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Suggested Citation:"Chapter Four - Case Examples." 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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Suggested Citation:"Chapter Four - Case Examples." 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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Suggested Citation:"Chapter Four - Case Examples." 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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Suggested Citation:"Chapter Four - Case Examples." 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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Suggested Citation:"Chapter Four - Case Examples." 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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Suggested Citation:"Chapter Four - Case Examples." 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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Suggested Citation:"Chapter Four - Case Examples." 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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Suggested Citation:"Chapter Four - Case Examples." 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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Suggested Citation:"Chapter Four - Case Examples." 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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Suggested Citation:"Chapter Four - Case Examples." 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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Suggested Citation:"Chapter Four - Case Examples." 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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Suggested Citation:"Chapter Four - Case Examples." 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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Suggested Citation:"Chapter Four - Case Examples." 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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Suggested Citation:"Chapter Four - Case Examples." 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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Suggested Citation:"Chapter Four - Case Examples." 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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Suggested Citation:"Chapter Four - Case Examples." 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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30 chapter four Case examples Three airports, Cleveland International (CLE), Jacksonville International (JAX), and Raleigh– Durham International (RDU); and three concessionaires, Midfield Concession Enterprises, OHM Concessions Group, and Whitman May Enterprises/Uptown Airport Group, volunteered to serve as case examples for this synthesis. The case examples provide a general overview of the airport or company; the airport’s conces- sions program or the company’s offerings; the solicitation process used by the airports; and other general information and comments, including how airports communicate the cost of doing business at the airport. airport Case examples The three airports profiled volunteered to provide information about their concession operation and insight with operating costs. The information was compiled through telephone interviewers, reviews of solicitation documents, and from airport websites, industry publications, and public data. Cleveland Hopkins international airport CLE is a medium-hub airport owned and operated by the city of Cleveland. It is the largest airport in the state of Ohio; its approximately 4 million enplaned passengers (in 2015) makes it #46 in the country, according to FAA. CLE offers non-stop flights to 35 markets. Concession offerings In 2008, the city of Cleveland awarded a contract with AIRMALL USA to develop and manage airport concessions at CLE. As the developer, AIRMALL USA is responsible for the design, construction, lease, and management of the concessions program to satisfy city goals of providing quality branded and innovative food and beverage and retail concepts. The program comprises 60,000 square feet of concession space and includes 51 distinct retail and food and beverage units, from international retailers to a wide array of high-quality dining establishments. Estimated Concession Sales In 2015, CLE had total concession sales of $40.2 million, as shown on Table 13. Food and beverage gross concessions sales were $21.8 million, representing more than half of total concession sales. Specialty retail and news and gifts generated equal sales of $18.4 million in 2015. Sales per enplane- ment increased steadily from $9.02 in 2013 to $10.05 in 2015. Operators As the developer, AIRMALL USA does not operate any of the concession facilities but sublets all locations to concessionaires. Concession operators include large prime operators, who operate a

31 number of facilities, as well as smaller concessionaires who operate one or a few units. A list of operators is provided in Table 14. solicitation information Two publicly available documents airport were reviewed for this synthesis: the 2007 Request for Proposals for a Concessions Developer and the attached TDS. The following discussion highlights some key concessionaire operating costs. Request for Proposals In 2007, the city issued an RFP for concessions development for the design, construction, lease, and management of approximately 60,000 square feet of concession space. The goal in the development of a concessions program is to provide airport users with quality, branded, and/or innovative food and beverage concepts, using exciting and creative marketing strategies. The Successful Respondent 2015 2014 2013 Enplanements (in millions) 4.0 3.9 4.5 Concession sales (in millions) Food and beverage $21.8 $19.7 $22.2 Specialty retail $8.2 $8.9 $9.2 News and gifts $10.2 $8.9 $9.2 Total $ 40.2 $37.5 $40.6 Sales per enplanement Food and beverage $5.45 $5.05 $4.93 Specialty retail $2.05 $2.28 $2.04 News and gifts $2.25 $2.28 $2.04 Total $10.05 $9.62 $9.02 Source: ARN Fact Book—2016, 2015, 2014. TAbLE 13 GROSS COnCESSIOn SALES by CATEGORy, CLEvELAnD HOPkInS InTERnATIOnAL AIRPORT TAbLE 14 COnCESSIOn OPERATORS, CLEvELAnD HOPkInS InTERnATIOnAL AIRPORT Food and Beverage Concessions Retail Concessions Food Operators: Retail Operators: AVI Food Systems Cardtronics Bhavani Donuts Fresh Brewed Tees Cleveland Partners LLC Fuel Rod Epoch 5 Enterprises Genesco Inc Inca Tea Hudson Group LeCm LLC InMotion Entertainment MBC Concessions Monarch Midfield Concessions Enterprises Natalie's PremAir Hospitality Group Smarte Carte Subway Real Estate Corp Sterling Jeweler's Inc United Concessions Group The Swatch Group Vino Volo Travelex Winner's Zoom Systems YSJ Inc 24 Hour Flowers Source: ARN Fact Book (2016).

32 is expected to sublet the concession space to local, ACDbE, and national operators, and is not per- mitted to operate any of the concession facilities. The RFP is specific about the expectations and requirements of the successful applicant. Included in the RFP is a copy of the TDS, which is further discussed here. After the RFP was released, inter- ested parties are provided 6 weeks prior to the pre-proposal conference (PPC) to review the RFP. The PPC provides an open forum for interested parties to ask questions, hear more about the concession opportunity, and tour the facilities. Further, interested parties are provided five additional weeks after the PPC to submit questions, a total of 11 weeks to review the RFP and submit questions. The highlights of the RFP, summarized here, concern the airport’s expectations about basic oper- ating cost categories: employee, utilities, facility maintenance, customer service, unique local spe- cific fees, and insurance. The RFP can be found in the link: http://www.aci-na.org/sites/default/files/ cle_developer_rfp_2007.pdf. Employee Costs Information regarding employee costs is not described in the RFP. It is important to note the minimum qualifications for this opportunity require applicants to have seven or more years of continuous airport experience, and so should be familiar with basic employee costs. Utilities Per the RFP, the successful applicant shall, at its own expense, extend or install, and maintain and pay for all necessary sewer, water, and such other utility lines and services, including all permits and installation charges. All new and refurbished concession spaces shall be separately metered for electricity and water, if applicable. Facility Maintenance Two types of facility fees are described in the RFP: • Facility maintenance fee. The successful respondent shall pay a facility maintenance fee of $0.02 per transaction for each food and beverage and retail merchandise transaction. • Capital investment. A minimum initial or mid-term capital investment is not stated in the RFP. The RFP states that respondents will develop a plan of improvements that create a first-class concession. The city expects that respondents identify a plan of annual maintenance and upkeep that will maintain the improvements. Customer Service Costs In the CLE RFP, two costs were described: • Marketing plan and promotions: The [applicant] will be required to develop and implement a market and promotion plan and it is envisioned that this plan will be funded through subtenants on a percentage of gross sales. • Charges to the public: Prices to the public are not to exceed 105% of “street” prices. Unique Local Specific Fees The RFP does not include any local fees that are unique to the area. Insurance At its own expense, the successful respondent shall maintain the following insurance coverage. • business automotive liability insurance • Commercial general liability insurance • Worker’s compensation and employer’s liability insurance • Statutory unemployment insurance. Other Fees In addition to these fees, the successful applicant is also responsible for the following: • Subtenant plan. The subtenant plan outlines the key terms of the agreement between the suc- cessful applicant and subtenants including length of lease, capital investment of subtenant, and merchandise and operating plans. • Implementation, construction management, and transition plan. The applicant is to describe how the concessions program would be implemented and constructed, including a schedule of

33 specific tasks that are needed to ensure each unit is successfully built and opened on time in accordance with the transition and phasing plan submitted. • Financial offer. The respondent shall pay the city a minimum annual guarantee or a percentage of gross concession revenue, whichever is greater. Further, the respondent shall sponsor vari- ous ACDbE events in [an] amount not less than $3,000 annually. Lastly, the respondent shall develop a low-interest loan fund of not less than $750,000 to support ACDbE build-outs. • Surety bond/letter of credit. The successful applicant shall furnish to the city a surety bond or an irrevocable letter of credit in an amount equal to 1 year’s minimum annual guarantee. The Department of Port Control for the City of Cleveland developed the Tenant Design Standards Manual to assist tenants in creating concession facilities that use building materials and design ele- ments that are complementary to the overall design of the airport. The concession opportunity includes a combination of new facilities and the redesign of existing facilities. The concession spaces will require either a complete build-out or some degree of reno- vation to refurbish the location. Thus, the concessionaire will be required to invest capital to plan, design, and build out, at its sole cost, the designated facilities per the TDS, which was provided as an exhibit in the RFP. At a minimum, the design standards address plumbing and electrical connections within the lease- hold such as surfaces, signage, furnishings, equipment, accessories, casework, storefront, security devices, lighting, and fixtures. The TDS indicate that any of the tenants’ operating requirements shall be their sole responsibility and cost/expense, such as: • General lighting standards and fixtures • Mechanical and electrical • Heating, ventilation, and air conditioning (HvAC) • Water and sanitary sewer systems • Water heater • Pressure reducing valves • backflow prevention devices • Plumbing fixtures • Telephone service • Fire extinguishing system modifications • natural gas. other information and General Comments The developer model is unique in that in the case of CLE, AIRMALL USA, agrees to assume costs of designing, building, managing, and leasing concessions. However, all of the concession spaces are sublet to concessionaires who pay all or a portion of these operating fees. AIRMALL USA is in essence an extension of the airport staff that oversees the concessions program and is responsible for all concession operations, including communicating all necessary information to the concessionaires to ensure smooth and successful operations. As at other airports, AIRMALL USA is delegated most of the decision-making authority, but in most cases the airport management retains final approval on the concessions plan, selection of new tenants, and lease agreements. AIRMALL USA regularly conducts surveys to monitor the performance of subtenants and ensure passenger satisfaction. They also incentivize performance through rewards for outstanding employ- ees and units. AIRMALL USA provides tenants with operational, sales, marketing, and merchandis- ing support through programs such as PACT (Professional Assistance for Core Tenants), a subtenant marketing/promotional assistance initiative designed to help individual retailers operate more effi- ciently and market themselves more effectively. Although the responsibility of managing concessions is the primary responsibility of AIRMALL USA, the City continues to stay involved in overseeing the program to ensure quality and customer

34 satisfaction. The success of CLE’s concessions program is attributed to constant and regular com- munication among all parties—airport management, AIRMALL USA, and the concessionaires. JaCksonville international airport JAX is a medium-hub airport owned and operated by Jacksonville Aviation Authority (“the Author- ity”), an independent government agency that manages the upkeep, improvement, and expansion of the airport facilities. JAX serves the city of Jacksonville, northeast Florida, and southeast Georgia. In 2015, JAX enplaned nearly 2.8 million passengers, making it 55th in terms of passenger trips accord- ing by FAA; and offers non-stop regular and/or seasonal flights to 35 destinations. Jacksonville International Airport: Management Structure Program Highlights Method of Communication Authority leases all concession space to prime and individual operators Square feet: 41,000 RFP # of locations: 27 Lease Agreement # of operators: 7 Tenant Design Standards Concession offerings The concession footprint at JAX covers more than 41,000 square feet of space that house more than a dozen in-terminal concessions ranging from snacks to full-service dining. JAX also offers nearly as many retail outlets running the gamut from newspapers to fine quality gifts. The concession man- agement structure is a hybrid model in which the majority of concession space is operated by two prime operators, HMSHost and Paradies Lagardère. The remaining facilities are leased directly to smaller operators. Estimated Concession Sales In 2015, the concessions program at JAX generated gross sales of $30.1 million (Table 15). More than half is attributed to food and beverage concessions. Food and beverage concessions generated sales of $18.3 million, representing a steady increase in volume. With approximately 2.8 million enplanements in 2015, sales per enplanement were $6.61 for food and beverage concessions. Gross sales for retail concessions increased from 2013 to 2014, then declined slightly in 2015. Retail sales per enplanement were $4.29 in 2015. 2015 2014 2013 Enplanements (in millions) 2.8 2.4 2.6 Gross sales (in millions) Food and beverage $18.3 $16.8 $15.6 Specialty retail $5.1 $5.1 $4.8 News and gifts $6.8 $6.5 $6.3 Total $30.1 $28.4 $26.7 Sales per enplanement Food and beverage $6.61 $6.42 $6.07 Specialty retail $1.84 $1.94 $1.88 News and gifts $2.45 $2.48 $2.46 Total $10.91 $10.84 $10.40 Source: JAX Airport Authority. TAbLE 15 GROSS COnCESSIOn SALES by CATEGORy, JACkSOnvILLE InTERnATIOnAL AIRPORT

35 Operators HMSHost is the prime food and beverage concessionaire at JAX; Taste Inc. operates one location called vino volo. Paradies is the prime retail concessionaire. Four smaller retail concessionaires— Comfort Zone Spa (which also operates “Made in JAX”), InMotion Entertainment, Rain or Shine (doing business as “Insight”), and Zoom Systems—operate the remaining concession facilities. Table 16 provides a list of concession operators. solicitation information Two documents were provided by the Jacksonville Aviation Authority for review in this synthesis: 2013 Request for Proposals for a Single Specialty Food & Beverage Concession on Concourse C and the corresponding lease agreement. Following is a summary of the airport’s operating expectations and the cost of doing business as part of this agreement. Request for Proposals The latest RFP solicitation, in 2013, was for an operator to manage and operate a single specialty food and beverage concession on Concourse C at JAX. The objective was to solicit concepts to enhance the food options currently provided at the airport. Included in the RFP is a copy of the lease concession agreement. Interested parties were given 4 weeks prior to the pre-proposal conference to review the RFP. The PPC provided an open forum for interested parties to ask questions, hear more about the concession opportunity, and tour the facilities. Interested parties were provided four additional weeks after the PPC to submit questions—a total of 8 weeks to assess the concession opportunity. The RFP can be accessed from the JAX website by using the following link: http://www. flyjax.com/MoreInfo2015.aspx?id=233. The highlights of the RFP provide a summary of the airport’s expectations about operating at the airport. The concession operating costs are grouped into the following categories: employee, utili- ties, facility maintenance, customer service, unique local specific fees, and insurance. Employee Costs The RFP informs applicants that all employees/subcontractors/contractors must obtain a security badge, at the sole expense of the applicant Further, according to the RFP, any fines incurred by the authority for violation of any FAA regulations by applicant employees will be charged to the applicant. Utilities The costs of utilities are described in the lease agreement but not explicitly discussed in the RFP. Facility Maintenance Requirements to maintain the facilities are described in two categories: • Equipment and supplies: The respondent will furnish all equipment and supplies necessary to perform the services of the contract. Food and Beverage Concessions Retail Concessions Food Operators: Retail Operators: HMS Host, Taste Inc. Ann Hill LMT Taste, Inc. Comfort Zone Spa Project Horizon The Paradies Shops Zoom Systems Source: Jacksonville Aviation Authority. TAbLE 16 COnCESSIOn OPERATORS, JACkSOnvILLE InTERnATIOnAL AIRPORT

36 • Deliveries: All items brought into the terminal or moved into security zones must be cleared through the applicable security controls checkpoints. Customer Service Costs Operating costs related to customer service are described in two areas: • Infractions or violations of employees. The applicant is liable for any expense incurred as a consequence of any traffic infraction or parking violation attributable to its employees. • Performance standards. Performance standards shall be in accordance to the terms and condi- tions upon execution of the contract and as outlined in the agreement. Unique Local Specific Fees The RFP states all permits and licenses shall be in accordance with the terms in the lease agreement. Other Fees/Operating Costs Although the following requirements do not have tangible fees/costs, the time and effort to provide the information has some intangible costs: • Requirements upon award. The selected respondent will furnish the security deposit, certifi- cates of insurance, copies of licenses, permits, and other items required within several days after contract award. • Monthly ACDbE/DbE Report. The selected respondent will be required to complete and sub- mit a monthly summary to the ACDbE/DbE Office of actual participation, listing total pay- ments to the Selected Respondent during the month and the total amounts of participation using the forms provided by the Authority. Insurance The RFP does not list specific insurance requirements but directs respondents to the lease agreement for terms and conditions. Lease Agreement In the document attached as an exhibit in the RFP, additional operating costs and fees are listed, as follows: Employee Costs Two employee costs are described in the lease agreement: parking and identifica- tion badges. • Employee parking facilities. The Authority retains the right to impose a reasonable charge for concessionaire employees to use parking facilities. • Employee identification badges. Concessionaire is responsible for the charges to comply with the badging requirements. Utilities According to the lease agreement, the concessionaire is responsible for all utilities within the assigned area, and where practicable shall maintain separate utility meters. In other instances, the concessionaire will be required to pay a pro-rated fee based upon estimated usage. Facility Maintenance Four areas related to facility maintenance are described in the lease agreement: • Minimum maintenance costs. During each contract year, the concessionaire is directed to set aside a percentage of its annual gross revenues to be used for light maintenance, painting, and annual cleanup. • Janitorial and cleaning services. Concessionaire shall provide at its expense janitorial, toilet, and cleaning services and supplies required in operation and maintenance of its concession. • Concessionaire’s responsibilities. Concessionaire shall maintain and make necessary repairs to the interior of its concession and the furniture, fixtures, and equipment. • Construction requirements. All leasehold improvements, alterations, and additions made by concessionaire shall be high quality and meet applicable federal, state, and local laws, regula- tions, authority’s leasehold development standards, rules, and requirements.

37 Customer Service Costs Two areas fall within the category of customer service costs: • Employee discounts. Concessionaire shall provide a discount for badged employees. • Pricing policy. Concession prices shall be no more than 1% higher than comparable outlets not located at airports, attractions, entertainment parks, or resorts. Every 6 months, the conces- sionaire shall provide a written price comparison, comparing prices of a specified percentage of items offered for sale, to a sample of approved comparable locations. Unique Local Specific Fees As with the RFP, the lease agreement states the concessionaire shall bear any and all taxes assessed, permits, licenses, or other authorizations required for the operation of the concession. Other Fees/Operating Costs In addition to the fees described earlier, the lease agreement provides information to other fees and costs related to the operation of concessions. • Security fees. To help defray the cost of providing security, the concessionaire shall pay the Authority a security fee, which is a percentage of month gross revenues. The Authority may adjust security fees from time to time, which may include, but shall not be limited to, adjust- ments of the security fees, method of collection, or basis for calculation. • Security for payment. To secure the performance of all obligations of the contract, the conces- sionaire shall post a non-interest bearing security deposit with the authority equal to a portion of the minimum annual guarantee. • Additional rent and charges. If the Authority is required or elects to pay any sum or incur any obligation or expense by reason of failure, neglect, or refusal of concessionaire to perform or fulfill any one or more conditions, concessionaire will be required to pay for the costs, interest, damage, and penalties. • Construction requirements and bond. To ensure improvements are constructed in accordance with the approved plans and specifications, concessions shall deliver to the Authority a perfor- mance bond and payment bond, guaranteeing compliance with its obligations for construction of improvements. Insurance At its own expense, the concessionaire shall maintain the following insurance coverage: • Commercial general liability • business automobile liability. • Umbrella or excel liability insurance. The minimum liability limits can be satisfied under an umbrella or excess liability policy. • Worker’s compensation insurance and employer’s liability • Construction bond. other information and General Comments The JAX RFP and corresponding lease agreement provide a lot of information on the type of costs required to operate a concession business at the airport. In some instances, the operating costs to do business at the airport are explicit, as with the minimum annual maintenance fee, capital investment requirements, and privilege fees. However, as at other airports, the lease agreement includes catch- all language that requires concessionaires to be solely responsible for all any and all costs, where tangible or intangible, in connection with the operation of its business at the airport. The Authority tries to identify operating costs on the front end, through the lease agreements, to manage the expectations of concessionaires. Airport management also meets with concessionaires on a monthly basis to discuss a variety of issues, including feedback related to operating costs. Many of the costs to do business at JAX are fixed; however, some costs fluctuate, such as utilities or trash usage, which is a pro-rated fee based upon estimate usage. In addition to conducting monthly concessionaire meetings, airport management frequently hosts meet and greet sessions for small business owners who want to learn how to participate on future airport RFPs. The town hall-style meetings are interactive and popular among prospective concessionaires

38 who wish to share their business service concepts. With no upcoming concession opportunities in the immediate future, the airport management encourages participants to engage with existing concession- aires to inquire if partnership opportunities may be available through purchasing, licensing, or ACDbE programs. Lastly, it is important to note on the JAX website that the Authority provides interested parties with an overview of operating concessions at the airport. The one-page summary points out some of the expected differences of operating concessions at the airport, such as long hours of operation, strict security requirements, unique lease and rental structures, and capital improvement require- ments: http://www.flyjax.com/PDFs/AirportConcessions%20101.pdf. raleiGH–durHam international airport RDU is a medium-hub airport owned and operated by the Raleigh–Durham Airport Authority, a public body chartered by the north Carolina General Assembly. RDU is the main airport serving Central north Carolina and Southern virginia. The airport serves 47 nonstop destinations with about 400 daily flights. Passenger enplanements at RDU for 2015 totaled nearly 5.0 million, ranking 39th in terms of passenger enplanements by FAA. Raleigh–Durham International Airport: Management Structure Authority leases all concession space to prime and individual operators Program Highlights Square feet: 50,000 # of locations: 42 # of operators: 10 Method of Communication RFP Lease Agreement Tenant Design Standards Concession Operating Standards Concession offerings The concession program at RDU comprises approximately 50,000 square feet housing more than 20 dining options and two dozen retail shops, all of which directly lease space from the authority. Estimated Concession Sales In 2015, total concession sales were $47.7 million (Table 17). Food and beverage sales account for approximately 65% of total concession sales. Sales per enplanement in 2015 were $9.54 for 2015 2014 2013 Enplanements (in millions) 5.0 4.8 4.6 Gross sales (in millions) Food and beverage $30.9 $27.9 $25.0 Specialty retail $6.6 $6.7 $5.8 News and gifts $10.2 $9.3 $8.6 Total $47.7 $43.9 $39.4 Sales per enplanement Food and beverage $6.18 $5.81 $5.43 Specialty retail $1.32 $1.40 $1.26 News and gifts $2.04 $1.94 $1.87 Total $9.54 $9.15 $8.57 Source: ARN Fact Book—2016, 2015, 2014. TAbLE 17 GROSS COnCESSIOn SALES by CATEGORy, RALEIGH–DURHAM InTERnATIOnAL AIRPORT

39 the concessions program and have steadily increased since 2013. In 2014, sales per enplanement were $9.15 and $8.57 per enplanement in 2013. Sales for retail concessions were $16.8 million in 2015 or sales per enplanement of $3.36, which represents a steady growth since 2013. Food and beverage concessions generated 30.9 million in 2015 or sales per enplanement of $6.18, a steady increase since 2013. Operators The airport offers several national, local, and regional brands operated by both large and small opera- tors. In the food and beverage program, HMSHost operates several facilities under a joint venture partnership; SSP America also operates several concession facilities; and Uptown Airport Group operates two units (Table 18). In the retail concessions category, there are numerous operators such as larger operators such as Paradies and Hudson Group (doing business as RDU Air ventures). Other retail operators include EJE Retail, The book Cellar, Zoom Systems, Marshall Retail Group, and 24-Hour Flower. solicitation information A planned reassignment of airline gates will begin in 2016 and will affect nearly all gates in Terminal 2. In preparation of the relocation of Terminal 2 gates, the Authority issued a RFP on April 4, 2016 for cur- rent food and beverage concessionaires operating in Terminals 1 and 2 who desired additional operations in Terminal 2. The concession opportunity was reserved exclusively for current operators of Terminal 1 and Terminal 2. RDU’s website provides a link for current business opportunities, including the RFP and corresponding exhibits and appendices, the pre-proposal presentation, and financial projection worksheets: https://www.rdu.com/do-business-with-rdu/business-opportunities/. Request for Proposals The RFP describes the cost of doing business as part of this agreement, including utilities, facility maintenance, and customer service costs. notable in the RFP is the detail provided in the pro forma income statement instructions. This information provides applicants with a list of costs to do busi- ness at RDU. Highlights of the RFP are described here. Employee Costs The RFP does not explicitly describe employee costs; however, a description of these fees can be found in the lease agreement, which is part of the RFP, as well as the tenant operat- ing standards. Utilities The successful applicant is responsible for all costs required to design, implement, and operate the concession in accordance with the TDS. The TDS is a separate document that is provided Food and Beverage Concessions Retail Concessions Food and Beverage Operators: Retail Operators: HMS Host (Joint Ventures) 24-Hour Flower SSP America EJE Retail Uptown Airport Group Marshall Retail Group Paradies RDU Air Ventures The Book Cellar Zoom Systems Source: ARN Fact Book 2016. TAbLE 18 COnCESSIOn OPERATORS, RALEIGH–DURHAM InTERnATIOnAL AIRPORT

40 in the RFP and lease agreement. The cost of common area HvAC and electrical services is borne by the Authority; however, the selected operator is responsible for the other utilities. Facility Maintenance The RFP describes facility maintenance costs with respect to mid-term refur- bishment, commissary and deliveries, and general maintenance: • Mid-term refurbishment. The mid-term refurbishment requirement is based on a per square foot basis or a percentage of the original investment. • Commissary and deliveries. RDU utilizes a remote warehouse and commissary system that is managed by a third party. All concessionaires are required to use the facilities and should con- tact the commissary operator to discuss delivery needs and service fees. • Maintenance of concession space. The concessionaire is responsible for maintenance and upkeep of the facilities. Customer Service Costs Two areas are described in the RFP, the marketing fee and the street pricing policy and monitoring system: • Marketing Fee. The concessions marketing program supports promotions through advertis- ing, promotional events, brochures, mystery shops, and customer service training. All con- cessionaires are required to contribute a percentage of gross sales, which is subject to change each year. • Street pricing policy and monitoring system. The concession pricing policy and monitor- ing system is provided as an exhibit to the RFP. In addition, the document clearly defines the comparable standards, pricing guidelines, reporting, and compliance and enforcement standards. Unique Local Specific Fees The RFP does not describe any local fees that are unique to the area. However, other fees are described in the lease agreement. Lease Agreement The RFP includes a sample lease agreement, which further delineates the expected costs of doing business at RDU. In addition to the costs/fees described in the RFP, the lease agreement provides additional information regarding the following areas: Utilities According to the lease agreement, rent includes some utilities, such as electricity, HvAC, water, and sewer, as long as usage is within normal range, as determined by the Authority. If the concessionaire uses a utility in excess of an amount of other operators that are similar in size and operations, the Authority will impose a fee; it is important to note the amount that will be charged for excess usage is solely determined by the Authority. Facility Maintenance The lease agreement describes the concessionaire’s responsibilities regard- ing disposing of waste, recycling, and deliveries. Further, the lease agreement describes the Author- ity’s expectations with respect to daily maintenance as well as to repairs, replacements, remodeling, and refurbishment. Customer Service Costs The lease agreement addresses a number of concessionaire operating stan- dards, including employee standards, hours of operation, concessions marketing, merchandise pric- ing, sanitation, hygiene, and cleanliness. Insurance The lease agreement provides a list of required insurance as well as the minimum amount acceptable by the Authority. The concessionaire shall maintain the following insurance coverage: • Commercial general liability • Commercial automobile liability • Products—Completed operations liability

41 • Umbrella excess liability • Worker’s compensation • builder’s risk • business interruption • Construction payment and performance bonds. Other Fees/Operating Costs A security deposit is required through the life of the agreement to ensure the concessionaire maintains the obligations of the lease terms. General Concession Operating Standards The Authority developed the Concession Operating Standards to help ensure quality concessions and customer service. The standards are a compilation of the important routine operating requirements for RDU concessionaires, addressing such issues as applying for a security badge, merchandise deliveries, and cleanliness and maintenance requirements. Although the standards not all encom- passing, they are an important tool for concessionaires and cover a comprehensive list of operating requirements and standards: • Lease compliance • Airport authority responsibilities • Tenant responsibilities • Marketing and promotions • Airport security • Terminal evacuation plan • Customer service standards • Delivery zone, garbage, and recycling locations • Fats, oils, and grease disposal • The RDU marketing plan. other information and General Comments During the RFP process, the Authority provides interested parties with as much information as pos- sible regarding the concessionaire opportunity. The Authority generally provides the TDS, pricing policy, and sample lease agreement as exhibits in the RFP. However, the general concessions operat- ing standards is provided upon award as part of the lease agreement. It is important to note that, like other airports, RDU describes any other fees incurred as a result of operating under the lease agreement as additional rent, including delinquency charges, returned check fees, late fees, liquidated damages, taxes, joint marketing fund contributions, utility fees, and communication fees. Also, some fees are at the sole discretion of the Authority or subject to change. ConCessionaire Case examples To validate the findings from the airport surveys and airport case examples, three concessionaires volunteered to provide background about their firms and provide some insight regarding their experi- ences operating at airports. midfield ConCession enterprises Midfield Concession Enterprises, Inc. (MCE) is a multi-concept food and beverage operator that franchises many well-known companies and currently operates more than 50 restaurants at 10 air- ports around the country. Since its inception in 1999, it has offered a wide range of food and beverage options. MCE is a woman-owned and ACDbE-certified firm.

42 MIDFIELD CONCESSION ENTERPRISES Company Highlights Food and beverage operator 17 years of experience ACDBE certified Airport Locations Boston Logan Cleveland Hopkins Denver International Detroit Metropolitan Indianapolis International Minneapolis–St. Paul Newark International Philadelphia International San Francisco International Washington Dulles Concession offerings MCE represents a variety of restaurants, including two award-winning proprietary concepts, Sora and Mediterranean Grill. The company’s locations also house such chains as Wendy’s, villa Fresh Italian kitchens, and the Coffee beanery; and casual dining restaurants such as Champps, Cantina Laredo, and Max & Erma’s. MCE has locations in the following airports: • Detroit Metropolitan Airport (DTW): Chili’s, Max & Erma’s, Papa Joe’s Dining Room, Embers Fire & Ice Lounge, Papa Joe’s Gourmet Market, Crave Robata Grill & bar, Palazzolo’s Gelato, Coffee beanery, Corridor kitchen, Grobbel’s Gourmet Deli, The Shed, Andiamo’s, Sora, Champps, Mediterranean Grill Express, the Coffee beanery (three locations), and Legends. • Philadelphia International Airport (PHL): villa Fresh Italian kitchen (two locations), Cantina Laredo, Wendy’s, Earl of Sandwich, Red Mango, and Far East. • Dulles International Airport (IAD): Green Leaf’s & bananas and Max & Erma’s • boston Logan International Airport (bOS): UFood Grill. • Cleveland Hopkins International: villa Fresh Italian kitchen, Green Leaf’s & bananas, and The Pub. • Indianapolis International Airport (InD): Green Leaf’s & bananas. • newark Liberty International Airport (EWR): Qdoba Grill, newark Express, Sora, Phillips Seafood, Mediterranean bistro, and Mediterranean bistro Express. • Minneapolis–Saint Paul International Airport (MSP): new concepts include MSP Eats (a food truck alley comprised of Red Cow burgers, Holy Land Deli and Salty Tart bakery); Qdoba, the Roasting Plant, Dunkin Donuts, vino volo, and Lake Wine & Cheese. • Denver International: Two Smash burger and bar locations, Tom’s Urban bar and kitchen, and the Roasting Plant (a record franchise award at DEn). • San Francisco International: MCE was awarded a franchise for the Roasting Plant scheduled to be in place in 2017. other information and General Comments Considering MCE’s 17 years of experience in the airport industry, it is keenly aware of the costs of doing business at the airport. When a RFP is released, MCE reviews each opportunity based on the airport market, lease terms, and expectations of the respective airport. One of the biggest chal- lenges is increased competition, which drives increasingly high capital investment costs, high rental structures, and street pricing requirements. The profit margins of doing business at the airport have become smaller over the years. Concessionaires are not only faced with significantly higher “basic” costs, such as those listed earlier, but the costs of other factors such as badging, parking, utilities, wages, and cost of goods, allow little room for a profit. Concessionaires who are new to the airport industry, or wish to enter it, may not have the knowl- edge to evaluate an airport concession opportunity. For example, minimum capital investment requirements to build out a food and beverage facility may be stated in the RFP at $350 per square

43 foot, but actual costs may run in the $1,000 per square foot range. According to MCE, airports rents are higher than street rents, which makes these opportunities less attractive to local operators, espe- cially when the additional costs are calculated. outstandinG Hospitality manaGement ConCessions Group (oHm) Outstanding Hospitality Management (OHM) Concession Group is a boutique food and beverage company founded in 1997. In 1998, it was awarded its first airport contract, to operate a single Dunkin Donut at Lambert St. Louis International Airport. Since then, it has expanded to 11 airports, as well as transportation centers and traditional venues. OHM prides itself as one of the fastest grow- ing ACDbE companies. Since 2013, OHM has added locations at eight new airports. It attributes their rapid growth through the competitive RFP process and strategic acquisitions. OUTSTANDING HOSPITALITY MANAGEMENT CONCESSIONS GROUP Company Highlights Food & beverage operator 21 years of experience ACDBE certified Airport Locations Baltimore Washington Boston Logan Greenville–Spartanburg Indianapolis International Lambert St. Louis Orlando International Pensacola International Philadelphia International Piedmont Triad Ronald Reagan National Washington Dulles Concession offerings OHM has an evolving portfolio of local, regional, and national concepts including kitchen by Wolf- gang Puck, Chick-fil-A, the Great American bagel, Dunkin Donuts, Jamba Juice, Einstein bros., Freshens Smoothie & yogurt, Great Wraps, the Good Stuff, California Tortilla, Leeann Chin, Cur- rito, and several eateries by Todd English including American Market, Figs, Cava, Todd English Food Hall, and Tuscany, and others. Concession operations include direct lease agreements with airports, sub-contract agreements with prime operators, and joint venture partnerships. Airport locations include: • Lambert St. Louis International Airport: OHM is a joint venture partner with HMS Host for food and beverage concessions and a partner with Hudson for retail concessions • Piedmont Triad International Airport: OHM has a partnership with HMS Host for food and beverage concessions • boston (bOS)—Eight food and beverage units • Pensacola International Airport—Six food and beverage units • baltimore Washington International—Four food and beverage units • Greenville–Spartanburg International Airport—Five food and beverage units • Washington Dulles International Airport—Four food and beverage units • Ronald Reagan International national Airport—Four food and beverage units • Indianapolis International Airport—Three food and beverage units • Philadelphia International Airport—One food and beverage unit • Orlando International Airport—One food and beverage unit. In 2016 and 2017, OHM is slated to open food and beverage facilities at four other non-traditional locations, including the Port Authority nynJ bus Terminal, the University of Illinois, Fulton Center nyC, and the former new york Times building in Times Square, new york.

44 other information and General Comments As an experienced operator, OHM is aware of all the requirements for conducting business at the airport. According to OHM executives, airports do a good job of sharing information about running a business at the airports and there are no surprises after the concession awards have been made. Gen- erally, airports provide potential concessionaires the minimum operating standards and requirements at the onset of the RFP process. This is generally done at the PPC, where airports share the details of the concession opportunities. Further, according to OHM, most airports provide an opportunity for small businesses or operators wanting to get into the airport business to ask questions, speak to more experienced prime concessions, take a tour, or ask follow up-questions during the RFP process. One of the trends OHM reported is that over the past 5 years, airports award contracts to operators who bid among the highest rental percentages or minimum annual guarantees. In some instances, rents range from 18% to 22%, which makes it difficult to realize a viable return on investment. Further, labor costs and food costs tend to fluctuate the most in such arrangements, particularly with living wage requirements and the rise of minimum wages and benefit costs. High capital investment costs continue to rise over the years, whereas it is not uncommon to invest in the $1,000 range per square foot to build out a concession facility. This is particularly challenging to smaller concessionaires faced with the additional costs of parking, badging, street pricing, and deliveries. In contrast, larger concessionaires are able to operate on smaller margins as a result of economics of scale, because they can leverage their business to create a greater profit; so have more opportunity to dominate the business. WHitman may enterprises, inC./uptoWn airport Group, llC based in Charlotte, Whitman May Enterprises, Inc. is a certified ACDbE firm. Whitman May Enter- prises owns 30% in Uptown Airport Group, a joint venture among three ACDbE entities: FDy, Inc., Whitman May Enterprises, Inc., and Andstar Inc. The firms came together in 2014 to bid for a two-unit food and beverage concessions package at RDU, the first time that a partnership consisting of all minority-owned small businesses had bid for a contract there; and was awarded with a direct lease contract with RDU. Adrian beard, president of Whitman May Enterprises, serves as managing partner for Uptown Airport Group, responsible for strategic growth, client relationships as well as overseeing its operations in RDU. Uptown Airport Group is currently exploring additional conces- sions opportunities at regional airports in the Southeast and Midwest. beard also serves as vice president of operations for Denard Enterprises, where he manages stra- tegic development and oversees three food & beverage restaurants at Charlotte Douglas International Airport (CLT). WHITMAN MAY ENTERPRISES, INC./UPTOWN AIRPORT GROUP Company Highlights Airport Locations Food & beverage operator Charlotte Douglas 6 years of experience Raleigh–Durham ACDBE certified Concession offerings Uptown Airport Group owns the Charlotte-based Salsarita’s Fresh Mexican Grill and Raleigh based Char-Grill hamburger/shake shop in Terminal 1 at RDU. At CLT, beard oversees the Einstein bros. bagel, Salsarita’s, and Papa John’s locations on behalf of Denard Enterprises. other information and General Comments Although Uptown Airport Group was a new joint venture entity within the RDU concessions pro- gram, the three firms collectively had a wealth of experience in opening and operating airport conces-

45 sions. beard personally managed the opening of the Einstein bros. bagels location at CLT in 2010 before overseeing the openings at RDU, and has also gained multi-airport operating experience through his position with Denard Enterprises. Thus, when bidding on the concessions package at RDU, Uptown Airport Group was aware of all the general cost requirements involved in developing its business plan and proposal. According to the company, airports generally tell reveal the costs of doing business there. While detailed figures about all charges would be preferable, the costs that ultimately determine the viabil- ity of the business opportunity (MAG, build-out costs, refurbishment costs, and contractual obliga- tions such as the 3% commissary fee and marketing fund contribution) are clearly communicated. RDU did provide Uptown Airport Group with a rates and charges list, and according to Uptown Airport Group, that document provided details on smaller types of charges. At the time of Uptown’s opening at RDU, the airport did not have a tenant handbook; since then, RDU has produced a hand- book that it distributes to all concession tenants. Although it experienced no real surprises in regard to the type of costs incurred, Uptown Airport Group did go over budget on the build-out for Char-Grill and Salsarita’s at RDU. This was the result of two factors: the overtime paid to the general contractor in order to meet construction deadlines; and a specific, unexpected cost for the unit’s hood system. According to beard, the terminal in which the company built out Char-Grill and Salsarita’s was brand new at the time, so the company received a blank shell space. The hood system ordered for the unit did not match with the airport’s hot/chilled water system. In order to meet the specifications, Uptown needed to order a custom hood system, which cost approximately three times the price of the original system ordered. Although the general cost of the hood system was not an unknown cost, not knowing the details of the specifications needed to tie into the airport’s HvAC system ultimately resulted in unexpected costs.

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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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