Counting on concessions: Theatre circuits rely on that boost to the bottom line

Features

During Gabelli & Company’s June 2014 Movie & Entertainment Conference, participating exhibitors made a compelling case to investors about how “theatrical exhibition thrives on innovation and stability.” Nowhere is this more evident than in the food and beverage segment of their operations. While popcorn and soft drinks, along with candy, nachos and hot dogs, have certainly been staples at the stands, expanded menus and services from frozen margaritas to in-movie munching are at the forefront of theatrical innovation. Along with the full Conference report, we here present some concession-related topics that investors were curious about.

“Our goal, in this business, is to get as much as we can out of these boxes.” Gregory S. Marcus, chief executive officer of The Marcus Corporation, confirmed to investor-attendees. “We are trying to get as much share of wallet as we can get… So, if a customer is going to go out to dinner and see a movie, we want to try and get the dinner piece of that along with the movie.” This said, he added a cautionary note. “When you expand food and beverage, I promise you, the margin is not as good on dinner as it is on popcorn, I will give you my word.” In his view, expanding the menu is about expanding aggregate income. While “margin matters and, trust me, I like big margins…I don’t take margin to the bank. I take dollars to the bank. And by driving more share of wallet, I am going to increase…the productivity of my box.”

At Carmike Cinemas, popcorn and productivity have been pretty good as well, with “a 17-quarter streak of higher year-over-year concessions and other revenue per-cap increases,” reaching $4.52 during the first quarter of 2014, “the company’s best-ever quarterly total.” Richard Hare, senior VP and chief financial officer, noted the importance of promotions such as refillable popcorn buckets and “Stimulus Tuesday” and the addition of Coca-Cola Freestyle stations. He feels that having “eliminated the box office at some existing and all new locations is allowing patrons to skip waiting on a second line and offering associates an opportunity to upsell customers.” Further exploration of “concessions and beverage opportunities [includes] liquor licenses at approximately 25 locations and a few theatre remodels set to open later this year that will feature casual dining in all auditoriums.”

Canada’s Cineplex Entertainment has been embarking on the full-service route with VIP cinemas and lounges as well. “We always try to stay on the forefront of innovation in exhibition, foodservice and other areas of our business,” chief financial officer Gord Nelson declared. In his comments to Film Journal International, he maintained that Cineplex has “approached concessions a little differently than our U.S. peers. While core concessions have always been a focus, we favored a ‘food court’ approach that featured other retail-branded outlets. As we continued to develop our strategy, we saw significant success with proprietary foodservice brands.” Interestingly, Nelson sees opportunities for concepts such as Outtakes Backstage Bistro (offering a variety of hot food), Poptopia (handcrafted popcorn) and YoYo’s Yogurt Café (self-serve frozen yogurt) “to thrive outside the walls of our theatres.”

While it’s not exactly a thriving business (yet), Greg Marcus agreed with one investor’s observation. “There is more of a demand for healthy foods and you’re starting to see it, I would say, pop up.” Continuing to observe the market, “we will react to what the customer wants,” he assured. “What you find, though, is that the movies are a treat. The movies are an experience…you are treating yourself to a night out. You are treating yourself to an experience that you can’t get anywhere else. And you tend to treat yourself from a food and beverage perspective as well. As long as that’s what the customer’s asking us for, we’re going to continue to deliver that."