Shaken, not stirred
The potential of airport F&B was a core theme throughout FAB 2019, raised initially in stirring fashion by a panel that featured Leigh Fisher Director Dan Cappell, SSP Group Chief Commercial & Strategy Officer Jonathan Sharp and Emirates Retail Leisure Group CEO Andrew Day.
View from the top: A compelling panel session featured (left to right) Leigh Fisher Director Dan Cappell; SSP Group Chief Commercial & Strategy Officer Jonathan Sharp; and Emirates Retail Leisure Group CEO Andrew Day (note the dazzling socks worn by Dan Cappell and Andrew Day – Swedish manufacturer Happy Socks was an official sponsor of FAB 2019)
Cappell set the scene for FAB 2019 as “an external observer with an insider perspective”. He compared the state of play in North America with the rest of the world, with his main focus on concession fees, pricing policies and tenure of contract.
He noted that many North American airports are falling behind the standards set by the top airports across the world, with many in need of modernisation.
“Existing terminals were not designed or built to optimise commercial concession returns or optimise the customer experience,” he said. “This in turn severely impacts the commercial concession programme’s ability to expand with the right amount of space, in the right location on the passenger’s journey through the airport.
In a hard-hitting address Dan Cappell warned, “Optimal spend per passenger will never be achieved if today’s status quo remains”
“If there are not enough seats at peak hour and there are queues out of the door, it does not matter if you are experiencing a 20% increase in traffic, you will not see the corresponding returns in sales and income returns.”
While duty free retail has “nowhere near the share of voice in the USA” compared to the rest of the world, F&B is a “star” in North America, with over 60% of commercial space, delivering a median spend of US$6.29.
The way we were: Airport food & beverage has been revolutionised in recent years but much remains to be done
Looking ahead, Cappell noted how new technologies such as mobile payment, delivery to gate and kitchen innovations had changed the way F&B was presented at airports. “But optimal spend per passenger will never be achieved if today’s status quo remains,” he said in a reference to the industry’s model.
“It is business-critical that the commercial offer is one of the core pillars in any infrastructure development or refurbishment of existing facilities. Imagine what the potential would be if the number one focus was on the design, the allocation of space and the width and breadth of the commercial offer being aligned to the passenger demographics.”
“Anyone working within the global airport commercial business will know just how low these [US airport] concession fee returns are when compared to the rest of the world”
He outlined three areas that need further focus: concession fees, pricing policies and tenure of contract. “In relation to financial returns from non-aeronautical concession agreements, US airports lag behind the rest of the world. Based on the data from the 2018 ACI concession benchmarking study, the rent percentage of gross sales overall was 11.1% from food & beverage and 15.1% from retail, including duty free. The larger hubs generate the highest returns at 13.8% for F&B and 16.2% for retail.
“Anyone working within the global airport commercial business will know just how low these concession fee returns are when compared to the rest of the world.”
On pricing policies, Cappell said many operators appeared to be charging more than the standard +10% on street pricing. “There is a balance between providing value for money and ripping customers off; people will pay a premium providing the offer and service is reflective and warrants the premium. One large glass of wine that costs significantly more than a bottle in the domestic market and a pizza which is circa 20% smaller than the same pizza in the chain’s downtown outlet, yet 25% more expensive at the airport, does not provide value for money or a great experience.”
Finally, on contracts, he stated: “I see a trend whereby operators are pushing for ten-year terms across the board and always try to negotiate contract extensions if opening a new outlet. A range between 5-7 and 10 years pending type of offer is much more the norm globally: 10 years for a coffee shop for example is extremely rare outside of North America.”
Jonathan Sharp: “Be leading edge as opposed to following edge”
The F&B industry has huge growth potential, according to SSP’s Jonathan Sharp, whose presentation focused on how best to realise it. “It is not as straightforward as it seems,” he said. “There are many stakeholders to juggle, and their goals are not always competitively aligned.”
Much can be learnt from downtown, he said. Ferocity of competition has revealed many lessons in that market, and there are deep consumer insights available. The travel industry must test, learn and adapt processes and F&B operations must build know-how to “squeeze the most out of limited space”.
Consumers know where they want to trade up or down in terms of spending, and stakeholders must adapt to this in the travel space. A desire for fresh, organic and natural food and ingredients, as well as a desire to spend on travel, are examples. “Premiumisation is a very real trend, actioned by a consumer desire,” he said.
Sharp said there was much room for further digital innovation in the channel, given that consumers are “digitally literate and the travel ecosystem is very digitally-orientated”. He added: “We should be leading edge as opposed to following edge.”
Concluding, Sharp remarked: “We as an industry should challenge ourselves to build a more aligned set of incentives. Do so, and the growth potential is significant.”
“One million passengers per hour will walk past our outlets throughout the world but half will walk past and not go in,” said Emirates Leisure Retail’s Andrew Day. “This is a huge missed opportunity and this is only going to grow.”
He noted the great possibilities of capturing and applying data to improve the customer experience. “There is a lot out there but we need to put it all together, and we need to collect and share insights.
“It is about understanding the customer and what they want, and giving them consistency, creating a stress-free travel experience. A stressed traveller doesn’t spend but a relaxed one does.”
To improve the customer experience, Day also said it was crucial for stakeholders to be able to take risks and potentially make mistakes without fear of being punished by other parties.
A great opportunity is the integration of retail and F&B, according to Day, as this not only enhances the experience but adds incremental revenue opportunities. “When the customer wins, both the airport and operator wins.”
Andrew Day: Integrating retail and F&B is a great opportunity