Tastes on the Fly, a San Francisco-based operator of better restaurant concepts at three major airports around the country, has known for years what the rest of the airport concessions market is finally discovering: Consumers want higher-quality dining experiences at airports and are willing to pay for it. The boutique group that operates such concepts as Yankee Pier, Perry’s, Lark Creek Grill (SFO), Boston Beer Works, Jerry Remy’s, and Dine Boston (Logan), and Bobby Van’s (JFK) has consistently earned some of the best reviews in the airport space.
Decision-makers at airports around the country have recently embraced the philosophy that local, chef-driven, and smaller restaurant concepts are preferable to large national chains, and the face of the airport restaurant world is undergoing a dramatic change as contracts come up for bid. This shift has produced significant changes in how concessionaires and restaurant brands alike are approaching their airport restaurant development plans. No longer able to win lucrative bids with traditional large chain offerings, a number of prime concessionaires are now, despite being large and well-financed businesses, positioning themselves as operators similar to Tastes on the Fly–”boutique” restaurateurs focused on providing a quality dining experience to the travelling public–in order to attract respected culinary talent and smaller popular brands to their bidding packages. Certain primes that seemed reluctant to succumb to changing dining trends have recently begun to embrace the new order after losing lucrative contracts in bitter and divisive bidding battles.
For restaurant chains that have experienced multi-unit success in the airport space, the changing tide is unwelcome news. Licensed airport restaurants typically spin off impressive royalties to the licensors, with top-line sales often more than doubling the average performance at traditional locations. Although many chain veterans in the airport space complain of operational deficiencies by licensees, few would trade the healthy cash these units produce.
The shift in preferences has opened the door for an abundance of newer brands to enter the nontraditional restaurant world, often for the first time. Primes, boutiques, and ambitious local franchisees scour cities before the release of any RFP, hoping to add brands to their portfolios that will resonate with the airport decision-makers. The most desirable brands, which are often smaller local chains, independent restaurants, or chef-driven properties, are sometimes wooed by more than a half-dozen would-be operators, all of whom confidently espouse their ability to both win the bid and operate the brand successfully.
So how does a restaurateur interested in the airport space sift through the clutter to understand what opportunities are real and which are illusory?
Here are a few tips:
- Patience is a virtue. Those who watched cartoons in the ‘80s may remember the Nestle Quik bunny dispensing this wisdom. The road to an airport location these days is long. Self operation is often not a viable option, let alone an option. To obtain an airport presence these days in most situations, a restaurant brand must align with a “partner,” usually a contract operator. With respect to airports, contract concessionaires are companies that specialize in the operation of restaurant and retail concepts in the airport space. Airport contract concessionaires come in varying degrees of size and experience, and most airport decision-makers demand a variety of participants in a given RFP, including the meaningful participation of disadvantaged business enterprises (DBEs). The larger concessionaires are referred called “primes.” Primes are sophisticated businesses with substantial experience in airport concessions operations domestically and often internationally. Smaller concessionaires are sometimes called “boutiques” and in many cases have DBE qualifications (meting the appropriate requirements for a minority and/or woman-owned business). Primes and boutiques often align in competing for certain packages in a given RFP, especially when the RFP requires the prime to meet certain DBE requirements to gain favor in being awarded a package. Avoiding a competitive bidding process is a rare exception. On occasion, a concessionaire with an existing lease with an airport may re-concept an existing restaurant during the lease term, but this is not common. Re-concepting is often done only if a prime is attempting to sway airport decision-makers by investing in a hot new brand in advance of a forthcoming RFP, or if an existing concept is an unqualified disaster.Restaurateurs should also realize that seeing their concept at a substantial number of airports is unlikely in today’s climate. The days of multi-unit development agreements for brands are over for the foreseeable future. Ten years ago a prime could commit to opening 20 or more units around the country, but this is no longer the case. Not only have preferences swayed against chains as noted above, the competition for concessions contracts is more competitive than ever. In the past, a prime could operate all or a substantial portion of the restaurants at a given airport. Now, the common approach is to break contracts across various concessionaires through the offering of different packages, making the bidding process even more competitive. Concessionaires often demand exclusivity with a restaurant concept in order to propose the concept in the concessionaire’s portfolio, which makes a multiple-concessionaire proposal a non-option. While some brands have the leverage to negotiate nonexclusivity, most do not. Nonexclusivity can also have the unintended consequence of diluting the strength of the restaurant concept and the concessionaires’ portfolios in the eyes of the airport decision-makers. While multi-unit development is still happening with certain brands, the prospects of substantial multi-unit growth in airports for all brands have diminished for the time being.
As discussed in more detail below, the typical first step to an airport location is for the restaurant to “sign” with a concessionaire. “Signing” means the signing of a letter of intent or memorandum of understanding which discusses the restaurateur’s commitment to participate with the concessionaire in the RFP bidding process. Sometimes the parties agree to a formal license agreement in advance of the RFP, but the common course of action is to sign a short agreement that sets for the basic economic terms of the relationship (e.g., initial license fees and royalties) and the core responsibilities of the parties during the bidding process and if the contract is awarded. Restaurant brands are cautioned to take care in the contemplation and negotiation of a letter of intent, as it is a deceptively simple part of the process that can have long-lasting ramifications for the brand. In addition, it is important for restaurant brands to be aware of the presence of franchise laws that may affect many of these transactions. Most airport relationships are conducted under license or franchise agreements. Regardless of whether the parties call the relationship a “license,” “franchise,” or something else, the relationship likely meets the definition of a franchise, which triggers certain disclosure and sometimes registration obligations on the restaurant concept unless the transaction is exempt.
- Know the players. As noted above, airport restaurants are generally operated by businesses that specialize in operating airport restaurant and retail businesses. The “primes” are the larger businesses, and there are only a few of them. There are many smaller operations that often work in connection with primes to win bids and/or operate restaurants at a given airport. Some businesses are well-established in the U.S. airport operations business and have deep relationships with particular brands in addition to operating contracts at many airports. Some are newer to the scene, but quickly attaining meaningful market share. Although these operators share many similarities, they are also quite distinct in their experience, their approach to operations, and their current and future business development plans. A restaurateur that is well educated in terms of who the players are stands a better chance of finding an operator that best fits the restaurateur’s approach and comfort with development in the airport space.
- Know the opportunity. The opportunity at a given airport is usually communicated through a formal request for proposal, which is prepared by the particular airport authority and made available to anyone interested in participating. On rare occasions a restaurant can avoid the RFP process, so it is important for the restaurateur to contact a given airport authority to best understand any opportunity. All RFPs are inherently unique, and a restaurateur is best served by carefully reviewing each RFP of interest to determine whether the RFP presents a real opportunity for the brand and, if so, how to best position the brand for an award of space. Often this means aligning with a contract operator that is best positioned for an award. Given the highly political and competitive landscape behind every significant airport RFP it is usually not possible to predict with any certainty which operator will win an award. The past several years have seen many surprises. Moreover, even if a bid is awarded, one or more losing parties will often appeal the award– sometimes successfully. The recent LAX RFP exemplifies the airport restaurant and retail world at its most competitive. Almost two years after the RFP was issued, a number of locations are still uncertain, given a protracted and contentious appeal of an initial award.
- Choose and negotiate wisely. If anything is predictable about restaurant opportunities in the airport space these days, it is how unpredictable they’re becoming. Indeed, the types of restaurants winning spaces have transitioned to more local, regional, and chef-driven brands. However, little certainty exists with respect to which contract operators to align with for the best chance of being awarded a spot at a given airport. The most important decisions that any restaurateur can make are to 1) determine that an airport opportunity is right for the brand; 2) approach the opportunity in the manner that serves the best interest of the restaurateur (e.g., whether it is to align with the contract operator that is the best fit or to attempt to self-operate); and 3) assuming that the decision is to align with a contract operator, to negotiate an agreement that best protects the restaurant brand. Brand protection means not only having provisions that help preserve operational integrity, but also economic provisions that are fair and reasonable. There are a number a crucial steps a restaurant can take to ensure that the brand is protected and positioned before a RFP is released, through the bidding process, and, hopefully, through a successful and rewarding experience with an operating airport restaurant.
To talk about those, feel free to give me a call or send me an email.