Airport In-Terminal Concession Program Implementation Tuesday, November 14, :00pm to 3:30pm ET

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1 TRANSPORTATION RESEARCH BOARD Airport In-Terminal Concession Program Implementation Tuesday, November 14, :00pm to 3:30pm ET

2 Purpose Discuss research from the Airport Cooperative Research Program (ACRP) s Synthesis 81: Food and Beverage and Retail Operators: The Costs of Doing Business at Airports and Report 54: Resource Manual for Airport In-Terminal Concessions. Learning Objectives At the end of this webinar, you will be able to: Understand the techniques for in-terminal concessions planning, implementation, and evaluation to assist airports in structuring effective in-terminal concession programs Understand how to use current business documents and new documents to improve communicating cost data to retail and food and beverage operators

3 ACRP is an Industry-Driven Program Managed by TRB and sponsored by the Federal Aviation Administration (FAA). Seeks out the latest issues facing the airport industry. Conducts research to find solutions. Publishes and disseminates research results through free publications and webinars.

4 Opportunities to Get Involved! ACRP s Champion program is designed to help early- to midcareer, young professionals grow and excel within the airport industry. Airport industry executives sponsor promising young professionals within their organizations to become ACRP Champions. Visit ACRP s website to learn more.

5 Join us for the Symposium on ACRP Research in Progress at the TRB Annual Meeting! Network with accomplished ACRP Principal Investigators: peers in research and industry, with insights to share on priorities, new approaches, and best practices for ACRP research. The Symposium will take place at the TRB Annual Meeting on January 5, Questions? us at: Connect with us!

6 ACRP Insight Event Airport Roles in Reducing Transmission of Communicable Diseases March 6 7, 2018 Washington, D.C. Now Taking Registrations at: bit.ly/acrpmarchevent Connect with us!

7 Upcoming ACRP Webinars December 13 Enhancing Wayfinding and Public Address Systems for a Positive Traveler Experience

8 Additional ACRP Publications Available on this Topic Report 25: Airport Passenger Terminal Planning and Design Report 55: Passenger Level of Service and Spatial Planning for Airport Terminals Report 130: Guidebook for Airport Terminal Restroom Planning and Design Report 109: Improving Terminal Design to Increase Revenue Generation Related to Customer Satisfaction Legal Research Digest 30: Contract Risk Management for Airport Agreements

9 Today s Speakers Gary Davies LeighFisher, Inc. Presenting Report 54: Resource Manual for Airport In-Terminal Concessions Kenneth Buckner and Firelli Pitters Unison Consulting, Inc. Presenting Synthesis 81: Food and Beverage and Retail Operators - The Costs of Doing Business at Airports

10 ACRP Synthesis 81 Food & Beverage and Retail Operators: The Costs of Doing Business at Airports Ken Buckner Firelli Pitters Unison Consulting, Inc.

11 Ken Buckner, Principal Consultant Director, Unison Consulting, Inc. Former Senior Marketing Director, Westfield Airports Former Marketing Director, Westfield Malls Current clients include IND, MIA, SAT and STL

12 Firelli Pitters, Principal Consultant Managing Director, Unison Consulting, Inc. 20+ years experience in concession consulting Leads Unison s market research practice Current clients include LAX, MIA, AUS, ELP, STL, and SFO

13 ACRP Synthesis 81 Topic Panel David S. Freedman, Hollywood Burbank Airport Randy W. Goodman, Houston Airport System Ingrid N. Hairston, Raleigh-Durham Airport Authority Jeffrey Jorgensen, Embry-Riddle Aeronautical University Michael R. Mullaney, The Hudson Group Dafang Wu, DWU Consulting LLC Joseph Herbert, Federal Aviation Administration (Liaison) Aneil Patel, Airports Council International North America (Liaison)

14 Synthesis Introduction Airport environment creates unique and unknown costs Lack of resources and tools to educate operators Unexpected costs can impact financial viability Customer experience and airport revenue can suffer

15 Synthesis Objective Improve communication of business costs from airports to concessionaries Offer tools and strategies to assist airport staff Identify gaps in knowledge and future research opportunities

16 Study Approach ACRP Panel Provided Baseline Data Airport Surveys & Case Studies Completed Literature & Documents reviewed and compiled Recommendations and Future Research Opportunities Developed

17 Airport Survey 15 Airports representing Small, Medium and Large Hubs

18 Airport Survey Results Specifics of Facility Maintenance Standards Vary Overt & Hidden Employee Costs Impact Economics

19 Airport Survey Results Leases & RFPs cited as main communication tools

20 Literature Review General Literature provided overarching info ACRP Report 54 provides wealth of info needs updating

Document Source: TPA Concessionaire Source: SFO Terminal Handbook

21 Literature Review Most Airport Documents Provided Inconsistent Levels of Detail Tenant Handbooks Were Most Promising Airport Document Source: TPA Concessionaire Source: SFO Terminal Handbook 3 Retail (April Marketplace 2016) RFP Pre-Proposal Presentation (2016)

22 RFP / Lease Comparison RFPs Varied Cost Information Leases More Consistent Cost Information Tabulation of Costs Mentioned in RFPs and Lease Agreements Totals Total Mentions in RFPs n=14 Total Mentions in Lease Agreements n=15 Overall Total Mentions n=29 Actual Costs Documented Potential Costs for Documentation* ,674 * Total of potential cost mentions based on the complete list of costs found throughout the 14 reviewed RFPs (51 total costs) and 15 reviewed lease agreements (64 total costs.) Source: Unison Consulting (2016)

23 RFP / Lease Comparison Results Clearly Show Cost Communication Gap

24 Case Studies Airports make the effort, but lack the tools Operators agree that airports communicate the basics Operators all spoke of understated capital investment costs

25 Additional Considerations Airport business structure impacts costs Concession Management Structures Variable airport business factors Solicitation Process

26 Conclusions / Research Suggestions No consistent methods or documents used by airports No one-size-fits-all approach to improving process Concessionaire-focused parallel report to ACRP Report 54

27 Action Items for Airports Two Acquiring Making Step-Process it Accessible the Information to Improving Cost Communication

28 Acquiring the Information Scrub Industry RFPs and Lease Agreements Aggregate capital investment data from construction close out documents

29 Acquiring the Information Review Pro-Formas From RFP Responses One-on-One Conversations with Operators

30 Acquiring the Information Create Business Cost Document Checklist For Operators

31 Making it Accessible Create Concessions Business Resource Webpage

32 Making it Accessible Create or enhance Concessionaire / Tenant Handbook with complete cost information

33 Making it Accessible New / small concession operator testimonials

34 Additional Information: ACRP Synthesis 81 Food and Beverage and Retail Operators: The Cost of Doing Business at Airports Ken Buckner Firelli Pitters

35 TRB Webinar: Airport In-Terminal Concession Program Implementation Gary E. Davies, CPA LeighFisher, Inc.

Gary E. Davies, CPA Deputy Principal Investigator, ACRP Report 54, Resource Manual for Airport In-Terminal Concessions Associate Director, LeighFisher, Inc.

36 Gary E. Davies, CPA Deputy Principal Investigator, ACRP Report 54, Resource Manual for Airport In-Terminal Concessions Associate Director, LeighFisher, Inc. Former Director of Commercial Management, Baltimore/Washington International Thurgood Marshall Airport Certified Public Accountant licensed in Maryland and Virginia

37 ACRP Report 54 Oversight Panel Carl E Remus, Tulsa Airport Authority, Panel Chairman John A. Buckner, Jr., Salt Lake City Department of Airports Zenola Worrill Campbell, Dallas/Fort Worth International Airport Alan M. Gluck, Broward County (FL) Aviation Department Raymond Moore, Delta Airlines, Inc. Michael R. Mullaney, The Hudson Group M. Ashraf Jan, FAA Liaison Danielle J. Rinsler, FAA Liaison Liying Gu, Airports Council International North America Liaison Christine Gerencher, TRB Liaison

38 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions Provides information and guidance on the development, implementation and evaluation of airport in-terminal concession programs, including Concession planning strategies and techniques ACDBE program requirements and compliance actions Solicitation and contract development Metrics used in planning and evaluating concession programs Management and operational best practices Services, storage and logistics Case studies Primary focus is on food/beverage and retail but other in terminal amenities and services are also addressed Published November 2011

39 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions How did we gather our data? a review of available literature a web-based survey of public and private sector industry members oral interviews practical experience The wealth of data we collected addressed virtually all aspects of airport interminal concessions

40 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions Outline of the Resource Manual

41 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions The Resource Manual includes Case Studies of four (4) domestic and three (3) foreign airports It also includes a Glossary of Common Terminology and a list of Abbreviations and Acronyms associated with the concessions industry This presentation will focus on food/beverage and retail concessions

42 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions The following topics covered in the Resource Manual will be briefly discussed: Metrics used in Benchmarking Performance Attributes of Successful Concession Programs Solicitation and Concession Agreement Development

43 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions TOPIC 1 METRICS USED IN BENCHMARKING PERFORMANCE

44 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions METRICS USED IN BENCHMARKING PERFORMANCE Comparisons to results at other airports are an important part of planning and evaluating an airport s concessions program (best to compare to peer airports) A primary source of benchmarking data is the Airport Revenue News (ARN) Fact Book, which is issued annually Typical food/beverage and retail benchmarking metrics include: Sales per Enplaned Passenger Sales per Square Foot Square Feet per 1,000 Enplaned Passengers

45 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions SALES PER ENPLANED PASSENGER Passenger spend rates are influenced by Airport characteristics, e.g., size, configuration, location, flight length Customer service and concession offerings are key factors too ACI 2016 ACI-NA Concessions Benchmarking Survey shows medians broken down by hub size for CY 2015

ACRP Report 54: Resource Manual for Airport In-Terminal Concessions SALES PER ENPLANED PASSENGER TOP 50 PERFORMING NORTH AMERICAN AIRPORTS IN 2017 ARN FACT BOOK

46 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions SALES PER ENPLANED PASSENGER TOP 50 PERFORMING NORTH AMERICAN AIRPORTS IN 2017 ARN FACT BOOK Food/beverage: $7.55 average; $7.23 median Specialty Retail: $1.87 average; $1.70 median News/Gift: $1.98 average; $2.28 median Total: $11.40 average; $11.04 median

47 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions SALES PER SQUARE FOOT Used in determining proper sizing of a concession program Very high Sales per Square Foot can be an indication of an undersized program, which can lead to a loss of sales Goal is to provide the right amount of space for airport operator and concessionaires to achieve reasonable financial returns

ACRP Report 54: Resource Manual for Airport In-Terminal Concessions SALES PER SQUARE FOOT TOP 50 PERFORMING NORTH AMERICAN AIRPORTS IN 2017 ARN FACT BOOK

48 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions SALES PER SQUARE FOOT TOP 50 PERFORMING NORTH AMERICAN AIRPORTS IN 2017 ARN FACT BOOK Food/beverage: $1,555 average; $1,257 median Specialty Retail: $1,068 average; $878 median News/Gift: $1,791 average; $1,665 median Total: $1,479 average; $1,298 median

49 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions SQUARE FEET PER 1,000 ENPLANED PASSENGERS Used as a planning tool in sizing an airport s concession program Forecasting passenger spend rates is an important step in determining supportable space Excess amounts of square feet used for concessions may lead to greater sales (but more competition may also lead to a greater concession turnover rate)

ACRP Report 54: Resource Manual for Airport In-Terminal Concessions SQUARE FEET PER 1,000 ENPLANED PASSENGERS TOP 50 PERFORMING NORTH AMERICAN AIRPORTS IN 2017 ARN

50 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions SQUARE FEET PER 1,000 ENPLANED PASSENGERS TOP 50 PERFORMING NORTH AMERICAN AIRPORTS IN 2017 ARN FACT BOOK Food/beverage: 4.85 average; 5.66 median Specialty Retail: 1.75 average; 1.74 median News/Gift: 1.12 average; 1.37 median Total: 7.73 average; 8.87 median

Concession Turnover Rate Mix of Local/Regional

51 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions SOME OTHER COMPARATIVE METRICS TO CONSIDER Airport Revenue per Enplaned Passenger Average Build-Out Costs Concession Turnover Rate Mix of Local/Regional vs. National vs. International Brands Percentage Rents Pre-Security vs. Post- Security space Storage Space (as a percent of leasable concession space)

52 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions TOPIC 2 ATTRIBUTES OF SUCCESSFUL CONCESSION PROGRAMS

53 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions ATTRIBUTES OF SUCCESSFUL CONCESSION PROGRAMS Establish Goals Assess Current Program Prepare Strengths, Weaknesses, Opportunities, Threats (SWOT) Analysis Benchmark Comparable Terminals (peer airports) Establish Overall Program Goals

54 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions

55 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions ATTRIBUTES OF SUCCESSFUL CONCESSION PROGRAMS Comparisons of an airport s metrics to those at other (especially peer) airports is a good measurement tool Concession program processes, strategies and components in place at other airports, especially awardwinners, can offer some great ideas And, it is important to establish realistic expectations, e.g., terminal configuration, passenger dwell time and other factors drive demand A strong measure of success is how well an airport meets its established goals

56 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions ATTRIBUTES OF SUCCESSFUL CONCESSION PROGRAMS Some Keys to Success: Consider the needs and demands of stakeholders Keep up with industry trends Try something fun and new (e.g., displays, entertainment, promotions) Survey customers to determine strengths and weaknesses and to get ideas for improvements Use Mystery Shoppers to evaluate performance Recognize outstanding customer service Walk around your own terminal to see what s going on (can t manage from behind a desk)

57 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions TOPIC 3 SOLICITATION AND CONCESSION AGREEMENT DEVELOPMENT

58 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions CONCESSION CONTRACTING APPROACHES (there are pros and cons to each) Prime Concessionaire(s) One or more companies manage the concession program, developing and operating most locations and subleasing others Direct Leasing The property owner (e.g., airport management) determines the desired use and occupant for each location Leasing Manager A company is paid to conduct leasing and property management functions without financial investment in the airport Third Party Developer One company develops and manages the concession program, subleasing all (or nearly all) locations to operators

59 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions The solicitation methods most commonly used at airports are: Invitation for Bid (IFB) Request for Proposals (RFP) Direct negotiation

60 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions SOLICITATION METHODS (continued) IFB focuses primarily on price and can reduce chances of protests or second guessing of subjective scoring RFP is more common than IFB for most in-terminal concessions as comparative experience, concepts, aesthetics, management processes and other technical factors are taken in to consideration, as well as the financial offer Direct negotiations may be favored in cases of limited interest or unique services, and are sometimes done with incumbents in exchange for immediate facility improvements, increased financial payments or other concession agreement enhancements desired by airport management

61 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions

62 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions TYPICAL CONTENTS OF A RFP General Description of the Business Opportunity General Airport and Airline Information Detailed Description of the Business Opportunity Other Doing-Business Issues Development Requirements Submittal Requirements Evaluation Process Attachments

63 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions RFP EVALUATIONS Award usually goes to firm with the highest combined technical and financial score (subject to all necessary approvals) An example of weighted evaluation criteria: Overall Mix of Brands/Concepts (25 points) Financial Return and Investment Commitment (25 points) Customer Service, Marketing and Operations Plan (20 points) Aesthetics and Design (15 points) Experience and Qualifications (15 points)

64 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions CONCESSION AGREEMENT DEVELOPMENT Recent concession agreements from other airports should be obtained for review and to use as models for preparing the agreement Draft concession agreement should be attached as part of solicitation document Substantive changes after receipt of bids or proposals should not be allowed

65 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions CONCESSION AGREEMENT DEVELOPMENT (continued) Terms and conditions generally include: Term Facilities Privileges Rates and Fees Operational Obligations of Airport and Concession Contractor Performance Standards Pricing Requirements Capital Improvements Insurance and Indemnification Boilerplate Provisions Other? to address each airport s requirements or special needs

66 ACRP Report 54: Resource Manual for Airport In-Terminal Concessions ACRP Report 54 goes into depth on the topics covered in this Presentation as well as many other relevant topics I hope you have enjoyed this Presentation and found it useful I encourage you to keep a copy of ACRP Report 54 (Resource Manual for Airport In-Terminal Concessions) in your library as a valuable reference tool and wish each of you the best of luck in the everchanging world of airport in-terminal concessions

67 For additional information: ACRP Report 54 Resource Manual for Airport In-Terminal Concessions Gary Davies o Gary.davies@leighfisher.com

68 Today s Participants Ingrid Hairston, Raleigh-Durham Airport Authority, Ingrid.Hairston@rdu.com Ken Buckner, Unison Consulting, Inc., KennethBuckner@unison-ucg.com Firelli Pitters, Unison Consulting, Inc., FirelliPitters@unison-ucg.com Gary Davies, LeighFisher, Inc., Gary.davies@leighfisher.com

69 Panelists Presentations After the webinar, you will receive a follow-up containing a link to the recording

70 Get Involved in ACRP Submit a research idea to ACRP. Volunteer to participate on a project panel. Prepare a proposal to conduct research. Get involved in TRB's Aviation Group of committees. Take part in the Champion or Ambassador Programs. For more information:

71 Take Part in the Careers in Motion Networking Fair

TRANSPORTATION RESEARCH BOARD. Passenger Value of Time, BCA, and Airport Capital Investment Decisions. Thursday, September 13, :00-3:30 PM ET

TRANSPORTATION RESEARCH BOARD. Passenger Value of Time, BCA, and Airport Capital Investment Decisions. Thursday, September 13, :00-3:30 PM ET TRANSPORTATION RESEARCH BOARD Passenger Value of Time, BCA, and Airport Capital Investment Decisions Thursday, September 13, 2018 2:00-3:30 PM ET Purpose Discuss research from the Airport Cooperative Research