How top movie theatre justify selling food and drink at higher price?
How much would you pay for a movie marathon—such as RRR, star wars, KGF,Avatar and so on—with a couple drink and food vouchers? like at the PVR,INOX,CINEPOLIS. Elsinore or some other single screen theatre.
Around Rs 2300 or 25 dollars?
Bahubali, Superman, and alien 3, would be a fantastic marathon.Three movies plus intermission hits approximately eight hours. Doing the two complete trilogies of star wars would be 15.7 hours including intermissions.
The movie theatres in Malls,Multiplexes restaurants, etc are charged an extra tax that is not levied to other retail shops for the sale of the same food and beverage. Secondly, they are not only giving us the bottle/can, but also a glass, straw and service from a waiter for whom they have to pay. Thirdly, they need to cover up on their expenses such as rent, salaries etc. And lastly, they need to make a profit. Hence it is necessary for them to charge an extra amount.
During first week of movies booking, almost 80–100% of booking fees is directly send to distributors of movie. Next week, its around 50 % taken directly by distributor. Now, if movie goes for more than 3 weeks ( normally theater’s favourite moment), only 20–25% is taken back by distributor. If movie goes more than month, around 15–20 % is taken by distributor.
Many times, royalty charges depends on producers. That is, high budget movie or famous producers gets 90–100% for first week directly.
Why is food so expensive at movie theaters?
You can figure this out by looking at their financial statements (all figures in INR Lakhs):
Revenue from operations: 224,612
Revenue excluding F&B: 163,846
Revenue from food and beverage (F&B): 60,766
Operating Cost (excluding F&B consumption and employee benefit): 168,842
Consumption of Food and Beverages: 15,468
Source: PVR Annual Report, 2018
Bit of calculation will tell you, they would have been in losses if they would not have overcharged on F&B. Food and Beverages contribute around 27% of revenue which is quite high for a “side business” considering not everyone will buy food when they go out to watch movie.
If we talk about gross margins, they earn a gross margin of over 75% on sale of f&b. Which means they are selling popcorn worth Rs. 50 for Rs. 200. So you can say that F&B sales is what is driving their profit.
Now, how can someone earn a margin of 75%?
From economics standpoint, two factors are at play here: monopoly and inelastic demand:
Monopoly: Once you are inside the theatre, you have no option but to eat their insanely overpriced substandard food.
Inelastic Demand: You can see for yourself, how many luxury theatres have opened up in recent times where prices are even more expensive and all of these go full house. Secondly, even after such high prices, there is a long queue to buy their food. So, basically, people are buying irrespective of high prices.
Movie exhibition business is not as profitable as it looks like, considering they have to give more than 50% of revenue to distributor/producer. Now, only way to stay afloat in the market is to charge for extra (or side) facilities over and above exhibiting movies.
Another important point to note here is: as PVR is in movie exhibition business and people would select a movie hall on the basis of ticket prices and not on the basis of F&B prices.
Therefore, an increase in ticket price would hamper their sale more as compared to an increase in F&B price.
Ever notice when a new film opens, the media brags about how much money it made?
That’s what the film studio made, which is awfully close to the total ticket revenue. That is, in order to get major releases, first-run cinema chains sign contracts agreeing to pay 96–99% of the ticket revenue back to the film studio.
And that is before the cinema pays its employees, the light bill to run those projectors and the air conditioning, the lease on the building, the cost of having the film delivered, all the supplies needed to clean uniforms and maintain the theaters .
Drive in theatres of the 1980’s.
Film revenue alone produces less than 5% of the cost of running the cinema. You can thank Hollywood for the high price of your tickets, because they get pretty much all the money.
Cinema stay in business by selling patrons popcorn, cokes, candy, and whatever else people will buy. Yes, concession prices are higher than you would pay for the same items at a grocery store, but about the same as you would pay at a restaurant that served comfort food, or what you would pay for concessions at a sporting event.
One reason every cinema sells the stuff, is that a lot of people demand it, literally won’t watch a movie without it. Even now, when some big drama is about to unfold, people joke “I’ll get the popcorn”. The amazing thing is that popcorn sells itself. It’s bright and colorful, it’s warm and soft, it makes happy popping sounds when it’s being made, and I have seen the smell change minds from across a lobby – “Do you want anything from the concession stand? No, I’m not hungry and – hey is that popcorn fresh? Let’s get some”.
Cinema managers love popcorn because even using premium ingredients, you still get a 96% profit margin on the stuff. Popcorn literally keeps a lot of movie theaters in business.
And for those complaining about sticky floors, you can thank the idiot/ clowns who think it’s funny when a film ends to pour half their sodas onto the floor.
Are the prices of food items sold in the multiplexes fair or unfair?
Its called a monopoly from the greek μόνο(only one) and πώληση(sale) .
In a capitalist economy supply and demand determine the price of a product.
When demand is high and supply is low the price is rising.
Theaters and cinemas don’t allow outside snacks but most people really enjoy them when watching a movie.
So you have hundreds of customers with the need for snacks and drinks.
And only one supplier.
So with no competition he sets the price!
Why are the snacks so overpriced at the movie theatres?
Concessions highly subsidize ticket prices.
Air conditioned popcorn and soda parlor that plays movies in the background.
First, prices are set to what the market will bear or what competition demands. Once a customer enters the doors of a movie theater, they are in a monopoly market.
There is no competition and the audience is captive. The prices will then, of course, be higher than the same products in an environment in which multiple businesses are competing for customer dollars.
But, that natural process aside, movie theaters charge higher prices because they have to, to provide their services and profit.
When we pay our $10-$15 for our ticket and sit down in a packed theater with about 400 other people, it’s easy to imagine that the theater is making a killing. But the theater doesn’t keep all of that money.
Movie theaters, distributors, and studios make a variety of deals with each other, so there isn’t one single set of numbers to use. On average, for the first few weeks that a movie is playing in a theater, 70% of the revenue will go to the distributor/studio and 30% will be kept by the movie theater.
After those few weeks are over, the numbers will change, possibly switching to the reverse, where the theater keeps 70% and the distributor/studio keeps 30%.
The problem, for the theaters, is that by the time they can actually start keeping most of the money, the audience has dramatically shrunken in size. Here’s a graph showing the numbers for a very successful film (Guardians of the Galaxy).
In its opening week, Guardians of the Galaxy brought in almost $33,000 per screen for the week. Using the above numbers (Marvel’s explicit arrangements with theaters aren’t public), the studio took $23,057.30 and the theater took $9,881.70.
That means that for running the movie on a big screen, probably five times a day, for a week, the cinema got to keep less than $10,000. Obviously, most movies don’t make as much money as Guardians of the Galaxy, and most movies aren’t in their first week.
In week twelve, the theater got to keep $1,124.50 for a week’s worth of showing that film on a single screen.
So, theaters clearly aren’t making a killing from movie tickets. They are also expensive facilities to run. They have vast air conditioning bills. They have to be cleaned. There are constant technology advances like digital projection, 3D, IMAX, and surround sound that require huge investment. The buildings themselves take up a lot of space, often in high-demand areas, meaning high rent.
Raising tickets prices often isn’t the best solution. If they raise ticket prices, they might lose customers before they enter the doors and become a captive audience. They also have competitors that might not raise their ticket prices. Plus, 70% of the ticket increase will go to the studios, in the prime weeks.
Movie theaters have an 85% profit margin on concessions, but the total average profit margin for a theater is just 4.3% That shows that high concession profits are essential for a theater’s survival.
That’s pure illegal and is being done with the connivance of police and local authorities. Sadly everyone in India takes this as an acceptable practice.
In fact companies like Pepsi have created special packs for highways and other institutional vendors with higher MRP (Built in higher margins) but still some charge more than that too.
Very difficult to answer this question. For movie buffs who are loaded with dough, no price is unfair. If people are ready to dole out hard earned money to procure a pack of popcorns at unimaginable prices, the multiplexes can’t be blamed for putting on the screws.
Supply is there because demand is there. Reasons citing heavy overheads and low customer bases in multiplex is strictly for the birds and has no relevance.
How do the theatres and highway hotels sell food items at a higher price than the maximum retail price?
Is there a definitive way to determine the ideal retail price of a product?
Cost-plus pricing
Value-based pricing
Competitor-based pricing
Skimming pricing
Penetration pricing
Ultimately, the ideal retail price will depend on a combination of factors specific to the product and the business. It’s a good idea to experiment with different pricing strategies, and track their effectiveness and adjust accordingly.
Why do we have to pay more for eatables inside theaters even though we have MRP?
It is because theaters are not able to make profits from selling the tickets (even from the blockbusters). Why? I am sharing example of Entertainment Tax Structure in Mumbai, India here:
From the NET collection, theater will pay upto 50% to the film distributors. So if you purchase a ticket of Rs 100, the theater will get close to Rs 35. From this money, theaters and multiplexes need to pay all rents, man power cost, electricity, AC, advertisement, marketing, etc.. which is not sufficient. This is why, the bread and butter for multiplexes and theaters is their Food & Beverage Department. On an average 60-70% of their profit is from F&B, rest is from sales and negligible from tickets.
Is there any way by which we can regulate the prices of food products sold at abnormally high prices at multiplexes?
Is there any way by which we can regulate the prices of food products sold at abnormally high prices at multiplexes ?
Theatre association should take call. My observation is that movie lovers becoming choosy for theatre and expenses. Sooner or later, this need to turn around.
How is it allowed for places like airport or cinemas to sell products at a higher price than the retail price written on the very product?
The $1.00 price on say Arizona iced tea is not the price it is the manufacturers suggested price. The price is set by the retailer and the market
Probably the most expensive Coca Cola.
But to answer your question, why is food so expensive in theaters?
We’re paying that extra money for the opportunity to enjoy the food or drink at that specific location.
Just like a bottle of water is worth maybe 100X more in the middle of the desert — somehow, the scarcity of that popcorn doesn’t seem to “taste” the same at home.
By the way, this is the value proposition of Starbucks.
Starbucks has proven that the convenience and experience of enjoying a coffee in their beautiful coffee shops and exclusive locations around the world justifies a $5 dollar coffee.
Who do I complain about on more prices of food in theatres?
Not all theatres. Only the multiplexes charge a lot. So, the McDonalds or Barista or Dominoes inside a theatre are third-party vendors. They pay rent to the mall. And this rent, I believe, is extremely high, which is why the costs of food are also high in order to recover money for the rent and make profit.
Most people who watch films in multiplexes belong to a middle or upper-middle class strata, justifying the costs of the food. People say, if a person can afford a 400 rupee ticket, they can afford a 200 rupee popcorn bucket. I know the logic is warped but that’s how people think.
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