We’re at an “important crossroads.” The airport concessions industry is in a “reset mode.” It’s time for a “collaborative, transparent conversation.” These sentiments ran throughout our July Forum with Riley Lagesen, chair of Greenberg Traurig’s Global Restaurant Industry Group, and Rich Schneider, COO of Areas USA.
Today’s prevalent concessions model is based on the street: we wish to present a street-side experience to our passengers: street brands, street experiences, street prices. The idea is good, but does it work in the distinctly non-street environment of an airport? Especially in our post-Covid economic environment.
For ARRA’s July Forum, we asked the question: “Streetside-Airside, What’s the Difference?” Riley and Rich answered the top-line question: there are many differences. The differences are stark. And, more ominously, without collaborative action, the differences threaten the future of our industry as we know it today.
Here are three Forum takeaways:
· The big elephant in the room is occupancy costs. Occupancy cost in an airport – especially as a percentage of sales – is generally significantly higher than any place on the street. Absent unusual circumstances, everybody on the street keeps occupancy under 10%. You won’t find that in an airport. Moreover, in the airport, numerous other costs pile on top of rent to greatly increase occupancy cost.
· The brand model is at risk. Both parties – brand and operator – need to succeed for a successful licensing relationship. However, the economics of operating in an airport are pushing operators too hard to have a successful brand relationship. Rents are different, labor is different, capital is different – there’s not much left to pay a royalty and that’s where brands aren’t going to want to do these deals anymore.
· The labor challenge is with us forever – we’re never going to say, “we’re settled.” The industry must adapt to a new labor environment: accepting flexibility in scheduling; making the airport more attractive and easier as a place to work; introducing technology, not as a substitute for labor, but to enhance labor; working together to fix this challenge.
These are just three important topics; there were many more, too many to highlight here. We encourage you to watch the replay to learn more about the challenges airport concessions operators face as they work to enhance the passenger journey.
Over the past 30 years, forms of street pricing became the norm at U.S. airports. Airports adopted these policies to supposedly assure passengers of “fair prices” at the airport – that the price at the airport is like off-airport prices. Whether the policies work for this purpose is a discussion for another day. Rather, for ARRA’s July Forum, we will examine an underlying premise of street pricing – that the businesses of airport concessionaires are comparable to their street side counterparts.
We will see that the premise is not true. Many aspects of an airport business are not like the comparable street side business: hours of operation, security, degree of unionization, logistics, and, of course, capital costs, to name just a few. We invite you to join our July Forum as we welcome Riley Lagesen, Shareholder and chair of Greenberg Traurig’s Global Restaurant Industry Group, and Richard Schneider, Chief Operating Officer of Areas USA. Riley and Rich will add their insights of street-side and airside restaurant and retail costs and operations to ARRA’s ongoing conversation to evolve a sustainable, resilient, and fair business framework for airport concessions. No doubt this will be an informative conversation. We hope you can join us.
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