Airport Experience® News - Retail & Amenities Issue 2023

A Natural Remedy Weddig points out that in today’s high inf lationary environment, having the ability to recover costs is a key objective for concessionaires. “When prices and the ability to adjust prices are constrained, conces siona i res lose—and, more importantly, passengers lose,” he says. “Even in the best of times, concessions are low-margin businesses, as are restaurants and retail on the street. When pricing and costs are decoupled—as they are in the price-controlled airport environment— concessionaires cannot maintain the margins they need to maintain the great guest experience we all expect.” He adds that the solution is a simple one: untether airport prices from the street. “We ask airports to allow concessionaires to manage their own prices in a manner that best fits their revenue and cost conditions,” he says. “More adaptable pricing is a natural remedy to a critical problem.” What further compounds the challenge of pricing caps for concessionaires is the fact that most airports only allow for pricing reviews at set times throughout the year, and often as infrequently as once or twice a year. As street prices have been rising steadily along with inflation, concessionaires can’t react immediately, instead having to have to wait for a formal airport review. “It’s overly restrictive and overly bureaucratic, with airports often taking way too long to respond to requests for pricing adjustments, and if any questions come up there’s a potential further delay,” notes Roderick McOwan, chief development officer for Marshall Retail Group , “Our wholesale prices may be increased by our suppliers in real time, so a negative impact to the bottom line will have already been realized before we’ve had any chance to react.” In his ACI Business of Airports conference presentation, Crews pointed out that increasing the frequency of the market basket survey would be greatly beneficial. “Unfortunately when you’re working with brands, the brands sometimes can be slow

Above: Roderick McOwan, chief development officer for Marshall Retail Group, suggests more research on different pricing models is needed to determine which are truly effective, but notes that concessionaires currently lack the flexibility and ownership to do such tests themselves due to airport pricing policies.

Above: Mookie Patel, chief business and finance officer for Austin-Bergstrom International Airport, says that although concessionaires have requested that the airport’s pricing restriction of street plus 10% be upped to street plus 15%, AUS has chosen not to raise their caps because concession revenue is doing well, even exceeding expectations.

to increase their pricing on the street to take into account inflationary pressures, so if they don’t increase the pricing prior to the required market basket survey, then we’re locked in at that same pricing even though they’ve later increased the price on the street,” he explained, adding that the removal of the “street plus” policy would also go a long way in supporting operators. Against The Tide Phoenix Sky Harbor International Airport (PHX) is one of the few airports to break the status quo and allow concessionaires freedom to price as they see fit. In December 2018, Phoenix City Council voted to discontinue the street pricing plus 10 percent policy for food and retail at PHX so that market competition between food and retail operators would guide pricing. The new policy went into effect in February 2019. In his presentation, Crews offered that perhaps more airports aren’t jumping at the same opportunity PHX took because they’re

worried that without a cap, concessionaires would start to raise prices too high. “But I believe at Phoenix there hasn’t been much pushback,” he said. And Eric Everts, public information officer for PHX, confirms this: “We’ve received minimal customer comments since the change in policy.” Crews added that he believes there are enough operators at the airport that they can create a competitive environment where they would keep each other accountable and not raise prices too high. And as Weddig points out, customer reaction will also keep things in balance. “Concessionaires want to make sales— after all, the only way to make a profit is to first make a sale—and consumers will provide a natural check on pricing,” he says. “Additionally, ARRA members’ market research has found that pricing is not that important to passengers. Rather, the quality of the offering, service and overall experience are most important.” McOwan similarly notes that most passengers are not expressly concerned about prices. “We all understand that

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