one man's ceiling
Saturday, September 30, 2006
  on the high cost of movie snacks
i recently ran into this over at slashfood and have been trying desperately hard to bite my tongue. so many people out there sneaking food into movies, and who can blame them? you drop a day's worth of pay for a two-hour experience that, often, could be better spent going out to a fancy dinner and taking a stroll along some scenic piece of real estate.

as you can read elsewhere, there are economic justifications for the price of popcorn and soda being so high but as true as all this is there is a larger problem that concerns the business model used for determining these prices.

theatres survive by the concession stand. in order to defray operational costs and make enough profit to survive they must increase the retail prices of the items they sell. as with the restaurant business, food prepped on the premises (popcorn and soda) allows for a greater profit than those delivered ready-to-eat (candy, ice cream) due to storage and production costs. a sack of raw popcorn has a shelf life of months where an ice cream treat may have only a few weeks. that raw corn is going to cost around a dollar a pound where a box of ice creams may cost five times that. finally, a pound of raw corn is going to yield up to fifteen large tubs of corn where a pound of ice cream my be no more than four individual servings.

prices have changed since i last checked these things but one day i sat down and made a calculation for two separate concession items: a large 132 oz. tub of popcorn with real butter and a 3 oz. box of plain m&m's. at the movie theatre end of things the popcorn sold for $3.50 and cost a total of $0.08, a profit of astronomical percentages. on the other end the m&m's retailed for $1.75 and were purchased from a wholesaler at $0.43, still a profit but nowhere near as great as for popcorn. this is why theatres are shoving corn and soda down our throats despite the cry for healthier snacks. in truth, there is very little in the snack world that can compete in profits to what soda and popcorn can yield.

the economic problem is that in order to remain operating and profitable theatres must earn a certain dollar amount per person in attendance. depending on the theatre, it's size and relative costs this can amount to around $1.75 per person, often referred to as the ppa, or per-person average. now, if everyone dropped by the snack bar and plunked down $1.75 that would be great but the numbers show that as few as only one in five people makes the pit stop. so in order to hit that ppa you need to be sure that one person is covering four others as well. buy a medium corn and a soda and you've just helped a theatre make it's ppa for those sneaking in cookies and drug store candy.

so the ppa is determined by the number of people attending against the dollar amount spent.

this is all wrong. never mind that a small corn and soda exceeds the rda of calories for two large adults, the problem is in the expectation that 20% of theatre attendees economically supports the rest. one school of thinking is that a surcharge of $2 get added to the admission ticket, eliminating the need for the concession stand or subsidizing it to the point that it can offer snacks at a reasonable price -- after all, it is a business and still needs to make a profit.

another idea is to consider the question of volume, upping the number of units sold and reducing the cost. imagine a theatre selling the same sizes they do now, only a small would sell for $0.50, a medium for $1.00 and a jumbo sized vat of corn with butter would set you back $1.25. sodas for the same price. it's not only possible but still very profitable provided three out of five people purchased an item at the snack bar. i imagine that if people showed up at a movie house right now and saw those prices they'd be settling in with the largest of larges and giggling that they just walked away with a trough of snacks for less than a burger at mcdonalds.

these ideas aren't mine, they come from two sources: david friedman's book hidden order: the economics of everyday life and observations from my nearly two decades managing movie theatres. while i don't agree with all of what friedman says, i am certain that if movie theatres took the radical move toward volume and not per-person averages they'd come out ahead of the game in a big way.

i tried to convince the owners of the theatre chain i worked for to simply try these prices for a special admission midnight show, as an experiment, just to see if the ppa would mirror those of the higher price sales. no dice. the model was too "unstable" for them, there wasn't anything similar to compare it with. in short, they were afraid to break from and redefine the economic model despite the fact that they would stand to benefit from a likely increase in sales and the nationwide publicity of setting a new trend in theatre concession sales.

if ever there was a time for theatres to do something radical to increase attendance, this is it.

personally, i can no longer smell popcorn. unless it's burning. those years in the trenches have made me as immune to the smell as sanitation engineers to the smell of their trade. both of which are similar after a while.
 
Comments:
I don't mind theaters charging a small mortgage for popcorn, because I know it's what they have to do to survive as technology changes faster than they can possibly keep up .. being an increasingly old fogey, what would improve the movies most for me would be the return of USHERS to keep these damn kids in order!
 
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