An interesting consideration in this P&L is the role of RPH. In the 2022/23 scenario, keeping everything else constant but increasing RPH to £3.50 turns EBITDA positive (albeit only to 3%). £4 gives 5.4%. Combine this with a bit of cost control and things look a lot better.
So lets consider the impact of price elasticity on the F&B products. Based on my visits to cinemas, operators have concluded there's low elasticity and hence £3+ for a small pouch of chocolates. But most people I know visit the nearest grocery convenience store and buy the pouch for £1, which would suggest higher elasticity. Knowing the true elasticity by product could drive up RPH - and might also improve gross margins through buying volume rebates.
Arca Blanca use data science to understand price elasticities and make price recommendations across large SKU ranges / locations / formats. Applicable to cinemas but even more relevant for retailers!
When I was Retail Director at Odeon, we did a 6-month trial in two cinemas of lowering retail prices by an average of 40%. Advertising this was tricky as we were still more expensive that a supermarket. But...we had a go, largely with in-cinema POS and offers via email etc. Volumes increased significantly, but we never got close to the cash GM that was delivered under the old pricing. Cinema isn't a weekly shop type exercise for most cinema-goers, and there is an element of indulgence to the visit for many. Having higher quality products can help explain the pricing to a degree. There is a large cohort that doesn't buy much of the offer (Especially the over 50s) When I worked in the holiday business, they had executive chefs dreaming up fancy new menus to stretch customers into more profitable consumption. However, the British holidaymaker has stayed rooted in Fish & chips, Steak & chips, Burger & chips etc. and these often comprise 70% of the lunch/evening spend. You end up playing on the periphery of choice - but still important to do so. I remember trialling ranges to appeal to silver cinema goers, and for guests wanting healthy options. Both ranges bombed. The big cinema chains need more guests, more frequently. They do work on using the building for events etc. but the % occupancy of large cinema chains is a scarily low number (Ian's point on fixed costs really hits home when you visit empty cinemas with only 5 staff on duty) . Tough business if you are mass market
Brian you got there just before I did - I was about to tell the same story. Finding any pockets of price elasticity would indeed be a big prize as Paul says, but the big prize for the cinema guys is and always was driving up seat utilisation.
Confession time...I am (just) in the cohort that doesn't buy much of the offer, but I don't buy fish & chips on holiday ;-)
But going back to price elasticity, maybe 40% reduction wasn't enough to find the optimum cash GM return - what would have happened if you were at or below the supermarkets?...or maybe the price ceiling hasn't been reached if there's true inelasticity...
An interesting consideration in this P&L is the role of RPH. In the 2022/23 scenario, keeping everything else constant but increasing RPH to £3.50 turns EBITDA positive (albeit only to 3%). £4 gives 5.4%. Combine this with a bit of cost control and things look a lot better.
So lets consider the impact of price elasticity on the F&B products. Based on my visits to cinemas, operators have concluded there's low elasticity and hence £3+ for a small pouch of chocolates. But most people I know visit the nearest grocery convenience store and buy the pouch for £1, which would suggest higher elasticity. Knowing the true elasticity by product could drive up RPH - and might also improve gross margins through buying volume rebates.
Arca Blanca use data science to understand price elasticities and make price recommendations across large SKU ranges / locations / formats. Applicable to cinemas but even more relevant for retailers!
https://www.arcablanca.com/price-optimisation/
Hi Paul,
When I was Retail Director at Odeon, we did a 6-month trial in two cinemas of lowering retail prices by an average of 40%. Advertising this was tricky as we were still more expensive that a supermarket. But...we had a go, largely with in-cinema POS and offers via email etc. Volumes increased significantly, but we never got close to the cash GM that was delivered under the old pricing. Cinema isn't a weekly shop type exercise for most cinema-goers, and there is an element of indulgence to the visit for many. Having higher quality products can help explain the pricing to a degree. There is a large cohort that doesn't buy much of the offer (Especially the over 50s) When I worked in the holiday business, they had executive chefs dreaming up fancy new menus to stretch customers into more profitable consumption. However, the British holidaymaker has stayed rooted in Fish & chips, Steak & chips, Burger & chips etc. and these often comprise 70% of the lunch/evening spend. You end up playing on the periphery of choice - but still important to do so. I remember trialling ranges to appeal to silver cinema goers, and for guests wanting healthy options. Both ranges bombed. The big cinema chains need more guests, more frequently. They do work on using the building for events etc. but the % occupancy of large cinema chains is a scarily low number (Ian's point on fixed costs really hits home when you visit empty cinemas with only 5 staff on duty) . Tough business if you are mass market
Brian you got there just before I did - I was about to tell the same story. Finding any pockets of price elasticity would indeed be a big prize as Paul says, but the big prize for the cinema guys is and always was driving up seat utilisation.
Confession time...I am (just) in the cohort that doesn't buy much of the offer, but I don't buy fish & chips on holiday ;-)
But going back to price elasticity, maybe 40% reduction wasn't enough to find the optimum cash GM return - what would have happened if you were at or below the supermarkets?...or maybe the price ceiling hasn't been reached if there's true inelasticity...
...that's where data science can help!
https://www.arcablanca.com/price-optimisation/