Have you ever wondered why popcorn at cinemas are so expensive? With all due respect to the popcorn served at theatre operators like Cathay and Golden Village, great tasting popcorn are not exactly hard to find nor expensive to produce.
So why are these theatre operators able to charge such a high mark-up? More importantly, why are so many Singaporeans who are willing to brave long overnight queues to save a few dollars at sales so willing to grossly overspend to buy a $10 popcorn and soda combo?
Revenue share between movie studios, distributors and theatre operators
Not many people realise that movie studios and distributors hold a lot of bargaining power when it comes to negotiating with movie theatres.
Imagine you are the management of Lucasfilm and Walt Disney. You have Star Wars coming up and with the huge fan base and the million dollar marketing campaign, you know this would be a sure blockbuster hit in the box office.
At the same time, theatre operators also know that Star Wars is going to bring huge crowds to its cinema halls. In fact, if you are not showing Star Wars during the opening weeks, your tickets sales are going to be drastically poor.
Because of that, movies studios and distributors are able to demand for high revenue share of ticket prices. From our limited experience in this field, we have estimated that this can typically be about 70 per cent of ticket price. This means that for every $10 ticket that is sold, about $7 go to the studios and movie distributors while the operators get $3.
This brings us to how the theatre operators make enough money to pay for their expensive rents at malls and shopping centres, staff salary and all the expensive high-end video and audio equipment?
Through selling popcorn off course!
Most people know they are not allowed to bring outside food into the cinema halls. The concession stands outside the halls are where you are supposed to purchase your food and drink. We complain, but most of us comply.
To be fair, the same rule applies to many other entertainment venues such as football games at stadium or catching a play at Marina Bay Sands. Overpriced coke, hotdogs, chips or lousy wine (for the case of MBS) are usually sold at a mark-up of at least 300 per cent.
These places can charge high mark-ups simply because they are able to monopolise the operating areas. Cinemagoers do not have many alternatives aside from watching the movie without any popcorn, coke and hotdog, which many people do, or smuggling in outside food at the peril of losing their tickets, which many people do as well.
Good pricing strategies
Because F&B sales from their concession stands are critical for survival, movie operators have to be very smart with pricing their products.
Let's say you are having a date. We are going to take a leap of faith assume that you are not going to try sneaking in a McSpicy Meal (if only theatre operators served our favourite McSpicy!). Having already spent $20 on a pair of tickets to watch your favourite movie with the girl of your dream, we doubt you will be unwilling to spend just about $8 more on a popcorn combo. You could even look generous by just topping up an additional $2 to get the same drink in a "limited edition" Mocking Jay cup with Jennifer Lawrence's face on it.
Prices of food and drinks at concession stands are usually priced to be highly profitable for the operator, but not out of reach for average cinema-goers out for a comfortable night or a date.
Price bundling on combo to maximise sales revenue
Rather than allow people to buy a drink for $2.50 without spending more on popcorn, theatre operators are clever to price bundle deals such that they encourage would be buyers to just spend a little more.
For example, the price of getting a cup of coke may be increased to $3.50 while the combo that comes with popcorn may be $5.50. At the same time, the price of small standalone popcorn could be $4.
These are pricing strategies in place to create the illusion that the $5.50 combo is actually a reasonable deal, in comparison to buying the items at a la carte prices.
Spending more when you have already spent
Typically, it is easier to get people to spend more money after they have already started spending. This is one of the biggest advantages that concession stands at movie theatre have.
Their potential customers have already spent money on movie tickets. They are a captive target audience that have already showed willingness to spend money on the movie. Getting them to fork out a little more on food and drinks to accompany that movie will not be that difficult.
Enjoy your popcorn!
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