The Escape Room Boom

Escape Room

You are in a room with no windows, doors or any exit. The only items are a mirror and a table. How do you escape?

The answer: look in the mirror, then at the wall and back at the mirror to see what you saw. Use the saw to cut the table in half and join the two halves to make a whole. Put the “hole” on the wall and climb out. This hackneyed riddle has one answer, and the answer is not exactly possible. But, what if it were? What if you were locked in a room similarly?

Today, the opportunity has become feasible with the creation of escape rooms. The premise of an escape room is to lock a group of up to ten people in a room that is designed like the set of a movie based on the board game Clue. Once inside, the participants have 60 minutes to work together to track down the different clues in the room that include numbers, words, pictures and objects. All of the clues, when used correctly, lead to a key that allows the players to exit the room.

Based on point-and-click computer games—games that involve the user moving a cursor around and clicking on different items to further progress in the game—like Crimson Room, a real-life version of the game entitled “Real Escape Game” or REG, was developed by Takao Kato in 2007 in Tokyo, Japan. Kato is a member of the publishing company SCRAP. Since Kato’s initial game, the idea has spread throughout the world and has been made for all demographics. According to MarketWatch, the total number of escape rooms in the world has jumped to well over 2,800 in the past eight years. Initially exploding throughout Asia and into Eastern Europe, the escape room craze eventually entered the U.S market in 2012 in San Francisco. Since then, it has spread throughout the United States, and there are now 424 different escape room locations in the United States, as reported by the Escape Room Directory. Some of the larger escape room franchises include SCRAP’s Real Escape Game, Escape Hunt, and Clue Factory.

While positive reviews drive families and friends to the game rooms, the majority of their success has been due to corporate clients who use the companies for team-building exercises, as reported by the New York Post. Some larger companies continue to bring their employees back week after week and often fill empty time slots in the middles of weekdays. Escape rooms also offer a more intellectual team-building opportunity than alternative activities like bubble-ball or paintball.

Recently, another factor that has come into play is the sponsorship of large-scale escape rooms in bigger cities by television shows or movies. For instance, according to Newsweek, Mission Escape Games hosted a Penguins of Madagascar room for Dreamworks in New York City while Escape the Room collaborated with NBC Universal’s USA Network to create rooms in three cities and at two Universal theme parks based on USA Network’s archaeological series Dig.

Currently, there have been no signs of this boom slowing down. Even though the quickly multiplying number of rooms threatens to saturate the market, the large American population that has not yet experienced the phenomenon provides a positive outlook for the industry.

As with most trends, however, success will eventually stagnate as the market will become over-saturated. It is very likely that the larger brands like Real Escape Game, Escape Hunt, and Clue Factory will take over the industry as they expand, and when a surplus of locations occurs, it will be the slightly larger brands that take the hit and survive.

Additionally, although corporations use the companies for team-building initiatives or even sponsor temporary rooms in big city locations, the return rate for individual customers is not high primarily because of the expensive ticket price usually around $30. In addition to being twice the price of a movie ticket, escape games lack a crucial element that keeps customers returning to theaters – variety. Movies typically turn over every month or two, and many theaters can show up to 15 different movies at once while escape room locations often have only a handful of rooms that turn over extremely infrequently.

With start up costs at almost $10,000 per room, according to the New York Post, it is extremely difficult for many escape game companies to offer more than a few options at each location. Further, the average sunk costs are likely to increase as consumers demand more and more exciting and theatrical rooms and companies feel pressure from low-cost competitors. As with other fads, this will probably result in companies shrinking their numbers of locations down to subsistence levels.

This outcome has been seen in the frozen yogurt industry, which is an interesting parallel. Up until 2014, the industry had experienced rapid growth at a rate of about 21 percent over the last six years according to Fortune. Growth, however, is projected to contract entirely by 2019 as stated by Forbes with the main factors being the lack of prime locations without direct competition. Jon Crabbe, one of the proprietors of Yolickity and Yotality in the Rochester, New York area, believes that the number of locations near him will drop from 25 stores to eight or nine.

According to Nations Restaurant News, this phenomenon of too many entrepreneurs joining an industry at one time leading to a large surplus is called a shakeout, and the frozen yogurt industry is in the middle of it.

Investopedia states that there is a distinct five stage lifecycle of an industry, one of which is the shakeout. The five phases are the early stages phase, innovation phase, shakeout phase, maturity phase and finally the decline phase. To tell that a shakeout is emerging, product innovation typically declines and a so-called “dominant design” arrives. Then, during the shakeout, economies of scale occurs and barriers of entry increase. After, growth becomes less of the focus as cash flow dominates, and then revenues begin to decline.

The escape room industry is setting itself up for a similar shakeout to the frozen yogurt industry, although it is still somewhere in the middle of the early stages and innovation phases. The industry should continue to grow over the next couple of years until a “dominant design” is produced, and it is very likely that one of the larger brands will create this model. Soon after, however, the shakeout will begin.