Imagine a typical sports fan who decides at half-time or between innings that he’s hungry. He leaves his seat and heads toward the food. Placed side by side are two pizza kiosks, identical in every way but one: The first is a generic brand, say, Ballpark Pizza. The first is branded Papa Johns, or any other national or local concept.
Where does he place his order?
Odds are he’ll choose the national or local name, because people tend to prefer the familiar to the unfamiliar, especially when it comes to something so personal as food. And not only is he more likely to buy from a recognized brand, he may make a purchase of a food item that he otherwise wouldn’t have, merely because something may “sound good.”
In addition to the potential profit restaurants might realize in such an environment, they can enjoy two other benefits: One, they’re seen as supporting a team in an environment where it’s local, passionate fans come to see it play, and two, it extends the reach of the brand into the community.
It would seem to make good business sense, then, for the three players in this concession arrangement to come together: The team, the concessionaire and the restaurant all stand to gain.
Any of the three parties can initiate the relationship. Sometimes the team will want to consummate it for promotional purposes. (Some team-concessionaire contracts will protect the concessionaire’s interests by stipulating such arrangements go through him). The concessionaire—who has a contract with the team to bring successful foodservice into the venue — may perceive a potential for increased sales by bringing in a restaurant brand. And as mentioned, the brand can benefit in multiple ways and decide to make the outreach.
After the parties determine mutual interest, two factors come in to play: Revenue share and feasibility.
One price, three bites
Naturally, with three parties involved, you have three coffers to fill.
First, the team will hire a concessionaire to manage food and drinks sales at the venue. The typical contract calls for a set capital investment plus a share of the sales. The concessionaire has to make contracts with food vendors, suppliers, cart and kiosk companies (such as Ikoniq), and others.
The onus on the concessionaire here is to ensure the math adds up to please the team and make a suitable profit on his own. For example, in 2009, a concessionaire agreed to pay the University of Phoenix $26 million for a two-year agreement to sell concessions at its stadium, with an additional $5.8 million in profit promised back.
Sometimes, the math can be a little fuzzy to those not intimate with it. An example of this experienced by an Ikoniq executive who was a concessionaire before coming to the company involves ice cream. The team was interested in bringing in as a sponsor a local hand-dipped ice cream vendor. The vendor was willing to pay $7,000 a year plus a share of sales. The rub, however, was that the vendor wanted to have the only ice cream stands in the ballpark, which would have meant the concessionaires would have had to close down the Dippin’ Dots vendor.
The concessionaire knew hand-dipped ice cream would perform worse than Dippin’ Dots. Cones were harder to eat, took longer to serve and weren’t as popular as a food item. He pulled out a spreadsheet, showed how much Dippin’ Dots were sold the year before and convinced the team they would lose money by making the switch.
Speed of service, as in the ice cream example, is one example of the practicalities that can further or impede a successful co-branding relationship.
Let’s say a pizzeria has an eight-minute shelf life in its restaurants for its pre-made products. In a stadium environment, the policy would be ruinous. There is no way the vendor could prepare enough pizzas in advance of the “smack” it will get at half-time. Many of them would need to sit for much longer than eight minutes. The concessionaire must persuade the vendor to change its policy, make an investment in the necessary infrastructure, or rethink the wisdom of the partnership.
Another aspect of feasibility relates to pricing. Some brands want to enter into a stadium or ballpark environment with a reluctance to increases prices from their stand-alone locations. This posture can be lethal to negotiations, because unless the brand is content to lose money merely for the sake of being in the ballpark, there is no way it can carve enough of its profits to make the sacrifice of real estate worthwhile to the concessionaire and therefore the team.
The Hot Dog Effect
One caveat for teams and concessionaires is that they can get too fancy for their own good. To paraphrase one veteran stadium: “Leave room for the hot dogs.” Some frankfurter stats:
One more thing
When it comes to concessions, all interested parties should support an investment in high-quality, richly designed carts and kiosks. Do they cost more than ordinary ones? Yes. But they provide an opportunity to upcharge and earn additional profits on the sale of the same products.
The reason is perceived value. In one Ikoniq blog, the effect was compared to buying a cup of coffee from Starbucks as opposed to McDonald’s. A large regular brew at McDonald’s is $1. The same drink at Starbucks will set you back about two and half times that amount, even when many people prefer the McDonald’s coffee. But somehow, Starbucks feels worthier of the higher price. The stores are richly appointed. The staff is better trained. And while yes, it costs more for those things, ultimately the margins — and the profits — are higher.
Photo provided by Wikipedia.