7a Exhibit J
Item Number: 7a Exhibit I Date ofMeeting: 12/13/201 1 AIRPORT. CGOPERATEVE RESEARCH PROGRAM Resenrce Manuai fer Kmart Ianerminai Conceeslens LEIGHFISHER Burlingame, CA [N ASSOCIATION WITH ' EXSTARE FEDERAL SERVICES GROUP, LLC . Alexandria, VA Subscriber Categories Administration and Management 0 Aviation 0 Finance 6 Terminals and Facilities Research sponsored by the Federal Aviation Administration TRANSPORTATION RESEARCH BOARD WASHINGTON, D.C. 201 1 www.TRB.org Business Terms and Concession Agreements 149 Table 9-3. Sample list of financial sanctions in a concession agreement (Sacramento International Airport). ctio AViolation's Written Notification . Hours of Operation Operations, Service Standards and Employee Standards $200 Sanction Pricing Quality $400 Sanction Signage Interference with Utilities $750 Sanction Deliveries and Vendor Access $1,000 per occurrence thereafter or default under Section 3.23 of the Agreement Maintenance and Repairs \ _ $250 Sanction . Sanitation . Hygiene and Cleanliness $500 Sanction Waste Disposal, Grease Disposal Recycling Health Code Violations $1,000 per occurrence thereafter or default under Section 3.23 of the Agreement Even a small newl get the attention ofthe local concession manager and, in particular, cor~ porate management, and can be helpful in communicating the airport 0perator's dissatisfaction withthe concessionaire's performance, ifnecessary. 9.6 Pricing For many years, the typical policy regarding airport concessions was simply that concession aires had to submit the prices they intended to charge their customers to the airport operator for areviewofreasonableness and subsequentapproval. "Reasonable" pricing in that context'was not ' generally well dened. ' Amovement to a structure based on street pricing later emerged and hasbeen adopted at many oftoday's airports. At some airports, the concession agreement requires a strict compliance with street pricing, While, at others, an add~on, such as street pricingplus 10%, is in place. The surveys conducted for this research indicated that street pricing plus 10% is now the most commonlyused pricing policyamong airport concessions (except for duty freeWhere prices are most oftenbench. marked to those at other airports); straight street pricing with no markup was a close second. Between 41% and 46% of the airport operators surveyed indicated the use of street pricing plus 10% for their food and beverage, convenience retail, and Specialty retail concessions, While between 33% and 38% indicated that they use street pricing with no markup. Other than duty free, only 5% ofthe airport operators reported having no pricing policy. Airport pricing policies identied in the surveys conducted for this research are summarized in Figure 9-6. The pricing policyis usually stated in the concession agreement, but, in some cases, the pric ing policy document may be referenced but not included. Pricing policies need to be clearly : 150 Resource Manual for Airport in-Terminal Concessions I Street Pricing + 10% Street Pricing I Street Pricing + Other I El Food 79. Convenience Retail Street Pricing + 5% a Specialty Retail Egg; frDuly Free Benchmarked to Other ' Airports i 0% 5% 10% 15% 20% 25% 30% 35% . 40% 45% 50% Source: LeighFisher using data from the airport surveys conducted for ACRP Project 01-11. Figure 9-6. Airport pricing policy at surveyed airports by hub size. I written and made available during solicitations, as potential concessionaires need to understand the pricing policy since it will inuence their pro forma revenue and expense projections and their nancial offers. Manyin the industry believe that street pricing yields more transactions and higher sales vol umes, but there is little empirical evidence to support this belief. However, concession develop- ers are adamant that street pricing has a positive effect on both sales and customer satisfaction. Survey respondents indicated that they generally believed that pricing limits resulted in higher overall sales, but they also could not cite empirical evidence to support this belief. In interviews with concession managers, several noted that complaints were received about concession prices even where true street pricing is in effect. Enforcingpricing policies and, in particular, conducting price comparisons to support enforce ment, can be difcult and time consuming. Comparisons Ofprices for branded concessionswith offairport equivalents are straiglrtfox'Ward and easiest to conduct. For generic concepts, or those with no other branded concepts in the region, care must be taken to identifyreasonable compa rabies. The selection ofcomparables has often been a source ofdisagreement. Clear denitions ' of comparables in the concession agreement help to reduce such disagreements. While pricing is important to customers, it is just one element of the value proposition of the concession program. Several concession managers noted that the location, surroundings, types of products, customer service, portion size, and other factors also weigh heavilyin the customers' per- ceptions of their shopping experience at the airport and inuence the amount of sales generated. In interviews with several concessionaires, it was noted that street pricing policies may not be realistic given the high cost structure at many airports, particularly large'hub airports where wage rates, delivery costs, and other operating costs are high. The concessionaires also noted that the difference between true street pricing, for example, and street pricing plus 10% can make a difference between prot and loss. Concessionaires generally believed that pricing poli cies need to reect the sales volume and cost structure of the airport's concessionaires and take into account percentage rents, development costs, local wage rates, and other costs.
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