Food and Beverage and Retail Operators: The Costs of Doing Business at Airports (2017)

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46 chapter five AdditionAl ConsiderAtions relAting to Costs And How Costs Are Provided During the review phase in the development of this synthesis report, it became apparent that while there are many aspects of operating in the airport environment that create additional or higher costs for concessionaires, the dynamic nature of the airport business structure itself also creates new or higher costs for operators unfamiliar from their street locations. For example, airports employ several different concession management approaches, either indi- vidually or in combination, that can impact business costs for prospective concessionaires. Chapter 8 (“Concessions Contracting Approaches”) of ACRP Report 54 (LeighFisher 2011), goes into great detail on the various concessions management approaches and how they impact airports from an economic and operational perspective. Although specific implications of the different management approaches on costs for concessionaires are not included, operators studying the pros and cons of each approach from an airport’s perspective can extract substantial guidance to help them analyze the potential costs associated with concessions opportunities. The airport concessions solicitation process itself is a source of additional cost elements that can be completely unknown and not accounted for by inexperienced prospective concessionaires. While not delving into specific detail on the cost of preparing RFP response documents, ACRP Report 54 again serves as a resource for general guidance. In Chapter 10, Section 12 (“Streamlining the RFP”), the guide states, “For major competitive selections, large companies may spend considerable money on expensive covers, dividers, and artwork.” The potential costs of airport required presentations and/or interviews is also highlighted in this section: When airport operators require formal presentations, concessionaires with large business development staffs and strong presentation skills are able to spend a lot of time and money preparing impressive presentations, which may or may not have anything to do with answering the key question—which proposer and concept will do the best job for the airport enterprise. Spending considerable amounts on graphic design and presentation materials to win an award of an airport concessions space is not something that the first-time prospective concessionaire will have experienced in the process of taking on business opportunities in the general marketplace. Although the airport solicitation process can produce additional costs for concessionaires to account for, the process can also be extremely beneficial for new or inexperienced operators. In chapter three of this report, Literature Review, RFP outreach/pre-proposal conference presentations were discussed as potential sources of business cost information that airports can utilize on an on-going basis by posting them onto concession business webpages. However, the conference/meeting itself provides airports with the opportunity to speak directly with potential operators and generate awareness con- cerning unknown costs or cost differentials. One panel member on this synthesis report team specifi- cally mentioned that the most highly regarded outreach conferences he has participated in included panels of current concessionaires who shared their experiences in entering the industry. Hearing directly from operators about how they initially waded through the solicitation process and ulti- mately built out and opened in the airport space can be invaluable for new operators. If these opera- tors are willing, listing them as sources of information on concession business resource webpages (or in the outreach/pre-proposal presentation posted on the webpage) could be a method of extending the useful life of the outreach/pre-proposal phase.

47 One particular item that airports can emphasize during the outreach and pre-proposal phases of the solicitation process is the importance of the pro forma. Although the importance of pro formas in the process of opening a new business is not unique to the airport concessions industry, prospective opera- tors need to be aware that airports look for evidence that the respondent has included some (if not all) of the additional costs that are unique to that specific airport. This leads to an overall consideration for prospective concessionaires to incorporate into their planning: While airports strive to give as much cost information to potential operators as possible, operators need to augment it with their own research to ensure that they have the most accurate and relative data possible to use in preparing proposals. For example, it is typical for RFPs to include language similar to the following passage from DEN’s Request for Proposals: Common Use Lounge (July 2016) in various forms and capacities: Proposers must conduct their own examination of passenger traffic. City does not represent or warrant the achievement of any forecast of future passenger traffic, past traffic levels being achieved in the future, airlines serving DEN today continuing to serve DEN in the future, or airlines continuing to use the same departure gates. Proposers must conduct a full investigation of the risks associated with operating at DEN. Because airports will account for the possibility of old or inaccurate information in their RFP docu- ments, it is incumbent upon potential respondents of airport concessions RFPs to perform their own due diligence and not rely solely on airport-supplied documentation as their sources of business cost information. Another reason airports include language of this type in RFPs is that while some ele- ments of the airport business cost environment can be controlled by either the airport or the operator, there are many variables created by elements both inside and outside of the airport or concessionaire’s control—for example, airline business activity and the myriad of factors that determine airline deci- sions to ramp up or pull back flight schedules or alter aircraft size at a particular airport—all of which can significantly change the economics of a concessions business opportunity.