Friday, November 17, 2017

Retailers weigh risks, rewards of operating at TIA



For the first time in 43 years, Tampa International Airport is revamping its entire lineup of concessions. National and local brands will bid for the chance to do business at one of the most coveted retail locations in Tampa Bay.

There's money to be made at the airport — and money to be lost.

Airport businesses can enjoy a steady stream of passengers to sell food, goods and services. But the world of airport concessions is fraught with turbulence: airline mergers and canceled flights, federal regulation and tight security.

"The airport business is not for the faint of heart," said Bhavesh Patel, TIA's director of concessions.

No one knows that better than three local entrepreneurs weighing the risk and reward of doing business at the airport: the restaurateur, the retailer and the rookie.

Winter Haven businessman George Tinsley Sr. had two decades of experience running his Kentucky Fried Chicken franchises when he got into the airport business in 1995.

The airport business, though, was an entirely different kind of business.

"It's a roll of the dice," he said, "a very calculated roll of the dice."

In 1995 he teamed up with airport master concessionaire HMSHost to build a TGI Fridays in the main terminal. It became one of the chain's busiest restaurants in the nation.

In the past seven years he helped bring Quiznos and Starbucks to Airside C. In the past two years, he has become minority partner in Cigar City Brewing and Shula's Bar & Grill in that same airside. His airport businesses employ up to 400 people.

In his 19 years at the airport, he has learned all kinds of lessons.

First, Tinsley said, the airport business is more about location than the brand or concept. Airsides with high traffic will obviously do better than airsides with less traffic. Most of his properties are in Airside C, home to TIA's biggest carrier, Southwest Airlines.

"It's not what restaurant's there," Tinsley said. "It's what airline is there."

But airlines can be capricious. An airport lease can last a decade. Airlines, however, can switch airsides or just disappear altogether.

"All of a sudden a merger comes along and you're stuck," Tinsley said. "You maybe have two good years and then you're stuck for the next eight years and you can't walk away from it."

There's no lack of rules. The airport is governed by the Hillsborough County Aviation Authority but subject to the rules of the Federal Aviation Administration, the Transportation Security Administration and the state of Florida. In 2003, the state banned indoor smoking.

"That really hurt our business," Tinsley said, "especially the adult beverage side."

The highest risk, he said, is costs. Running an established brand means paying royalties and marketing fees. But airports don't allow concessionaires to charge whatever they want to cover those costs. TIA limits businesses to 10 percent above street price.

"On the street you can charge whatever you want to charge," Tinsley said. "But not in the airport."

So why, considering all those hurdles, is Tinsley determined to bring his restaurants back to TIA when the new concession contracts are awarded?

Because of the numbers: A crowd of about 45,000 goes through TIA every day. In fiscal year 2013, 8.6 million passengers used TIA. By 2023, that number is expected to reach 10.4 million.

The key, Tinsley said, is knowing where those passengers will be.

"I know enough about the airport to know where the good sites are, and I know where the bad sites are," he said. "I'm not going to commit to going after a bad site.

"Part of this is knowing what you're getting into."

In 1980, Susan Stackhouse was hired by a small company that ran TIA's retail stores. Instead of a cash bonus, she got equity in the company.

"I always joked that I would have preferred the cash," Stackhouse said. "But in retrospect, it was a great opportunity."

She used that equity and help from investors to buy the company in 1988. Stellar Partners Inc. now owns and operates 45 stores in 10 airports across seven states and employs about 250 people.

Her TIA holdings include some prominent retail licenses in the main terminal: the Ron Jon Surf Shop, Mindworks toy store and Swarovski jewelry store.

"We felt like it was an industry where we needed to diversify," she said, "not just have one particular retail niche."

She learned that lesson the hard way. She endured the wrenching bankruptcy of Potpourri of Florida, a chain of women's apparel stores she once worked for.

"They really were not evolving and they also took on a lot of debt," she said. "We had to learn to evolve based on consumer demand, and I also had to make sure that we grew with as little debt as possible."

She did that, even though the cost of doing business at the airport is higher than at a mall. Bonding and insurance cost more. Employers pay for employees to park at the airport.

Security is another issue. Goods and supplies have to come through security. Every airport employee has to be able to pass an FBI background check going back 10 years.

But for a retailer, an airport has advantages over a mall.

"We have built-in traffic that a mall doesn't have," Stackhouse said. "We have people going past our front door continually."

They have even more time to shop in the post-9/11 world, when people arrive early to get through security. Flight delays also help airport businesses, allowing more time to shop.

The problem is cancellations. Airlines are now quicker to cancel flights well in advance, Stackhouse said, often before the passengers need to be at the airport.

"That loss of business is usually more difficult to make up," she said. "If there's a delay, people are already at the airport. Then they clearly have more time and inclination to shop.

"But if they never show up in the first place because of a cancellation, that's bad."

When the current concession contract expires, Stackhouse will have to say goodbye to all her decades of work at TIA.

She plans to bid for new retail locations, however, and she's excited by the expanded retail space in the airsides. Airport retailers covet customers who have already gone through security. Once they reach the airside, they're in less of a rush and more inclined to shop.

She also has some new retail concepts that she did not want to share before the bidding process starts. The retailer is ready to evolve once again.

"The major players in the industry are all looking at this," Stackhouse said. "I'm sure there's going to be a lot of competition."

Tampa International Airport is changing more than just its concessions.

Starting this year, the airport will undergo a two-year construction and renovation project that will change just about everything: how passengers will return their rental cars; how they'll get to the main terminal; even what they'll eat and drink.

The third-floor terminal will be completely redone. That will coincide with the current concession contract expiring in 2015. Eventually, all of the existing restaurants and shops in the third-floor terminal and airsides will be torn down and replaced in phases.

The slate will be wiped clean, physically and contractually.

"We're taking them down to the studs and the floor," said Patel, the airport concessions director, "and rebuilding from the ground up."

Concession space in the main terminal will actually shrink slightly to 37,000 square feet, but concession space in the airsides will jump by a third to 84,000 square feet.

Come 2017, there will be new restaurants, stores and kiosks in new locations. There will be new brands and new concepts at the airport — and a new way of doing business.

Since the airport's birth in 1971, one company, HMSHost, has acted as the "master concessionaire" for TIA. That means HMSHost has run all of the airport's concessions.

HMSHost teamed up with other companies to license popular brands such as Starbucks and TGI Fridays and bring them to the airport. In recent years, airport CEO Joe Lopano pushed to bring in local brands such as Columbia Restaurant Café and Cigar City Brewing.

Lopano wants to maintain that same mix when the new concessions open in 2017.

"It really requires a balance of national brands and local concepts," he said. "That's what we want to achieve. It's obviously a revenue generator, but more importantly it's about customer satisfaction."

But the airport will no longer allow just one company to run its concessions. Instead, this summer, TIA will allow multiple concessionaires to submit bids.

The airport has drawn up 82 concession locations and determined what can go there. Certain spaces have been set aside for restaurants, bars, stores and other concepts.

Those locations were divided into 13 packages that will soon be up for bid. Those parameters could change before the airport starts asking for proposals in July. Airport staff will vet and rank the bids. The Aviation Authority board will pick the winners in 2015.

Those packages are spread out across the airport, so one concessionaire cannot bid on an entire airside. The airport also won't allow one business to bid on just one space. The airport wants concessionaires to team up and bid together on each package, or several packages.

The airport wants the concessionaires to spread the risk, because there's already plenty of that in the airport business.

"It's almost like diversifying your portfolio," airport spokeswoman Emily Nipps said. "You don't want to have your eggs all in one basket."

Chef Rene ValenzuEla turned Taco Bus into one of Tampa Bay's most popular homegrown brands. His food truck concept now has five sit-down restaurants.

He's a rookie in the world of airport concessions. But he's excited by the prospect of bringing his style of fast-casual Mexican to TIA.

He's just not sure if he can afford it.

"It's a really big investment," he said.

Never mind the higher costs of doing business at the airport. What the airport itself charges — in rent, fees and startup costs — is also daunting. The contractual requirements haven't been finalized yet, but here are the kind of demands that are standard in the airport concession business:

The lease could lock tenants into an airport space for seven to 10 years. And on top of the rent, TIA charges a monthly privilege fee for doing business at the airport. There's a minimum due each month, and the fee can rise and fall depending on many factors.

The startup costs are also high. The airport wants a security deposit of six to 12 months of rent in advance. A guaranteed minimum investment is also required based on the size of the location. One of the examples TIA has been showing bidders is a hypothetical 4,200-square-foot sit-down restaurant in Airside C.

If the airport were to require a minimum investment of $500 per square foot to build a restaurant on that site, that's an investment of $2.1 million right off the bat. But the price per square foot could be hundreds more. Plus, the concessionaires have to agree to another expense: They must refurbish the space after five years.

"It caught me off guard," Valenzuela said of the startup costs.

The airport isn't telling potential bidders what it is looking for or what they should build. Instead, TIA shared historical sales figures, passenger forecasts and other data with potential bidders so they can figure out themselves if their projects will work at the airport.

"They have to do their own sales projections," Patel said, "because they are the ones on the hook for the lease."

That's why the bidding process is designed to get concessionaires to join forces. By requiring businesses to team up, the airport hopes the bigger, more experienced players can mitigate the risks faced by smaller, inexperienced businesses.

TIA thinks that will reduce the chance of failure, foster competition and attract local brands. In fact, concessionaires will be required to include local concepts when they bid on the concession packages.

"We want to try to infuse our offerings with some Tampa flavor," Lopano said, "so that people, when they come to the airport, they understand a little bit more about our community."

HMSHost got Columbia Restaurant Café and Cigar City Brewing into the airport by licensing those popular local brands. But the thought of licensing Taco Bus makes Valenzuela nervous.

He owns every Taco Bus. There are reasons why he hasn't tried to franchise it.

"We strongly want to control every aspect of the business and stay independent," he said. "We have a very particular idea and we'd like to keep control."

So the costs are enormous, the risks great, and Valenzuela might have to share the concept he built with someone else. It's no wonder that the prospect fills him with excitement and dread.

"Yes, you have a captive audience and it's really awesome," he said. "But on the other side, there's ups and downs in sales because everyone gets there at the same time and it might be slow until the next flight.

"It's crazy. It's not like a regular business. I'm excited and I'm scared."

Jamal Thalji can be reached at [email protected] or (813) 226-3404. Follow him on Twitter @jthalji.

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