slot machine areas
in Nevada-based Food 4 Less and Kmart stores under the Dotty’s brand.
In
its restricted locations, Dotty’s pays annual and quarterly flat fees
on slot machines. The annual fee is $250 per machine, the same price
paid for nonrestricted licensees. The quarterly fee is $81 per machine
for the first four machines, then $141 for each additional machine. A
location with 15 machines pays $1,815 per fiscal quarter.
In
its nonrestricted locations, Dotty’s pays the same 6.75 percent gaming
tax as traditional casinos, a market Estey recently moved to join.
In
December, Nevada Restaurant Services purchased the Hacienda near
Boulder City and is rebranding it as the Hoover Dam Lodge. Earlier this
month, the company bought the River Palms in Laughlin for $6.75 million
and is awaiting licensing before taking over the operation.
The hotel properties will include Dotty’s-branded casinos, Estey said.
LOGICAL MOVE
Estey
was in the hospitality industry when gaming came to him — he owned
lodges at Oregon’s Crater Lake and Oregon Caves tourist areas when the
state legalized video poker machines in the early 1990s.
Estey
hoped to become a gaming device distributor and operated a business
that serviced and distributed amusement games and vending machines.
“It just seemed like a logical move,” Estey said.
While
researching gaming locations, Estey realized that bars and taverns
didn’t cater to women. So he worked on a side concept of a tavern geared
toward female customers.
When
Oregon decided to oversee slot machine distribution itself, Estey
polished the Dotty’s concept and entered the tavern business. He
acquired video poker machines created by Montana-based VLC, which was
co-owned by Eide.
He opened 15 Dotty’s in Oregon, but they weren’t an immediate hit.
“We were losing money,” Estey said, “and I knew I had to immerse myself in gaming to fix it.”
Fine-tuning
made Dotty’s profitable within a year and company revenue grew into 5
percent the total gaming volume in Oregon, which had a 70 percent gaming
tax rate.
Estey
said he decided to bring the concept to Nevada in search of a
“friendlier gaming environment,” although Silver State gaming regulators
were skeptical that the business model would work.
“They were right,” Estey said. “We had to bring in different efficiencies.”
Dotty’s
dropped its slot machine route operator and ran its own machines. The
company took on a slot machine manufacturer and distributors license.
Estey bought video poker machines from VLC. In 2002, he persuaded Eide,
who had sold the business, to move and help run Dotty’s.
“We put the customer first, and we did things to push the envelope,” Estey said. “The business finally took off.”
RAPID GROWTH
Several events converged in the mid-2000s to fuel Dotty’s largest era of growth in Nevada.
A
2006 voter-mandated statewide ban on smoking in locations where food is
served — except casinos — forced taverns to eliminate food service or
wall off restaurants from bars and slot machines.
Estey said Dotty’s closed its kitchens, although the locations continued to offer some snack items.
Then the economy soured, hammering many tavern operators.
“We
were seeing financials on guys (who) were making $700,000 to $800,000
per location and they were now losing $300,000,” Eide said.
Estey
sold his Oregon Dotty’s locations — he retains a licensing agreement
with the new owner — and another businesses. Suddenly, he was sitting on
$20 million in cash.
“The economy went to hell and we became buyers,” Estey said.
Eide said shopping center landlords and real estate brokers began calling the company.
“Our
reputation was that we always paid rent on time,” Eide said. “When a
tavern went out of business, we got the call. We were picking up a lot
of locations. That still happens today.”
Estey
said Dotty’s growth included 14 locations built from scratch, but most
were previously operating taverns that were remodeled. Although some
perform financially better than others, the company has never closed a
location, Estey said. The original Dotty’s remains open.
“We always stuck it out,” he said.
BACKLASH
In
2011, state gaming regulators and Clark County changed laws to require
working kitchens and bar-top slot machines in taverns. The 2013
Legislature changed language governing restricted gaming sites, such as
the size of a location and gaming devices that could be offered.
Most of the changes were directed at Dotty’s.
In
May, a members of a legislative interim study committee failed to push
forward a bill seeking a definition of traditional and nontraditional
restricted gaming locations.
The underlying concern was that Dotty’s makes too much money off gaming to be considered taverns.
“It’s
really constant pressure,” Estey said. “If you try and put us out of
business, you’re going to put all the tavern guys out of business.
Certain people seem to get aggravated.”
Station
Casinos has been Dotty’s largest detractor, believing the business
model is not a true tavern but more akin to a slot machine parlor.
Still,
Estey said he talked with Station Casinos officials throughout 2012 and
the company made a formal offer to buy Dotty’s in early 2013. He
rejected the proposal and made a counteroffer to buy part of Station
Casinos. He was turned down.
“We
discussed a whole bunch of things,” Estey said, “such as they taking
out slot machines and us taking their sports kiosks, maybe even have the
company’s players cards work in both places.”
Station Casinos denies making an offer.
“We
have publicly commented in this subject several times,” company
spokeswoman Lori Nelson said. “Suffice it to say that our version of the
events differ greatly from Mr. Estey’s version.”
Either way, Dotty’s isn’t done expanding.
Besides
hotel-casino projects, the company is considering a sports bar concept
that it plans to unveil at the renovated Hoover Dam Lodge. Estey was
vague on the details because several aspects, such as the menu, are
still being tested.
Estey
said the sports bar is designed to fit into the same footprint as
Dotty’s. The company may look at converting some underperforming taverns
to the new concept.
“We still don’t know if that’s the intent, but it gives us flexibility,” he said.
EDITOR'S NOTE: Although Station denies trying to buy Dotty's in Stutz's article, Las Vegas Review-Journal columnist Steve Sebelius wrote extensively about Station's "if you can't beat 'em, buy 'em" offer three months ago.
You can read it by clicking here
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