The right mix: Product diversity equals shared margins
The cinema industry has greatly expanded its food offering over the past five years, diversified the product mix, and changed the consumer experience. The effects have been felt in operations, facilities maintenance, labor and, most importantly, the financial bottom line. But the story is also one of trial and error, what works and what fails, and how do you work with a much bigger pie and many more suppliers?
It’s a great financial analogy: Would you rather have a big piece of a small pie, or a small piece of a big pie? Suppliers in the industry, along with the operators, are examining this question together.
When operators and suppliers in any industry talk about their relationship, you hope to hear the word “partner” as a description. In any retail consumer environment, the buyers and the sellers must approach each other with mutually beneficial actions. Their united efforts are what deliver the ultimate experience to the consumer. The recent explosion of diversified product in the cinema business has produced many positive effects for the operators and has challenged the partners in the industry to maintain good relationships. The pie itself has definitely been made bigger with the expansion of diversified product, but the individual suppliers now have a smaller piece.
The reason this matters as much to the operators as it does to suppliers is that success truly is a partnership. Producing exciting programs with marketing campaigns and innovations requires great resources from suppliers and operators, and the success of one depends on the other. For both sides, the right partner, the right mix of products, good timing and market corrections are critical to making sure that the margins that are shared benefit all.
The right partner is the starting foundation for any product program sold at any venue. Operators must find partners who meet their cultural fit, with branded or non-branded programs, and who also have a vested interest in their success. Another analogy is “the big fish in the little pond”: You may think you want the biggest manufacturer of any given product on your side, but does that company have your best interest front and center? Will that partner make packaging changes, art changes or financial adjustments for your company, at your size? The opposite can also be critiqued: You must choose a partner who can provide products and services in swing seasons, and not run out of product at peak times due to over-commitment. For these same reasons, suppliers must choose partners carefully as well. Suppliers always want to sell, true, but sometimes you must walk away from that option if the financial and operational numbers do not add up.
The right mix of products follows closely the choice of the right partner. You may find the right partner with a line of four similar products, for example, but when that partner offers a great discount on a different line of products, does it make sense to put them in? Does this supplier have the right brand in the other line of products? Does the line of products complement the program goals you are trying to achieve? Once you open up the cinema to expanded food and beverage offerings, these discussions, debates and decisions are front and center across your organization. How many suppliers do you want to work with, and how many product lines do you devote to each one?
This is a critical decision point, because it directly affects the profit margins of both the operator and the supplier, and directly affects available resources and marketing support. Can you get better pricing and rebate structures if you take ten products from a company versus five? Yes. Can you get the best return on the product mix if three of those products should really be coming from a competitor, or even more challenging, be a different food offering all together? Product mix is no longer as simple as four food items and a primary beverage provider. The theatre down the street from you may be offering cocktail parties in their lounge, so you have to compete. You have to expand your supplier base and yet still retain their support of your programs.
For suppliers, the challenge has become immense. How do you keep your products from being marginalized in the grand new scheme of diversified menus? How do you keep your profit margins at the point that you can still support your products the way you know you must in order to drive sales? Both sides must be partners and communicate expectations and results. To be sure, there are many new companies who have entered the industry who are happy to have a seat at the table. But the largest or the smallest of companies can struggle with inventory demands and shipping logistics with profit margins that reflect only one offering in the theatre, not multiple items. The reality for the operator is that a diversified menu increases per-capita revenue; for the suppliers, it means shared margins with other suppliers who are splitting the revenue share as a group.
Timing and corrections within the market are also considerations in this review. Timing as it relates to seasonality of the cinema industry, consumer trends which can be capitalized on in temporary fashion, and acknowledgement of long-term program effects. Corrections need to be made on a regular basis to keep the product diversity fresh and profitable at the same time. When trends fizzle out, product mix must follow and switch. The pace is much faster. Consumer demands are great, the need to compete with home entertainment is intense, and the rotation and dedication to successful product diversity must be complete. The right partners work to make this happen, and share in the success together. Finding the right balance for the right number of partners, across the right amount of product diversity, is a top priority for every operator and supplier.
E-mail your comments to Anita Watts at firstname.lastname@example.org.