PORT OF SEATTLE 
MEMORANDUM 
COMMISSION AGENDA             Item No.      6a 
ACTION ITEM             Date of Meeting    June 5, 2012 

DATE:     May 25, 2012 
TO:     Tay Yoshitani, Chief Executive Officer 
FROM:    James R. Schone, Director, Aviation Business Development 
Deanna Zachrisson, Manager, Aviation Concessions Business 
SUBJECT: Lease and Concession Agreement with McDonald's Corporation for a restaurant
at Seattle-Tacoma International Airport 

ACTION REQUESTED:
Request Commission authorization for the Chief Executive Officer to negotiate and execute a
lease and concession agreement with McDonald's Corporation to operate a restaurant in a
currently vacant location on Concourse B for a term of 12 years. The draft lease (Exhibit E) is
not necessarily the final version and is subject to negotiation within the stated parameters
provided in this memorandum. 
SYNOPSIS: 
On March 6, 2012, Airport staff requested approval to lease a vacant concessions unit on 
Concourse B, in close proximity to the Central Terminal and Airport's children's play area 
(Exhibit B: Map of Location), for a McDonald's restaurant. Consideration of the request was
postponed by the Commission. Staff is returning to the Commission with this same request, but 
with significant new analysis in order to reaffirm that the local McDonald's franchise is the best
available option for this space, that no other national or local hamburger chains are interested in
the space, and that there exists more than sufficient passenger growth and demand to create
incremental new sales and increase overall rent to the Port.
The proposed agreement with McDonald's represents a unique opportunity to bring a highly
desired concept to the traveling public; generate new non-aeronautical revenue; upgrade a
concessions unit in very poor condition at no cost to the Port; promote a new small business
opportunity with a local franchisee; and create approximately 60 new full- and part-time jobs. 
The net present value (NPV) of Port revenue generated over the life of the lease is approximately
$3 million. The nominal dollar value is estimated at $4.9 million.

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
May 25, 2012 
Page 2 of 11 

This proposal for a locally operated small business franchise of a strong national brand concept
is consistent with the goals articulated in the Commission motion adopted on February 14, 2012,
and at the same time allows the Airport to meet immediate passenger needs. 
BACKGROUND: 
The concessions program in the Airport's main terminal offers a total of 12 quick-serve
restaurants, with concepts varying from pizza to fish and chips to bagel sandwiches to teriyaki.
Among these concepts, the main terminal has been served by only one branded hamburger
concept since the closure of a Burger King in 2009. Quick-serve hamburgers and McDonald's, 
in particular, is one of the most sought-after restaurant concepts by travelers, in part because of a 
lower price point, and appeal to families. The remaining hamburger concept in the Central
Terminal is the highest volume producing quick-serve restaurant in the entire Airport and cannot
meet current demand. 
The McDonald's Proposal 
The previously outlined parameters of the McDonald's proposal are: 
The prospective space has been vacant since turned back to the Port on March 31, 2006.
Repeated attempts to garner interest in the space have been unsuccessful. 
The prospective space has not had any infrastructure improvements since 1994. It
requires interior demolition and upgrades to supporting systems (plumbing, electrical,
HVAC, etc.) before the unit can be built out as a new restaurant. 
McDonald's commits to a minimum investment of $2 million. This investment is
supported both by McDonald's Corporation and the local franchisee Bob Comisky. 
The proposed term length is 12 years with percentage rent similar to rent paid by the
other current quick-serve hamburger restaurant located in the main terminal. 
Competitive Market Analysis 
At the request of the Commission, staff returned to the marketplace to provide assurance that the
McDonald's offer was the best possible for a hamburger restaurant in the location. In April, staff
conducted a request for interest (RFI) process for this specific opportunity. The McDonald's
proposal already was a commercially viable offer, and the purpose of the RFI was to determine if
there might be other offers within a competitive range with McDonald's. The solicited operators
received the same initial information on which McDonald's based its own pro forma analysis. In
theory, McDonald's offer may have been at a competitive disadvantage because the terms of
their offer are publicly well known.

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
May 25, 2012 
Page 3 of 11 

Outreach Methodology to Local and National Hamburger Concepts 
The Commission expressed an interest in considering both local and other national hamburger
concepts. Previous direction from the Commission has also indicated a preference for local
small business ownership and/or operation. For this reason, staff extended the reach of the RFI
to both operators of local hamburger concepts and operators of locally franchised national
concepts. 
Local Hamburger Concepts 
Staff sent materials about the opportunity to the four local quick-serve hamburger restaurants in
the greater Seattle area with more than one street-side location. None of these local operators
was interested in the opportunity, and with one exception, returned the written confirmation form
(Exhibit A: Response Form). These operators either were not interested at all in operating in an
airport, or deemed the required investment too high. One operator of a local hamburger concept
with 14 locations did indicate future interest in operating at the Airport, but not in the proposed
location. 
National Hamburger Concepts 
Staff looked at brand name market strength as the first criteria for determining which operators
of national brand-name hamburger concepts to approach. An appropriate brand name for the
Airport should be able to generate sales in the range of $3-3.5 million annually (the current
hamburger concept in the Central Terminal generated $3.8 million in 2011). Such a brand name
will have superior market strength in the national, local and airport markets. A brand may exist
nationally, but due to the large share of resident travelers that use Sea-Tac, it is important that the
brand also has a local presence. Additionally, it is important that the brand concept is established
to some degree in airport venues, partly because travelers know which hamburger brands to
expect and are willing to seek out in an airport, and partly because it shows brand experience
with the unique airport environment. 
This table summarizes the market strength of the ten largest national brand-name hamburger
concepts. The four brand-name national hamburger concepts with the greatest strength in all
three areas were McDonald's, Burger King, Wendy's, and Dairy Queen.

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
May 25, 2012 
Page 4 of 11 

Market Strength of National Hamburger Concepts 
Brand          National    Local     Airport 
McDonald's        14,000     144       31 
Burger King        7,750      62        47 
Wendy's          6,576      42       35 
Dairy Queen        5,050      54        1 
Sonic (drive-in)       3,500       3          1 
Jack-n-the Box       2,200      85        0 
Hardee's           1,687      0         0 
Carl's Jr             1,104       6          1 
Checkers          800       1         1 
Five Guys          735       8         4 
The Port already has a proposal from McDonald's. Additionally, the Airport already has a very
successful Wendy's in the Central Terminal, around the corner from the proposed location. For
this reason, Wendy's was not approached as part of this RFI.
Dairy Queen operates many franchises in the Puget Sound area and also has a strong brand-name
presence and some experience in airports. Dairy Queen offered the Airport opportunity to its
locally based franchisees; however, none were interested. Nonetheless, Dairy Queen indicated
an interest in future opportunities at the Airport. Burger King indicated initial interest in the
Airport location. Staff provided a representative of Burger King a tour of the proposed space in
early May, but they did not submit a proposal for the opportunity. At the conclusion of this
process, staff determined that the McDonald's proposal, with local ownership interest and
operation, was the only candidate for the proposed location. 
Supportability/Competitive Analysis 
When proposed earlier this year, the need for an additional hamburger concept was illustrated by
the high sales volumes in the Central Terminal, and specifically Wendy's sales of over $3,000
per square foot  far in excess of typical airport benchmarks for sales per square foot in food and
beverage, which range from $1,250 to $2,200 per square foot. The high sales per square foot of
the existing hamburger concept is consistent with staff observations of peak time lines and loss
of sales due to insufficient capacity. The existing hamburger concept has achieved nearly 110%
of projected sales for its 10-year lease in seven years of operation. This Central Terminal
location has 40 employees and operates a 24-hour operation in 1,212 square feet. It cannot
increase its capacity further. The other four quick-serve restaurants also achieve high sales per
square foot and face similar pressures on capacity. 
The issues associated with insufficient seating capacity in the Central Terminal provide further
justification. At times, it is nearly impossible for customers to find a place to sit and dine. On
the positive side, strangers do share tables with each other. On the negative side, passengers

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
May 25, 2012 
Page 5 of 11 

often take trays with food from one of these restaurants into other restaurants with more seating
and into gate areas where they leave behind trays and garbage. In the past two years, the Airport
has purchased more furniture for the atrium area, and it is not possible to add any more furniture
to the space. The new McDonald's location will offer seating for 40 patrons and relieve some
pressure on the Central Terminal. 
Passenger Research 
For more than a decade the Airport has periodically conducted surveys of enplaning passengers. 
The purpose of these surveys is to collect accurate and detailed information about passenger
characteristics, passenger experiences, and terminal facility use. In the previous presentation of
the McDonald's proposal, staff referenced the passenger survey conducted in August 2006, 
which showed that 25 percent of all travelers made no purchase (retail or food) at the Airport. 
This finding suggested that there exists ample room for additional capture of sales among
passengers who make no purchases.
The 2011-2012 Enplaning Passenger Survey is being conducted over a full calendar year to
better understand seasonal variation in the wide range of passenger characteristics and behaviors,
including concessions purchases. New survey data collected monthly from 500 to 800 randomly
selected passengers during July 2011 through March 2012 has just recently become available.
The data provide more detail than previous surveys specifically regarding food and beverage
purchases. This data showed that 39 percent of travelers make no food or drink purchase at the
Airport. Of those who do make a purchase at the Airport, the largest share, 31 percent, purchase
from a casual dining alternative. These results suggest that the capacity to increase sales among
travelers who currently do not make any food purchases represents a significant marketing and
revenue opportunity. 
Competitive Analysis 
Due to remaining concerns that shifting of sales away from existing concessions would reduce
the benefit to the traveling public and the Port, staff engaged its recently hired concessions
consultant firm to conduct a new financial analysis. For the analysis, staff settled on a
conservative to pessimistic view of the changes that could result from the new McDonald's. The
analysis looked at present-day conditions and did not take into account efforts by concessionaires
to increase their overall capture rate among the share of travelers who currently make no food
purchases. Previous experience from the earlier concessions program transition proved the
power of increased competition to raise overall sales for nearly all concessionaires. 
The analysis also did not take into account the additional enplanements that will move to the
main terminal in early 2013 as a result of the airline realignment and the continuing strong
growth of the number of passengers using the Airport. Since 2009, when the number of
passengers dipped almost 970,000 from the year before to 31.2 million, passenger numbers have

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
May 25, 2012 
Page 6 of 11 

steadily rebounded. In 2011, 32.8 million passengers arrived or departed from Sea-Tac. So far
in 2012, the number of passengers is up 2.8 percent compared to 2011. 
Based on an analysis of the sales productivity of McDonald's in three other U.S. airports, the
analysis projected that the proposed Sea-Tac McDonald's will achieve between $3.0-$3.6 
million in sales in its first year. This estimate is consistent with the staff estimate, and
McDonald's pro forma estimate of $3.5 million. This estimate was the basis of the initial
financial analysis placed in relationship to the expected increase in sales overall and the
percentage rent projected from the new operation. The consultant analysis verified the sales
projection while accounting for differences in the location of the restaurant in the airports used
for comparison. Additionally, the analysis summarized a number of case scenarios to determine
at what point loss of sales at other restaurants would make the addition of McDonald's a neutral
or net loss for the Port in terms of increased sales and revenue. 
The exact effect of increased competition is difficult to predict because operators respond
differently to the pressure of new competition. Therefore, any estimates on possible sales loss
are approximate, and in reality, could be better or worse. Generally, previous Airport experience
is that the first 8-12 months of a new concept or new concessions offerings may cause significant
but not permanent  swings in customer behavior. This is due to the large share of Puget
Sound area residents who frequent the Airport, and for many local resident travelers the
opportunity to visit an Airport McDonald's will be appealing because it is new. Eventually,
however, the newness wears off and sales/customer behaviors settle into a new normal, and also
based on experience, at an overall higher sales level than previously.
In any scenario, the analysis confirmed that the two closest full-service restaurants, Seattle Tap
Room and Casa del Agave, which both achieve a majority of their sales via alcoholic beverages, 
will not be negatively impacted. No such impact should be anticipated on other full-service
dining in the Central Terminal area, particularly those selling alcohol. 
Despite the Central Terminal quick-serve units being at or over capacity already, one pessimistic
scenario assumed a 5 percent loss of sales at the four non-hamburger concepts and that Wendy's 
Hamburgers' sales could be negatively impacted by 15 percent. The analysis even hypothesized
a possible small 2.5 percent impact to the two small Starbucks Coffee units on Concourse B. 
The analysis also assumed that the greatest potential impact may be to the two other quick-serve
brand names on Concourse B: Sbarro (pizza) and Quiznos (sub sandwiches). Those two units
could lose 25 percent of their current business without making efforts to compete with
McDonald's. Quiznos, as a strong national brand and the only branded sub sandwich concept in
the Airport, should have better possibilities to compete with McDonald's than Sbarro. The
Quiznos brand is aggressively supported with local advertising campaigns and there are more
than two dozen Quiznos locations in the Puget Sound region. Sbarro is an older concept in
airports and has no local street-side presence in the Puget Sound region. Additionally, there is a
local pizza favorite, Pallino Pastaria, in the nearby Central Terminal. In 2011, Quiznos sales
were significantly higher than Sbarro.

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
May 25, 2012 
Page 7 of 11 

With the McDonald's forecasted first year sales of $3.5 million, and using the assumptions 
above, the Airport could see a combined increase of 4.34 percent in sales and 2.5 percent in rent
revenue from Concourse B and Central Terminal. The Net Present Value to the Port based on
these assumptions would be approximately $2.0 million.
In the event that loss of sales among the Central Terminal quick-serve tenants is greater, and if
the loss of sales at Wendy's is as much as 20 percent, paired with as much as a 30 percent loss in
sales on Concourse B, the addition of McDonald's becomes a neutral proposition from a
financial standpoint (Net Present Value). Staff sees this scenario as unlikely because the Central
Terminal tenants are well established and patronized, competition-minded, and do not have the
capacity to keep pace with anticipated passenger growth. 
Efforts to Support Existing Small Business 
There is currently another small business operator of a national franchise concept on Concourse
B, Quiznos Subs, mentioned above. This business is certified as a minority -owned,
disadvantaged business (ACDBE) and is a subtenant of HMSHost. All businesses at the Airport
are expected to be competitive with other operators, but staff also recognizes that this particular
tenant does not have the same economies of scale as a prime concessionaire such as HMSHost, 
which controls all of the other surrounding concessions. Therefore, staff is committed to
assisting this tenant to the greatest degree possible in increasing its ability to be competitive. 
As part of ongoing efforts to support small operators, Airport staff devotes resources to help
drive concessions sales. For example, wayfinding signage is being refreshed at the head of both
Concourses B and C in order to support the smaller operators on those concourses. Within the
Concourses, some pillars are already covered with colorful directional signage for
concessionaires and more pillars are in production. Concessions staff also is committed to
providing on-going sales analysis, operational support and marketing expertise to operators. 
Staff hosts annual tenant seminars for small operators and meets one-on-one to discuss
operational challenges. With its industry-wide knowledge, staff can propose improvements or
product additions that drive additional sales. For example, most airport Quiznos locations
nationally also serve beer and staff believes that the sales of beer at the Concourse B Quiznos
would help that location compete with the Casa del Agave restaurant next door. 
It is not the intent of the federal ACDBE program to provide concessionaires shelter from
competition; rather it is an opportunity for small minority-owned businesses to learn to operate a
business in an airport as a step toward eventually graduating from the program and operating 
street-side retail or restaurant businesses. The Port has a common interest with its tenants in
maximizing the competitiveness and customer appeal of every concession. At the same time,
tenants must expect that vacant units may be leased to new operators when it benefits the
traveling public and the Port. .

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
May 25, 2012 
Page 8 of 11 

PROJECT JUSTIFICATION: 
There is demonstrated capacity for another quick-serve hamburger concept in the main
terminal without probable risk of an overall decline in concessions sales. 
The Port has the opportunity to avoid costly expenditures to upgrade a concessions unit with
limited market appeal, but is very appropriate for McDonald's. 
The Port has the opportunity to increase non-airline revenues by an estimated $323,000 in the
first year. Over the life of the lease, Port revenues from the McDonald's operation would
likely exceed $3 million (net present value). With assumptions of some degree of sales shift
from other restaurants, this net present value is estimated at $2 million. 
McDonald's is a proven success in airports, such as Denver International, Salt Lake City
International, Los Angeles International, Reagan National and John Wayne/Orange County
Airport.
The business structure of this proposed lease offers the Airport the financial stability and
secure backing of McDonald's, while creating a small business franchise opportunity for a
local operator. 
This lease will create new jobs at the Airport and in the community both directly and through
the local sourcing of products for the restaurant.
PROJECT STATEMENT AND OBJECTIVES: 
Project Statement: 
Open a new food and beverage concept, McDonald's, in the Concourse B unit known as CB-07
in the first quarter of 2013. 
Project Objectives: 
Provide local business and employment opportunity. 
Meet the needs of the traveling public. 
Increase revenues to the Port. 
Eliminate financial burden on the Port to renovate a unit in poor condition. 
Project schedule: 
Execution of agreement               June 2012 
Design approvals                   July  October 2012 
Pre-construction demo               August 2012 
Construction                      December 2012-February 2013 
Open for business                   March 1, 2013

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
May 25, 2012 
Page 9 of 11 

FINANCIAL IMPLICATIONS: 
Financial Analysis Summary: 
This location is not currently generating any revenue for the Port. The summary below outlines
the financial return expected from the operation. 
Terms          McDonald's franchise (Food) 
Store Open         March 1, 2013 
Investment from     $2 million 
Lessee 
Term Length       12 years (2013-24) 
Est. 2013 Sales      $3.5 million 
% Rent           9% of gross sales from 0 to $2,780,000 
11% of gross sales from $2,780,001 to $3,630,000 
13% of gross sales exceeding $3,630,001 
Minimum Annual   $280,000 in Year 1, thereafter 85% of the previous year's rent
Guarantee (MAG)    payments to the Port 
Marketing         0.5% of gross sales to joint concessions marketing fund not to exceed
$24,000 annually. 
Storage           400 square feet of storage at $7.75 per square foot 
Year One Port Rev.   $323,000 
ECONOMIC IMPACTS AND BUSINESS PLAN OBJECTIVES: 
This lease and concession agreement will contribute to achievement of the Airport's business
plan objective of "maximizing non-aeronautical net operating income" by generating non-
aeronautical revenues of $3 million for a term of 12 years. With assumptions of some degree of
sales shift from other restaurants, this net present value is estimated at $2 million. 
STRATEGIC OBJECTIVES: 
The approval of this lease and concession agreement meets the following Port strategic
objectives: 
Maximizes financial performance by meeting customer demand. 
Provides compelling customer and community value by bringing a locally franchised and
internationally known brand concept into the Airport. 
Develops a new business opportunity for a proven local small business restaurant operator to
be successful in a new venue. 
Provides additional opportunities for new employees and suppliers to this business.

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
May 25, 2012 
Page 10 of 11 

ENVIRONMENTAL SUSTAINABILITY AND COMMUNITY BENEFITS: 
The location for this concession is in very poor condition. Current materials are not likely to
be appropriate for reuse. However, the new construction in the space will bring the
infrastructure systems up to the latest standards for efficiency as well as use materials
(lighting, paint, floor and wall surfaces) that live up to the highest standards in environmental
sustainability. 
McDonald's offers a varied menu from the classic Big Mac and fries to salads and yogurt
parfaits. 
McDonald's is known for its practice of using locally sourced products for their restaurants.
From bread and produce to meat and potatoes, this McDonald's will source most of its
purchases in the local area. 
McDonald's at Sea-Tac will employ approximately 60 full- and part-time employees. These
will be completely new jobs created at the Airport. Initially, many of these employees will
be experienced McDonald's employees who currently work for the franchisee at another
local location, which leads to a hiring wave even outside the Airport in the nearby
community. 
McDonald's holds high standards for employee compensation and training. Employee
benefits include medical and dental insurance, paid vacation, 401K retirement plans and
college tuition assistance. McDonald's is known world-wide for its "McDonald's
University" where the company cultivates employees for advancement in the company.
Most McDonald's franchisees began their careers as front line staff. 
TRIPLE BOTTOM LINE: 
The recently completed concessions stakeholder process examined the concessions program
from a triple-bottom-line perspective. Stakeholders reinforced the value of a concurrent pursuit
of positive economic, social equity and environmental stewardship outcomes in the selection of
concessionaires. The proposed concessionaire selection is a choice consistent with these
priorities. 
ALTERNATIVES CONSIDERED AND THEIR IMPLICATIONS: 
Alternative 1: Approve the proposed lease and concession agreement. For the reasons stated
above, this is the recommended alternative. 
Alternative 2: Not approve the proposed lease and concession agreement. Allow the
concessions unit to remain vacant as it has been for the last six years. This is the likely
outcome if McDonald's is not selected as a tenant. The investment needed is too high for
other operators. Few other concepts have the same ability as McDonald's to make a less than
perfect location profitable. Staff does not see any likely interest in this space by another

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
May 25, 2012 
Page 11 of 11 

operator in the foreseeable future, even with investment made by the Port in its infrastructure.
This is not the recommended alternative. 
Alternative 3: As a result of the recent outreach to the market to solicit interest in the
proposed space, staff is reinforced in its belief that it would not be a prudent investment by
the Port to upgrade this unit in the hope of generating future tenant interest. Nonetheless,
staff could return to the Commission to request authorization of funding to upgrade the
space. These costs would likely be higher today than the $350,000 budgeted initially in
2007; perhaps as much as $400,000-450,000. This is not the recommended alternative. 
OTHER DOCUMENTS ASSOCIATED WITH THIS REQUEST: 
Exhibit A: Response Form 
Exhibit B: Map of Location 
Exhibit C: PowerPoint 
Exhibit D: Fact Sheet about Local Concessionaire's Wages and Benefits
Exhibit E: Draft Lease Agreement 
PREVIOUS COMMISSION ACTIONS OR BRIEFINGS: 
March 6, 2012: Postponement of request to negotiate and execute a Lease and
Concession Agreement for a McDonald's restaurant at Seattle-Tacoma International
Airport. 
March 27, 2012: Staff Briefing about Interim Concessions Leasing 2012-2014. 
April 10, 2012: Staff Briefing by Mark Reis, Managing Director, Aviation Division on
proposed request for interest process for a quick-serve hamburger concept.