XP Factory sees opportunity to ‘make hay in underpenetrated market’

XP Factory has continued to be “highly resilient” to consumer headwinds in 2024, according to CEO Richard Harpham.

The experiential leisure company, which operates Boom Battle Bar and Escape Hunt brands, expects to achieve results for the 15 months to March 2024 “in line with market expectations.”

In an investor meeting, the chief executive said it had seen continued strong like-for-like sales growth for both brands in the first ten weeks of the calendar year, achieving increases of 9.2% and 11.4% respectively.

The business reported revenue up 96% in 2023 to £44.8m as it continued to grow in scale, and sees a market opportunity of over 50 Escape Hunt and 100 Boom Battle Bar sites in the UK alone.

Post period end, Harpham said the business would focus on “high level, site level investments,” especially for the Boom Battle Bar business.

“We opened so many sites so quickly in 2022, and we didn’t get everything right…You will continue to see us focusing on investment to drive utilisation in the existing estate as well as continuing to grow.”

“We continue to focus unrelentingly on the customer experience; where we can improve it, how we can make it more efficient, how we can create more special moments across both businesses.”

“There is a real opportunity to make hay in an underpenetrated market here in the UK,” he added.

Discussing whether the brand would look towards similar expansion overseas, Harpham said, “I think the opportunity is probably very significant for both businesses in the US.”

However, he said that given the number of strategic options available in the UK, the move had been “de-prioritised”.“We’re seeing such participation in the UK particularly, that the idea of really doubling down and scaling out across the UK feels like a very smart thing to do”.

Furthermore, Harpham described a focus on its owner-operated business, which represents a higher return in capital.

The business acquired former Boom franchise sites in Chelmsford, Ealing, Liverpool, Glasgow and Watford in 2023 on “very attractive terms,” CFO Graham Bird added.

In the UK, Harpham said that whether new site acquisitions would focus on Boom or Escape Hunt, was dependent on availability and quality of potential units.

“If you’d asked me this question a year ago, I would have told you that we would focus on Boom Battle Bar because we anticipated the capital return to be quicker because of the benefits of landlord contribution. As it is now, the return on capital is broadly equivalent, so the deciding factor will be the quality of the unit that we see as being available.”

Harpham said that Escape Hunt has become a “cornerstone” of shopping centres, where it “trades well” and is well reviewed, adding,“The result of that is that we get better sites. That means that typically they hit the ground running a bit better.”

He described both businesses as being “market-leading” in return on capital – “I think it is uncommon to be seeing rates of 46 and 48%.”

XP Factory has chosen to tackle inflationary costs by absorbing them into the business but said there would be scope for price increases in future; “We feel philosophically that being very affordable for customers is an important thing to be able to do.

“Driving volume like-for-like growth is a much more powerful marker of future success than just forcing price which we consider it to be quite a short-term activity, which typically comes to bite you a little bit further down the line.

He added that Escape Hunt sits at the premium end of the Escape Rooms market, but given the quality of the product, its value proposition is “very strong”. Whilst, Boom, Harpham describes as “accessibly premium.”

“I would suggest that whilst we might be a little bit more expensive for some of our competitors, from a value perspective we index incredibly well. In so doing, we think that we attract a much larger audience, and we think that it provides us with this big old runway opportunity to go after.”