Revenue Growth, Beyond Security

MADISON — In the post-9/11 world, officials here found that security procedures had changed, and until June 2006, more than 80 percent of Dane County Regional Airport’s food and retail space remained pre-security. It was then that Dane County finished a $65 million renovation project, featuring ten new restaurants and shops — more than doubling MSN’s retail space — and dramatically increasing the food and beverage options.

Working with Ann Ferraguto from Alexandria, VA-based AirProjects and Minneapolis-based Architectural Alliance, the airport was challenged to provide a primary market space.

Creating a centralized space meant relocating primary carrier Northwest Airlines, which had operated from the northern half of the terminal since 1985, to the center of the terminal. The move places 45 percent of Madison’s 1.6 million passengers directly in front of the Madison Marketplace, with an hour-long dwell time on average.

Because the airlines share concession revenues, Northwest Corporate agreed to the move. Some tenants wound up moving gates two or three times during the renovation, but as airport director Brad Livingston A.A.E. states, “When you build a new space and move airlines, you don’t always have a nice turnkey operation. It was a little problematic, but we’re glad it’s over.”

Finding a pair of suitors

During the construction, the request for proposal (RFP) seeking new vending suitors had only yielded two candidates, current tenants Creative Host Services (food/beverage) and The Paradies Shops (retail). Paradies formed a joint venture with Paradies Madtown — a company formed by local businessmen Ray Allen and Steve Braunginn — and operates as Paradies – Madtown, LLC, thereby satisfying its 10-percent disadvantaged business enterprise (DBE) obligation.

“In the pre-proposal conference, we thought it was very competitive,” Livingston attests. “We had multiple companies looking at both retail and food and beverage, but when the bids came in, we had one food and one retail submittal.” Both Paradies and Creative Host signed 10-year leases, with rent based on a percentage of gross revenues.

Creative Host Services VP of business development Roddy McOwan states that the incumbent naturally holds the inside track regarding a successful bid. “You already know the ins and outs of the airport to help you understand the needs of the passengers and the needs of the clients — if you don’t know those, you’ve got a real problem,” McOwan says. “You know what the revenue stream is currently; you know where you’re making money, where you have opportunities to drive more revenue, and that helped us formulate [a] plan in terms of local concepts as well as national and regional players.”

The RFP required CHS and Paradies-Madtown to finish the spaces to a $350-per-square-foot financial standard. “We wanted the appearance of the product to complement the [airport’s] prairie style and existing building as much as it could while still maintaining product differentiation,” Livingston explains.

When working on designing the shell space, Ferraguto consulted the existing concessionaires on the current program’s pros and cons and sought input from the community. “[AirProjects] did market research in the local communities, looked at the financial information for the existing concession program, and looked at what other airports were doing,” says Ferraguto.

Ideally, McOwan states, concessionaires would offer input in terms of additional storage areas and relocating proposed store locations in an effort to drive revenue.

According to McOwan, Dane County had determined how they were going to build the shell space. CHS, however, did work with the airport regarding restaurant design, project management, and construction. “These things are partnerships at the end of the day,” he says. “If you’re going to be there for a ten-year period of time, that’s a long time to start the relationship off on the wrong footing. You build very strong client relations by working together with them on all aspects of the projects.”

Creative Host selected Architectural Alliance — the firm MSN contracted for the renovation project — to construct the food and beverage locations while Paradies hired Atlanta-based Chuck Raymond Design. “We collaborated and worked closely with the airport, Chuck Raymond Design, and Architectural Alliance to ensure the integrity of the prairie style remained strong, complementing the new design,” explains Bobbi Passavanti, managing director of marketing and communications with The Paradies Shops.

The top bidders may have been in-house, but they still had to relocate and operate out of temporary facilities and kiosks for several months. The airport accommodated by providing three designated areas for each vendor, and Livingston states that the airport “didn’t lose a tremendous amount of sales revenue” during the interim. The timeline was staggered throughout the renovation, but most shops opened 60-90 days after beginning construction.

Maintaining the local aesthetic

Seeking to enhance the airport’s motif, and also inject a bit of local flavor, CHS tapped local concepts The Great Dane Pub & Grill and Ancora Coffee. Paradies filled its shelves with Wisconsinite paraphernalia.

“We wanted consumers to be aware that [the marketplace] aesthetically represented the community,” says Livingston.

“When you walk into Paradies’ Wisconsin Marketplace, it has a very good feel for Badger sports and products. Everyone who we talk to enjoys the fact that Ancora and Great Dane are here, and other travelers like the idea that there is a Quiznos and other products that they are familiar with nationwide.”

Reflecting the feel of surrounding communities has proved to be a successful approach for Creative Host Services. According to McOwan, travelers and visitors want a sense of place when visiting a local airport. “Each city has its own little nuances across the country, but you can’t put all local concepts in because you have a high percentage of passengers that come in and out who are not from Wisconsin or Madison particularly,” McOwan says.

‘Local’ has been successful from the retail perspective as well. On Paradies’ top-seller list at MSN, everything revolves around cheese. “Cheese remains our top-selling items,” says Paradies’ Passavanti. “We sell locally made cheese in our coolers that will last up to 24 hours without refrigeration. The Badger [products] are big sellers as well…cow-tipping shirts; cow paddies; cow droppings; believe it or not, these are on the bestseller list.”

Pre-security potential

Despite an industry emphasis on post-security concessions, AirProjects’ Ferraguto says pre-security locations shouldn’t be neglected. “You need a certain amount of pre-security [shops] for people who are coming to meet and greet and send people off,” Ferraguto says. “You need some for the employees who are working landside and some [arriving] passengers who want to pick up something; it’s just not the kind of split [airports] had previously.”

Livingston is “happy” with the end product, but states that “by no measure is it easy to develop an aggressive concession program for small airports. We’re not like [larger airports] with the flow that they see on a daily or annual basis. We’re at 1.6 million passengers, versus 80 million at Chicago or Atlanta.”

McOwan suggests that, at smaller airports vendors “have to look at what’s happening in terms of passenger numbers and passenger growth rates. You then have to look at the passenger profile, get the demographics, and then you have to make sure you put in a good mix of concepts — and split the square footage appropriately.”