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Suggested Citation:"Summary." National Academies of Sciences, Engineering, and Medicine. 2017. Food and Beverage and Retail Operators: The Costs of Doing Business at Airports. Washington, DC: The National Academies Press. doi: 10.17226/24849.
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Page 1
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Suggested Citation:"Summary." National Academies of Sciences, Engineering, and Medicine. 2017. Food and Beverage and Retail Operators: The Costs of Doing Business at Airports. Washington, DC: The National Academies Press. doi: 10.17226/24849.
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Page 2
Page 3
Suggested Citation:"Summary." National Academies of Sciences, Engineering, and Medicine. 2017. Food and Beverage and Retail Operators: The Costs of Doing Business at Airports. Washington, DC: The National Academies Press. doi: 10.17226/24849.
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Page 3

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Airport executives in all disciplines and departments are keenly aware of the inherent challenges that operating in the airport environment presents to airport staff, airlines, vendors, and other entities. Nec- essary security restrictions and difficult logistics add layers of process and often associated cost to what would be the most mundane of tasks or responsibilities in the general marketplace outside of airports. In building out and operating a food and beverage or retail concession at an airport, concessions operators are typically exposed to, and must interface with, a myriad of non-aeronautical departments and systems; as well as potentially understanding and adhering to rules and regulations around Air Operations Area (AOA) access. The layers of complexity and associated costs of operating a restaurant or shop in an airport are factors that prospective concessionaires need fully to comprehend in order to judge the potential for success and profitability of business opportunities. The airport operator typically does not have readily available information regarding the cost of doing business to provide to non-airline tenants, so that a prospective tenant can understand and forecast its operating costs at the airport. Thus, concessionaires—particularly new, small and/or inexperienced operators—can wind up with insufficient information to evaluate an airport business proposition. Consequently, these operators may incur unexpected costs that challenge their financial viability and affect the customer service the concession delivers to airport passengers. The objective of this synthesis is to improve the communication of cost data from airports to retail and food and beverage concessions operators regarding the total cost of doing business at airports. Provided with more complete information, prospective concessionaires, particularly small business operators, will be better able to gauge the business opportunities being offered by airports, also resulting in better proposals for airports to consider that feature more accurate business plans and pro formas. A sample of 15 small-, medium-, and large-hub airports employing varying concession manage- ment structures indicates a general uniformity in the categories of costs that airports communicate to prospective concessionaires, with significant nuance and detail based on the airport’s unique operating standards and requirements. The most consistently cited costs based on the airport respondents, more than 90%, were as follows: • Comprehensive general liability insurance • Worker’s compensation insurance • Performance bonds • Badging fees • Fingerprinting application fees • Employee parking. While cost categories were consistent, it is important to note there is not a list of specific costs that concessionaires are required to pay to operate at all airports: Not all airports assess the same types of charges and costs. Moreover, there is not one consistent method that airports employ to communicate operating costs, nor is there any specific document or documents dedicated to listing costs that concessionaires Food and Beverage and retail operators: the Costs oF doing Business at airports summary

2 are required to pay to operate at the airport. Based on the communication options presented in the survey question, all 15 airports surveyed reported that they communicate operating costs in the lease agreement: 12 during the request for proposals (RFP) process, six through airport rates and charges lists, four during tenant meetings, three using tenant handbooks, and two through RFP outreach/ pre-proposal conferences. A detailed literature review found that general marketplace literature sources and airport industry articles and resources failed to provide comprehensive details on either the types of costs that airport operators need to communicate to concessionaires or the detailed figures and ranges of costs. Airport business documents such as RFPs and lease agreements are the only sources of information that airport operators can use; however, the RFPs reviewed provided varied and incomplete sources of cost information, whereas lease agreements included more cost information with a greater amount of consistency across the leases reviewed. Reviewing an airport’s library of the documents mentioned previously, assessing how much con- cessionaire business cost information is contained within the documents available, reviewing how these documents are currently presented to concessions operators, and determining other potential avenues for distribution were determined to be key in developing an action plan for airport manage- ment staff to maximize the airport’s communication efforts. Airport websites were found to house varying amounts of these resources, with a few airports employing catch-all concession business resource pages permanently housing numerous examples of the aforementioned tools. These resource web pages are a convenient way to ensure that both air- port staff and potential concessionaires have access to tools they can use to collect as much business cost information as possible. Owing to their potential multi-faceted usage by both on-site operations staff and ownership, con- cession tenant handbooks provided the most promise as possible single sources of complete cost information for airport operators to distribute to potential concessions operators. As these docu- ments are specifically created with the nuances of each airport already included, expanding these documents to include complete cost sections could be an efficient way to create a functional tool for concessionaires. Airports interviewed in the preparation of this synthesis generally concurred that the lease agree- ment is the document most often used to deliver concessionaire costs upfront in an effort to set busi- ness expectations. The airports also supplied tenant design criteria manuals early in the process as well—although these documents rarely feature specific cost figures, they do communicate the air- port’s standards of quality in regard to materials and design which can provide operators with a range of costs to work with. The experienced concessionaires interviewed validated the findings from the airport case examples. They agreed that airports generally do a good job in communicating the costs of doing business at the airport to prospective operators. However, new or prospective concessionaires— without the benefit of actual airport experience—may not truly appreciate the level of costs at airports. This problem is magnified for inexperienced operators bidding on opportunities at airports that do not include sample lease agreements as part of the RFP documentation, rendering the contract negotiation period as the first exposure to the lease. So as not to rely exclusively on the airport to provide the full picture of the cost of doing business, operators need to perform their own research to ensure that they have the most accurate and relative data possible to use in preparing proposals. Along with most airports’ declaration in the RFP docu- ment that their own data should not be totally relied on, there are many variables created by elements both inside and outside of the airport or concessionaire’s control that can impact the cost of doing business at airports that airport documents, resources and tools will not capture. The dynamic nature of the airport business structure itself also creates new or higher costs for con- cessionaires unlike those from their street locations. For example, the solicitation process employed

3 by airports for concessions spaces requires creative services costs and proposal guarantees that will be unknown to first-time bidders on airport concession spaces. This synthesis included an online survey of airports of multiple sizes in various geographic mar- kets; a literature review of general sources, airport journals and industry articles, and airport busi- ness documents; and phone interviews with survey participants and concessionaires. Fifteen (15) multiple-part questions covering five basic operating cost categories—employees, utilities, facility maintenance, local fees, and insurance—were included in the survey questionnaire; the participants are listed in Table 1. An initial e-mail assessing interest in the study was sent to airports nationwide, which identified six airports with an interest in participating. After further recruitment efforts identified nine addi- tional airports, the 15 airports listed earlier were sent the full online survey. All 15 completed the survey, representing a 100% response rate. More than 70 sources were reviewed as part of the literature search and review. Six entities— three airports: (Jacksonville International, Raleigh–Durham International, and Cleveland Hopkins International) and three concessionaires [Midfield Concession Enterprises, Outstanding Hospitality Management (OHM) Concessions Group, and Whitman May Enterprises/Uptown Airport Group] were interviewed for the case examples presented in chapter four. As gaps in data and industry knowledge were exposed during the review phase in the development of this report, potential future research opportunities were identified and are detailed in chapter six: Conclusions and Suggestions for Further Research. Airport Airport Code Hub Size 2015 Enplanements Hollywood Burbank Airport BUR Small 1,973,897 Cleveland Hopkins International Airport CLE Medium 3,916,922 Dallas Love Field DAL Medium 7,040,950 Dane County Regional Airport MSN Small 826,640 Denver International Airport DEN Large 26,280,043 El Paso International Airport ELP Small 1,381,392 General Mitchell Milwaukee International Airport MKE Medium 3,229,897 George Bush Intercontinental Airport IAH Large 20,595,881 Indianapolis International Airport IND Medium 3,889,567 Jacksonville International Airport JAX Medium 2,716,473 Miami International Airport MIA Large 20,986,349 Raleigh–Durham International Airport RDU Medium 4,954,735 Reno Tahoe International Airport RNO Small 1,669,876 Tucson International Airport TUS Small 1,549,253 Washington Dulles International Airport IAD Large 10,363,974 Source: FAA Calendar Year 2015 Revenue Enplanements at Commercial Service Airports. TABlE 1 lIST OF AIRPORT SURvEy PARTICIPANTS

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TRB's Airport Cooperative Research Program (ACRP) Synthesis 81: Food and Beverage and Retail Operators: The Costs of Doing Business at Airports explores ways to comprehend the complex airport terminal operating environment in order to understand and forecast operating costs and to judge the potential for success and profitability. The synthesis compiles practices of airports to improve the communication of cost data to better evaluate and make decisions based on the total cost of doing business at airports.

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