Why are airports pursuing pouring rights in the first place? What benefits can pouring rights bring to the various airport stakeholders — the passengers, employees, airlines and tenants?
Pouring rights agreements are more than just contractual arrangements; they represent a strategic partnership between airports and beverage companies that meaningfully impact both the financial position and passenger satisfaction of airports. In this article, we’ll explore the multifaceted benefits of pouring rights agreements for airports, ranging from revenue generation to improved passenger experience and tenant support. Let’s dive in.
Note: This article is part of a 12-Part Series — all focused on pouring rights in the airport industry. If you missed it, make sure to review our series opener, “Why Airports Are Implementing Pouring Rights Now“.
Non-Aeronautical, Recurring Revenue Generation
When airports consider pouring rights, what they are most likely to think about first is the financial aspects of the program. And it’s true – pouring rights agreements serve as a new source of non-aeronautical revenue generation for airports, offering a steady stream of income that airports can count on year after year.
These agreements typically encompass various financial elements, which could include:
- Up-front signing bonus: A one-time payment at the beginning of the agreement.
- Annual sponsorship payments: Fixed payments made on each anniversary of the deal.
- Quarterly rebate payments: Variable payments on each case and gallon of product purchased by the airport or its tenants.
- Monthly beverage vending commissions: A percentage of all revenue generated through beverage vending machines operated by the beverage company or its contractor.
This multi-faceted approach ensures that airports receive a consistent flow of revenue while also fostering a long-term partnership between the airport and beverage companies.
Unlike other concessions programs that may fluctuate in profitability, pouring rights agreements provide a reliable and recurring revenue stream. Even during times of economic uncertainty, these agreements serve as stable revenue sources, offering financial stability. In fact, during the Covid pandemic, beverage companies remained committed to their financial obligations when other concessions partners were not able to do the same.
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Increased Rents
In addition to the financial elements outlined above, is also worth mentioning pouring rights programs often results in a higher amount of beverage transactions — even when controlled for the number of passengers traveling over any given period. This is due to several factors, including the marketing energy put forth by the winning beverage supplier, service-level guarantees and dedicated service support, merchandising resources made available to all tenants. Pouring rights enables the airport to enact streamlined effort across the airport that unifies the airport’s physical, digital, experiential and point-of-sale marketing efforts.
The result? More beverage transactions. In fact, we’ve had clients report an increase in beverage sales per passenger by more than 30%.
This translates to increased revenue per passenger metrics and, ultimately, higher rent payments to airports. Since rents are often calculated on a percentage of revenue — all parties benefit when transaction volumes increase.
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Improved Guest and Passenger Experience
One of the most tangible benefits of pouring rights agreements is the enhancement of the passenger experience within the airport. By partnering with leading beverage brands, airports can offer a diverse range of beverage options that cater to the preferences of their passengers. Whether it’s a refreshing soda, a revitalizing energy drink, or a specialty coffee, passengers have access to their favorite beverages throughout their journey.
More than the portfolio of beverages available, however, beverage companies often collaborate to bring their partnerships with other community institutions — such as local attractions, sports teams, and universities — to create engaging marketing activations and promotions to the airport. These initiatives not only elevate the passenger experience but also contribute to the overall “sense of place” in the airport environment.
Additionally, pouring rights agreements can allocate funds for airport improvements, such as installing kids play areas, refreshment lounges, vending encasements or more. Most well-run pouring rights programs also ensure the beverage company organizes marketing calendars to host exciting events on airport property, including new product samplings, celebrity appearances, concerts, charity drives, seasonal promotions and more. These initiatives create memorable experiences for passengers and reinforce the airport’s status as a dynamic and welcoming hub of activity.
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Increased Beverage Choice
Contrary to misconceptions, pouring rights agreements do not decrease choice. Beverage agreements actually serve to increase beverage choice for passengers by optimizing the available space within the airport.
By removing duplicative beverage offerings in the same category (i.e, a Coke Zero alongside a Pepsi Zero), airports can free up valuable real estate that can be allocated to a broader selection of beverage categories. This approach enables airports to cater to diverse tastes and preferences, offering a wider range of beverage categories, including traditional sodas, flavored waters, energy drinks, teas, coffees, kombuchas and specialty beverages. By leveraging the strength and reach of leading beverage brands, airports can create a compelling beverage landscape that resonates with passengers and drives revenue growth.
As noted earlier, not only do passengers respond favorably to increased choice, but the increased sales lead to more revenue for the tenant and more rent payments for the airport.
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Improvements for Tenants
Pouring rights agreements not only benefit airports but also extend significant advantages to airport tenants, including concessionaires and retailers. Specifically, these agreements provide the following benefits to merchants operating in the airport:
- Lower product costs: Achieved through the purchasing power of the airport during the negotiation.
- Caps on price increases: Pouring rights can put in place a cap the price increases allowed on beverages by the beverage company during the course of the agreement; during inflationary times this is a tremendous benefit.
- Increased service levels: Often pouring rights results in multiple badged beverage staff walking the terminals daily to spot and fix out-of-stocked products, malfunctioning equipment or unoptimized merchandising.
- Free, new equipment: Provided to tenants at no charge with the latest technology and energy-efficiency standards.
- Sales support: Beverage companies will extend significant resources to promote beverages on the airport campus and will provide the tenants with promotional materials and programs to drive incremental sales.
- Employee engagement: Tenants can participate in crew incentive programs, employee give-aways, training sessions and more, all provided by the beverage company at no cost.
This support is particularly beneficial for ACDBE and small business tenants, who may not have the purchasing power or resources to command the same level of service and support as larger players in the industry.
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Social Initiatives
In addition to financial and operational benefits, pouring rights agreements can also serve as a vehicle for driving social initiatives and promoting sustainability — initiatives that are critical to the airport industry. Counter-intuitively, airports are able to achieve greater results in these initiatives when partnering with a major beverage company than if they try to go it alone.
Beverage companies are more incentivized to align with airports’ initiatives and values when they are engaged in a strategic partnership, and pouring rights can serve as platforms from which to drive change.
Specifically, these agreements can include provisions for funding sustainability and recycling initiatives, commitments from beverage suppliers to reduce single-use plastics, and the promotion of better-for-you products. Moreover, airports can solicit contractual requirements from their beverage partners to promote healthier beverage options to the well-being of passengers and to support public health initiatives.
The major beverage companies have entire divisions focused on sustainability, packaging innovation and public health. Often, they are looking for partners in order to deploy their resources and innovation. Airports can serve as the property-of-choice for beverage companies to roll out these new platforms as they become available.
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Conclusion
Pouring rights agreements offer a multitude of benefits for airports, ranging from revenue generation and improved passenger experience to tenant support and social initiatives. By strategically negotiating and optimizing these agreements, airports can unlock significant value and enhance their overall competitiveness in the marketplace. In the upcoming articles in this series, we’ll delve deeper into various aspects of pouring rights agreements and airport management, providing actionable insights and strategies for success. Stay tuned for more!
Key Takeaways:
- Pouring rights agreements offer a new source of non-aeronautical revenue generation for airports, providing a steady stream of income through various financial elements.
- These agreements enhance the passenger experience by offering a diverse range of beverage options, improving airport amenities, and creating engaging marketing activations and promotions.
- Pouring rights agreements benefit airport tenants, including concessionaires and retailers, by providing lower product costs, capped price increases, increased service levels, free equipment, sales support, and employee engagement opportunities.
- Additionally, these agreements can drive social initiatives and promote sustainability, such as funding recycling initiatives, reducing single-use plastics, and promoting healthier beverage options.
- By strategically negotiating and optimizing pouring rights agreements, airports can unlock significant value, enhance their competitiveness, and improve the overall airport experience.
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