STATEMENT OF ISSUE
On December 4, 2009, the Airport News and Gift Concession Lease Agreement between the City and The Paradies Shops, Inc. will expire. The Paradies Shops has operated the Airport’s News and Gift Concession since 1990, which includes a 10-year extension that was entered into in 1999. Given current economic conditions and a struggling aviation industry, the Airport engaged KEM Retail to review the airport and industry economic environment to assess the potential impact of a news & gift solicitation in 2009. KEM Retail’s October 2008 report, Market Analysis of Retail Concession Solicitation at the Tallahassee Regional Airport (Attachment A), recommends delaying the release for a news and gift concession and extending the Paradies Shops Agreement to be coterminous with the incumbent food and beverage concession agreement. This will allow the Airport to consider combining food and retail together in a single RFP to increase interest and competition among prospective operators. This action would also allow the Airport an opportunity to examine the two concessions to consider whether or not the current lease spaces are appropriately sized and configured to meet the needs of Airport customers. Tallahassee Regional Airport’s (TLH) concessions are heavily positioned pre-security and the industry trend, since 9/11, is to locate concessions post-security.
If the extension were approved, both agreements would expire January 2014. Aligning the expiration of the retail and food and beverage concession agreements would allow the Airport to offer a more appealing RFP and improve the Airport’s future prospects for attracting national operators with airport experience and strong brands.
RECOMMENDED ACTION
Approval of Option 1 –Authorize staff to negotiate and enter into a 5-year extension of the Paradies Shops Agreement.
FISCAL IMPACT
Based upon current activity, the Airport may expect to receive $200,000 to $300,000 in revenue over the 5-year term, contingent upon passenger traffic and economic conditions. The Office of Budget & Policy, City Attorney’s office, MBE, and Procurement offices have reviewed this agenda item and agree that it meets City policy and guidelines.
Kenneth M. Austin, Director, Aviation Department
Anita Favors Thompson, City ManagerFor information, please contact: Victoria Maleszewski, Airport Business Services Manager or Kenneth M. Austin, Director of Aviation at extension 7802.
SUPPLEMENTAL MATERIAL/ISSUE ANALYSIS
HISTORY/FACTS & ISSUES
On December 4, 2009, the News and Gift Concession Lease Agreement between the City and The Paradies Shops, Inc. will expire. The Paradies Shops, Inc., is an award-winning concessionaire and is one of the largest news and gift operators serving airports, with a significant presence in Florida markets.
The Paradies Shops has operated the News and Gift Concession at Tallahassee Regional Airport (TLH) since 1990. Upon expiration of such a long-term agreement, the Airport would ordinarily issue a request for proposals. However, airports throughout the US are experiencing declining traffic and regional airports, such as TLH, have been especially hard hit by airline service reductions. These challenging airline and economic conditions have resulted in declining passenger traffic and a reduction in airline service at TLH. Attachment A, Market Analysis of Retail Concession Solicitation at Tallahassee Regional Airport report, examines existing industry conditions, industry benchmarks and feedback from news and gift operators. A summary of findings and conclusions is presented in the report along with the Consultant’s recommendation.
The report indicates that most newsstand operators interviewed indicated that regional airports are not currently part of their business plan. In fact, only one operator indicated that given the parameters of the TLH opportunity, they would even consider responding to an RFP at this time. It is challenging for regional airports, such as TLH, to attract national operators with significant airport experience and strong brands for both news and gift and food and beverage operations. The majority of operators interviewed indicated that combining the two programs (food and beverage/news and gift) into a single contract would make the opportunity more appealing. There are several examples of US airports – both large and small – that have a single operator for both food and beverage and news and gift concessions. Some examples include San Diego International (CA), Charlotte Douglas International (NC), Gerald R Ford International (MI), Stewart International (NY), Tampa International (FL), and Eastern Iowa (IA) Airports.
Delaying the release of a request for proposals news & gift concession and extending the current newsstand contract to be coterminous with the food and beverage contract, will allow the Airport the opportunity to consider packaging the two opportunities together in a single request for proposals. Current market conditions support this trend for regional airports and doing so would likely attract additional operators to the opportunity. The recommended format would allow operators to propose on a portion of the program (food/beverage or news/gift) or to propose on both programs. Increased competition should result in stronger brands for both.
Further, delaying the release would also allow the Airport to examine the layout of the current concession program to determine if it is appropriately sized and configured for current and future traffic, appropriately located to attract customers and appropriately merchandised and branded to meet customer needs. Since 9/11, airports have been shifting concession programs (both food and retail) to post-security locations in response to passenger behavior. By shifting concession programs to primarily airside locations, airports have found that the concessions perform better. TLH’s concession program is largely pre-security (landside). By delaying the release of the news and gift request for proposals, TLH should have sufficient time to evaluate the program and determine what physical changes are possible and the related costs and impacts to the Terminal. Therefore, the resulting solicitation and program will best position the Airport to develop a concession program that will meet customer needs, enhance revenue and be attractive to potential operators.
CHARITABLE CONTRIBUTIONS
The Charitable Contributions Preference Ordinance does not apply to contract extensions.
OPTIONS
Option 1. Authorize staff to negotiate and enter into a 5-year extension of The Paradies Shops Agreement.
Pros:
• Allows the Airport to continue offering its customers quality news and gift operation they have come to expect.
• Gives the Airport more flexibility to issue a combined solicitation that allows operators to propose on a portion of the program (food/beverage or news/gift) or to propose on both components; thereby, stimulating competition among prospective operators.
• Allows the Airport to evaluate and size its concession program more consistent with a post 9/11 environment.Cons:
• Delays the opportunity for prospective concessionaires to engage in the competitive solicitation process for News and Gift operator for five years.
• Delays the potential for capital improvements to be made as part of a new agreement.
Option 2. Do not approve a five (5) year extension for The Paradies Shops Agreement and direct staff to issue an independent solicitation for news and gift concession.
Pros:
• Allows the City to engage prospective concessionaires in the competitive solicitation process for News and Gift operator.
• Allows the potential for capital improvements to be made as part of a new agreement.Cons:
• Based upon the Market Analysis of Retail Concession report by KEM Retail and operator interviews, this option could place the Airport at a competitive disadvantage because terms and conditions of the concession agreement would inevitably reflect negotiations in a down economy.
• May compromise the Airport’s ability to continue offering its customers quality news and gift operations, if no proposals are received.
• Would hinder the Airport’s ability to issue a combined solicitation that would allow operators to propose on a portion of the program (food/beverage or news/gift) or to propose on both components; thereby, stimulating competition among prospective operators.
• Would not allow the Airport enough time to evaluate and size its concession program more consistent with a post 9/11 environment.
ATTACHMENTS/REFERENCES