Why is Movie Theatre Food So Expensive

Why is movie theatre food so expensive? It turns out that business model of the entire cinema business is such that it leaves the cinema owners a very small share of ticket sales. The average industry practice is that during the first few weeks of the movie release, around 70% of the revenue goes to the movie distributors and studios, the cinema only gets to keep around 30% of the revenue. After the first few weeks, the ratios start changing slowly, possibly switching. So, around week 8-12 the cinema gets to keep around 70% of the revenue and the distributors/studios keep around 30%. The problem in this model for theatres are that for majority of the movies the size of the audience are at its peak in during the initial stages of its release (majorly week 1-3) and starts shrinking drastically from week 4 onwards, accordingly leaving almost nothing for the theatres when they can actually keep a substantial share. BLACK PANTHER WEEKLY GROSS EARNINGS – In week 1, the most prime week for any movie, specially for blockbuster marvel movies like Black panther the earnings per theatre was about $72,625 and the theatre would have gotten to keep around 30% ($21,787). In week 12, not a prime week, the earning per theatre was about $2605 and the theatre would have gotten to keep around 70% ($1823.5) So, for running 8-12 shows per day (in week 1) for 7 days with all its amenities, the theatre could not even keep $25000. In week 12, even if it ran only 3 shows a day, it could not even make $2000. These are the average numbers for a blockbuster hit, most other movies don’t come close to acquiring number quoted in the chart above, so this is what a theatre would be making on a really good day. For majority of other movies, the theatres make even very less. If the theatres choose to increase price, then 70% of earning would still go to the studios, and it is more than likely to reduce the total earning due to the effect of lower quantity demand when price increases(because the demand for movie tickets considering most consumers is elastic, majorly due to competitive pricing of large number of theatres). The expenses for the various facilities to run are very high, like vast electricity bills (air conditioning, different types of lighting etc.), cleaning bills, rent bills, staff bills as well the expensive constant upgrades like IMAX, surround sound, 3D etc., that consumers demand. Due to this, the theatres make almost nothing or a very small percentage of their ticket sales. Some lower end theatres mark the ticket prices at zero profit to continue to attract customers. Therefore, in order to survive, the theatres have to adopt other ways of making money, primary of which is by selling food (secondary product) at high markup. This is a good strategy as the theatres get to keep all the profits, the profit margin for food items are about 85% 95% whereas the profit margin for on ticket sales is around 4.3% according to ibisworld. It is a much better idea than increasing ticket price because it would reduce the number of customers coming in to watch a movie in the first place whether they buy food or not. In the graph, we can see that the price of the tickets has not gone up much but he same cant be said for popcorn. This is because movie theaters’ margins are made not on their primary product (movie tickets), but on secondary products at the snack stand. “If we didn’t charge as much for concessions as we did, the tickets to the movies would cost $20,” the CEO of Regal Cinemas, the nation’s secondlargest theatre chain, told theOLos Angeles TimesOin 2008. To survive, Regal and other cinemas adhere to an oldOindustry adage: “Find a good place to sell popcorn and build a movie theatre there.” A typical theatre employs various ways of increasing its income by coming up with combos with food and tickets and deals with other companies. Many theatres don’t allow outside food for the purpose, that once the customer enters the theatre, it enter the monopoly market of the theatre and has to buy what is available, thereby increasing their chances of buying in theatre and increasing theatre earnings.