SBJ/October 20 - 26, 2003/Special Report

Shrinking margins squeeze industry

Venues have grown more savvy in negotiating contracts that call for a greater share of food profits.

Concessions officials, without stating specific figures, generally agree that profit margins have decreased within the last decade, regardless of how their arena and stadium contracts are structured.

They attribute the trend to escalating overhead costs with regard to food, labor, fuel and utilities, increased competition between food service contractors, dwindling attendance and savvy team ownership.

"There is no question over the past 10 years that margins are getting much, much tighter. Competition is greater to get business," said Sal Ferrulo, regional vice president with Boston Concessions, based in south Florida.

"The team owners are also much more educated in the business and thus more demanding. They want more and more of the profits from concessions. The pie is only so big."

Michael Thompson, senior vice president with Aramark in Philadelphia, concurred. He summed up the mission for Aramark and fellow concessionaires: "To get back to a reasonable profit and return, we're now asking ourselves how we can drive additional revenues to the facility."

Consumers can see some of the pressures concessionaires face when they go out to eat or grab a bite of food at the mall, said John Fernbach, group president of contract services for Delaware North Cos., parent company of Sportservice.

"If you go out to any restaurant these days, prices have increased universally. I wouldn't strictly isolate concessions," Fernbach said. "Anywhere you go, prices are high where rents are paid. It's the same with a mall-based operation.

"It's a market issue. Prices are what prices are. Look at the industry compared to five, 10, 15 years ago, and the average overall rent paid to our clients has certainly increased, no doubt about it, which obviously can result in lesser margins."

Doug Drewes, Tampa-based senior vice president with Centerplate, said, "Our cost of goods for sodas, hot dogs, popcorn and beer has gone up just like the grocery store."

Ken Young, also working out of Tampa as president of Ovations Food Service, a division of Comcast-Spectacor, believes shrinking profit margins are directly related to winning and losing on the field. New facilities, at least in Major League Baseball, and modern concession amenities have not translated to higher revenues, but instead fewer fans, he said.

"You look at some of the newer ballparks. Thinking back on history, there was always a great increase in attendance," Young said. "But the fact is that the honeymoons have lasted maybe a year, especially with bad teams in Pittsburgh, Detroit and Milwaukee, and now Cincinnati. There have been huge investments made with very low return on investment."

Increased emphasis on premium catering for luxury suites also has impacted regular concessions as officials concentrate more on that niche of the business. At some venues, premium gross sales are higher than general gross sales.

All those factors have forced concessionaires to refocus on efficiently managing their operations to grow or at least maintain the bottom line. Tapping into new revenue streams such as non-event catering (see related story) is one answer to the problem, said Dan Smith, regional vice president with Centerplate in New York and New Jersey.

"You can't expect to bring out the same program in year two as year one, because cost structures tend to inflate," Smith said. "If you can't recoup those losses in pricing, you need to be more efficient in how you conduct business.

"You constantly have to shift gears to maintain margins and still have high quality. I've seen others compromise quality for the sake of increased profits. But at the end of the day, you can't deposit margins in a bank. You deposit real dollars."

Shifting gears doesn't mean concessionaires must increase their work load, and as a result, their stress levels, attempting to figure out how they're going to keep their company in the black.

"The secret is to work smarter and not harder," said Ed Campbell, a former Aramark executive turned independent concession operator at the Cotton Bowl in Dallas.

"Stay ahead of the game. If your margins are smaller, make up for it by being creative through innovative menu concepts and efficient service. Greater volume will help you with the extra costs."

Campbell provided one example of an alternative menu concept. It may sound hokey, but The Ed Campbell Co. bakes fresh chocolate chip cookies in a convection oven in front of the public at the Cotton Bowl and at Reunion Arena. A half dozen sells for $2.50, a dozen for $4. "It's that aroma. It's actually better than the fresh popcorn smell. That's why Realtors always bake cookies when they're trying to sell a house. It gives you a good feeling," Campbell said.

Utilizing the requisite hardware is also a key component.

Boston Concessions is "always willing to spend money on equipment if it drives per caps," Ferullo said. "If an extra fryer or grill means an additional $1,000 to $2,000 in revenue, then it's something you certainly want to do. It can be something as simple as a beer stand with a pretzel machine on top.

"You never want to leave money on the table."

Centerplate, with 10 NFL clients and several MLB accounts, concentrates more on selling the proven core products Drewes mentioned earlier — hot dogs, sodas, popcorn and beer. "We manage the mix with higher profitability items," he said.

"You can offset direct operating costs with pricing, but do it within a reasonable nature. It's important for any of us to maintain operating margins. You're looking to be where you were when you did the deal, three, five or 10 years ago."

Ovations Food Service, with minor league baseball accounts such as Harbor Park in Norfolk, Va., and Isotopes Park in Albuquerque, N.M., took a tip from the big leagues in offering larger portions to generate greater revenues.

"That's one way to overcome shrinking margins. The larger sizes keep the per caps up," Young said. "I remember when we started out with a 12-ounce cup. I work a concession stand just for fun at Raymond James Stadium where [Aramark] sells a 22- to 24-ounce beer for $7.50 to $8. My company is the same way. That helps offset the downturn."

Smith said the questions always remain, "How do we do more of what we do best? How do we sell more? We package it so it's more appealing. Larger sizing, higher quality. In most markets, people are willing to pay for quality."

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