The recent slash in food and beverage (F&B) prices announced by multiplex operator PVR Inox is an attempt to drive revenues at a time when footfalls at movie theatres are falling – owing to poor showing by movies and the resultant fall in income from ticket sales.
"People don't usually walk up to the (snack) counters and that will improve because of such offers. Even guest satisfaction will improve. The merger (PVR and Inox merger) is providing the company this scale and this has been on the cards for some time and finally it was made live. Because of this large canvas of around 1,700 screens and 400 cinemas it has become more possible to do this and at scale," says a source close to the development.
On July 12, PVR-Inox announced a slash in prices of snacks at its counters, after a customer tweeted that the high F&B prices at multiplexes had made movie-going unaffordable! Snack combos will be available for Rs 99 on weekdays from 9 am to 6 pm, while there will be unlimited popcorn and Pepsi refills on weekends.
The reduction in prices is quite dramatic when compared to prices at competing multiplexes. One multiplex in Bengaluru charges around Rs 360 for a large popcorn and Rs 360 for 810 ml of Coke. At another multiplex, 90 gm of flavoured popcorn costs Rs 288, while 600 ml of Coke costs Rs 212. Prices are likely to be similar at other multiplexes in other cities too.
More discounts on food in cinemas
"They (PVR Inox) will continue different types of pricing strategies to get the audience back to cinemas - like dynamic ticket pricing, discounts on F&B. If only tentpole movies attract audiences then it will be a challenge for them. This is (F&B pricing discount) not just a one-off event and they will continue with such a dynamic strategy for both ticket pricing and F&B pricing. Right now it is about survival because movies are not working. Content is not directly in their hands but this side of the business (F&B and movie ticket) they can take care of," says Nitin Menon of NV Capital.
PVR Inox reported a net consolidated loss of Rs 333.37 crore for the quarter ended March 2023, up from the loss of Rs 107.41 crore last year. Its revenues from operations were at Rs 1,143.17 crore, up 113 percent from Rs 536.17 crore in the corresponding quarter last year. On the content side, the multiplex chain saw high volatility in the Hindi film business in FY23. The earnings of the Hindi box office, which is one of the biggest contributors to overall box office numbers, came down from Rs 531.4 crore in Q1 to Rs 392.6 crore in the fourth quarter of FY23.
Impact of slashing F&B prices
The recent discounts on F&B are very sharp, notes Karan Taurani, Senior Vice-President, Elara Capital. "Giving these kinds of discounts will lead to lower SPH (spend per head) and have a negative impact on overall EBITDA (earnings before interest, taxes, depreciation, and amortization) margins if these things continue on an ongoing basis."
He adds that SPH has been growing consistently in the last two years in the post-Covid phase because of premium F&B offerings. "While from the consumer perspective, the prices of F&B are high, there is scope for gourmet food to pick up in theatres in the times to come," notes Menon.
In FY23, PVR Inox reported SPH of Rs 120 versus Rs 92 in FY20. Average ticket prices (ATP) have increased to Rs 236 from Rs 203 in FY20. However, occupancy was down to 25.2 percent in the last financial year compared to 31.8 percent in FY20 at PVR Inox.
PVR-Inox has also identified 50 sites in which to convert its food menu to non-vegetarian from vegetarian, in the expectation that it will yield good results and add to the company's F&B sales.
In FY23, the company reported an 11 percent growth in F&B revenue to Rs 1,618 crore from Rs 1,457.7 crore in FY20. And F&B contributed 30 percent to the company's income in the same year. PVR Inox plans to take this share to 35 percent. The gross margin from F&B is 75 percent for PVR Inox.
"F&B sales play a significant role in the overall revenue of multiplexes like PVR Inox. These chains often generate a substantial portion of their profits through F&B sales due to the higher profit margins compared to ticket sales. While promotional offers may lead to a temporary decrease in the per-unit revenue from F&B sales, they can also drive higher footfalls and increase the overall F&B sales volume," says Anita Gandhi, Director at Arihant Capital.
Why is popcorn in theatres expensive?
"Cinemas give the audience an experience with a big screen, Dolby surround sound, etc. For all this, Capex (capital expenditure) is put upfront and if you look at occupancy, it is not even 30 percent and even goes down as low as 10 percent. Then there are other expenses. It is F&B that is helping the theatres with some sort of profitability. If you cut down F&B, the industry will suffer," says Menon.
While weekday occupancy is usually 10-15 percent in multiplexes, during weekends it moves up to 35-40 percent if the content is good. Despite high food prices, PAT (profit after tax) margins are low and rentals are a huge cost - around 35-40 percent of the overall cost of running a cinema. "Also, in India ticket prices are controlled and range between Rs 200-250. In international markets like the US, F&B prices and movie tickets are in a similar cost range. It is the popcorn that lets cinemas keep ticket prices under control in India. The recent offer by PVR Inox is to get out of the perception that F&B is expensive in cinemas."
F&B prices at multiplexes are generally higher than similar offerings outside due to convenience and a captive audience, notes Gandhi. "Multiplexes have operational costs, and the higher (F&B) prices help cover them," she says.
F&B prices at multiplexes have increased and are high, says Taurani. "Post-Covid versus pre-Covid, F&B prices have gone up by 30 percent. On the other hand, content quality is going down currently and this is having a negative impact on footfalls. High F&B prices are testing the affordability of the Indian consumer. High movie ticket prices, high F&B prices and poor content has affected the frequency of cinema goers. Even if the content issue gets addressed, we do not see the footfalls going back to the pre-Covid levels. Today footfalls are down by 30 percent."
He, however, points out that poor content is affecting footfalls more, as F&B prices were high even in pre-Covid years.
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