National Academies Press: OpenBook

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

Chapter: Chapter Six - Conclusions and Suggestions for Further Research

« Previous: Chapter Five - Additional Considerations Relating to Costs and How Costs are Provided
Page 47
Suggested Citation:"Chapter Six - Conclusions and Suggestions for Further Research." 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.
×
Page 47
Page 48
Suggested Citation:"Chapter Six - Conclusions and Suggestions for Further Research." 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.
×
Page 48
Page 49
Suggested Citation:"Chapter Six - Conclusions and Suggestions for Further Research." 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.
×
Page 49
Page 50
Suggested Citation:"Chapter Six - Conclusions and Suggestions for Further Research." 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.
×
Page 50

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

48 chapter six ConClusions and suggestions for further researCh ConClusions The uniqueness of the airport operating environment creates a host of business challenges and accom- panying costs and expenses that can be unknown or surprising to inexperienced concession operators. Prospective restaurant or retail operators assessing opportunities to bid on airport concessions loca- tions do not benefit from the same level of institutional knowledge and readily available resources that restaurateurs and retailers opening shops in the general marketplace enjoy. This synthesis investigated methods in which airports can improve the communication of cost data to retail and food and bever- age operators, helping prospective concessionaires, particularly small business operators, better to gauge the viability of business opportunities being offered, and ultimately submit more accurate and enhanced proposals. Based on the survey of airports, there is not one consistent method that airports employ to com- municate operating costs, nor is there a specific list of costs or charges that airports require conces- sionaires to pay in order to operate at the airport. Lease agreements are the vehicle most often cited in which airports communicated operating costs to concessionaires. Figure 13 shows the results from the survey in regard to how airports communicate costs (note that the methods shown were pre-populated in the survey instrument); the Literature Review in chapter three delved into greater detail regarding other methods and tools used by airports. Employee-related costs, including fingerprinting fees, badging fees, and employee parking, proved to be the most common concessionaire cost reported that differentiates the airport business environment from the general marketplace. The high turnover rate common in the airport conces- sions industry makes the security and badging costs process in particular a potential strain for small business operators. Specific costs or cost ranges for the individual costs included in the survey were not reported, and in general were extremely hard to capture throughout the review process. Generally, prospective conces- sionaires will need to research and understand the higher costs at airports (as opposed to the general business marketplace environment) in the following areas at the minimum: business development costs [examples include proposal guarantees, costs in preparing Request for Proposals (RFP) and presenta- tions], primary business costs (guaranteed rent, capital investment, etc.), design/construction costs, and employee-related costs (examples include security badging requirements and parking). The literature review revealed that there are no dedicated sources of cost information for airport concession operators. General literature in the marketplace does not touch upon the nuances of airport environments, and airport industry reports provide very few details in regard to concessionaire costs. A detailed review and comparison of RFP documents to lease agreements found that whereas responsibil- ity for costs are typically assigned within these types of documents (delineating general costs assumed by the concessionaire as opposed to general costs assumed by the airport), few specifics are provided. Figure 14 illustrates the major concessionaire cost categories that were recorded by means of the review of RFPs and lease agreements documented in Tables 3 through 10 (chapter three). As a result of this lack of uniformity, there is not a one-size-fits-all approach for airports to follow when providing concessionaires with documents to assist in the analysis of airport business oppor- tunities. Reviewing the airport’s current library of documents, assessing how much concessionaire

49 2 3 4 6 12 15 Outreach Meetings Tenant Handbook Tenant Meetings Airport Rates and Charges List During RFP Process Lease Agreement FIGURE 13 Communicating operating costs. Source: Unison Consulting (2016). FIGURE 14 Major concessionaire cost categories. Source: Unison Consulting (2016).

50 business cost information is contained within the documents available, reviewing how these docu- ments are currently presented to concessions operators, and determining other potential avenues for distribution are the key steps in developing an action plan to maximize the airport’s business cost communication efforts. Providing prospective concessionaires with permanent access to business documents, resources and tools including sample lease agreements, tenant handbooks, and rates and charges lists through a dedicated concessions business resource webpage could provide concessionaires with the tools to piece together a more complete picture of potential costs of doing business at airports. The airport doc- uments, resources and tools reviewed in this synthesis include lease agreements, RFPs and addenda, tenant operating handbooks, tenant meeting presentations, RFP outreach/pre-proposal conference pre- sentations, airport rates and charges lists, airport policy manuals, and tenant design criteria manuals. Based on the amount of cost information currently communicated within them, tenant handbooks showed the most potential as a single resource for airports to utilize to most effectively communicate costs to concessions operators. Creating a checklist of resources for potential concessionaires to col- lect in building a library of airport documentation and posting it on the concession business resources page is an easy method to provide convenient and effective information to operators. In parallel with the survey results, the airports interviewed for case examples presented varying methods of communicating costs to prospective concessionaires. Some of this variance is created based on the specifics of the concessions solicitations the airport issued (for example, Raleigh– Durham International Airport’s restriction of solicitations to current operators in Terminals 1 and 2), or as a result of the concession management model that the airport employs. The airports generally agree that the lease agreement is the document employed to deliver concessionaire cost agreements upfront in an effort to set expectations. The concessionaires interviewed validated the survey results as well as the information presented in the airport case examples, generally expressing that airports do a good job of communicating the costs of doing business to them. With the exception of a few isolated situations (e.g., Whitman May/Uptown Airport Group’s experience with unanticipated hood system costs), the operators all agreed that few if any operating costs were surprises to them. The primary costs that are communicated early on in the solicitation process by airports (minimum annual guaranteed rent, minimum capital investment, refur- bishment investment) are the key figures to understand in order to assess the viability of the business opportunity. Underestimating build-out costs was cited by two respondents as issues for small operators in particular, as the final cost per square foot in capital investment is typically significantly higher than the minimum set by the airport. The dynamic nature of the airport business structure and operating environment make it incum- bent upon potential respondents of airport concessions RFPs to perform their own research and not rely solely on airport-supplied documentation as their source of business cost information. Inherent aspects of the airport concessions business structure, such as the solicitation process and different concessions management approaches (which will not necessarily be addressed in airport documents, tools and resources), will create costs that may be unknown to new or inexperienced operators. This dynamic element is exacerbated by variables created both inside and outside of the airport or concessionaire’s control that can further impact the cost of doing business at airports. To this end, it is possible that airports can look at capital investment, design criteria and build-out requirements as cost elements within their control that can be adjusted to assist small business entities in competing for, and ultimately producing, spaces that meet airport expectations without burdening the operator with a heavy financial deficit. The differences in how airports manage their property from security, operations, and revenue gen- eration standpoints makes the widespread adoption of a single set of consistent practices in regard to communicating costs to prospective concessionaires a challenge. Although there is some uniformity in the types of charges concessions operators typically pay, there is enough nuance, particularly in regard to specific figures for rates and fees, to make it difficult for a single tool or system to meet the needs of most airports or concession operators. Any document or system implemented would need

51 constant revising and updating by airport management staff, creating additional process and opening up the potential for outdated information to circulate. suggestions for further researCh Finding and recording actual figures or rates for the various business operating costs airports com- municate to prospective concessionaires proved to be particularly challenging. Some airports furnish rates and charges lists to concessions operators that includes some specific cost figures, but typically these lists are very general in nature. Specific figures are interspersed within lease agreements, tenant handbooks, RFPs, and other airport business documentation, without any particular order or orga- nization around what document communicates what type of cost figure. A study of concessionaire costs based on actual documentation may lead to a more complete set of cost figures for airports to distribute to prospective concessionaires; however, more research may be necessary to determine the viability of such a document. This report highlighted the importance of concessionaires’ understanding both general and spe- cific airport business costs to create accurate pro forma submissions. A study that delves into the accuracy of pro formas, including whether or not operators properly account for business costs and meet the projections presented within them, could assist the industry in continuing to understand how the lack of consistent communication and/or availability of airport business cost information impacts this vital aspect of the concessionaire business plan. The case example interviews and the airport survey findings both validated the concept that the primary airport concession business costs of minimum annual guaranteed rent, percentage rent and capital investment requirements are the focus of airport business cost communication. As the key components to prospective concessionaires assessing the viability of airport opportunities, a compre- hensive survey of airports to gather statistics regarding minimal annual guarantee amounts, percent rent structures, and minimum investment requirements could not only provide tangible figures for airports and operators to cite and use, but also delve into whether the level of these costs of entry are pricing small business entities out of the industry. As discussed earlier in this synthesis report, ACRP Report 54: Resource Manual for Airport In-Terminal Concessions was published in 2011, so an update to the report would be an efficient way to provide airport management and concessionaires with current information for the myriad of data it presents. A more robust way to fill the knowledge gap in this area would be to commission a study that produces a parallel report to ACRP Report 54, creating a resource manual written primarily for use by concessions operators (or prospective operators). Creating a reference manual based on extensive operator-focused research into all of the elements of the airport concessions business life cycle would provide the industry with a definitive information resource beyond airport-generated documents created for other purposes.

Next: Glossary »
Food and Beverage and Retail Operators: The Costs of Doing Business at Airports Get This Book
×
MyNAP members save 10% online.
Login or Register to save!
Download Free PDF

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.

  1. ×

    Welcome to OpenBook!

    You're looking at OpenBook, NAP.edu's online reading room since 1999. Based on feedback from you, our users, we've made some improvements that make it easier than ever to read thousands of publications on our website.

    Do you want to take a quick tour of the OpenBook's features?

    No Thanks Take a Tour »
  2. ×

    Show this book's table of contents, where you can jump to any chapter by name.

    « Back Next »
  3. ×

    ...or use these buttons to go back to the previous chapter or skip to the next one.

    « Back Next »
  4. ×

    Jump up to the previous page or down to the next one. Also, you can type in a page number and press Enter to go directly to that page in the book.

    « Back Next »
  5. ×

    To search the entire text of this book, type in your search term here and press Enter.

    « Back Next »
  6. ×

    Share a link to this book page on your preferred social network or via email.

    « Back Next »
  7. ×

    View our suggested citation for this chapter.

    « Back Next »
  8. ×

    Ready to take your reading offline? Click here to buy this book in print or download it as a free PDF, if available.

    « Back Next »
Stay Connected!