Cineplex Inc. saw record profits in their last quarter thanks to an increase in theatre attendance and a boost in concession sales.

According to the Cineplex’s most recent financial report, the company recorded a 34.7 per cent profit during their latest quarter in 2015 – a record level when compared to previous third quarter results.

While a record level of audience members contributed to a rise in box office revenues, Cineplex notes in the management section of their quarterly report that food sales were also a contributing factor to the higher profit margins.

A portion of Cineplex Inc.’s third quarter financial report annotated in DocumentCloud:

(Click inside the annotation to see the entire document and other annotations)

Source: Cineplex

According to Sarah Van Lange, the communications director for Cineplex, the company’s recent expansion of food options for customers has increased the company’s concession revenues per patron, or CPP for short.

In the third quarter, Cineplex’s CPP jumped from $5.11 per patron to $5.43 per patron – an increase of 6.3 per cent. The increase in the CPP means means that consumers are spending more money on food and beverages than they have in the past.

 

According to Kin Lo, a finance professor at the University of British Columbia, this type of revenue is especially valued by Cineplex because the costs associated with concessions are relatively low.

Lo says focusing on food revenues is a smart strategy for Cineplex to employ in order to sustain their business in the long run.

“Cineplex’s food revenue has gone up quite a bit in the last quarter, and even more so if you look over a longer period of time,” says Lo. “The major strategy that Cineplex seems to be employing is maximizing the amount of money that people are spending on things like food since these items make quite a high margin.”

A portion of Cineplex Inc.’s third quarter financial report annotated in DocumentCloud:

(Click inside the annotation to see the entire document and other annotations)

Source: Cineplex

While traditional concession snacks such as popcorn, pretzels and soft drinks continue to be the largest contributor to food sales, Cineplex’s introduction of the “VIP experience” has also allowed the company to increase the number of opportunities for consumers to spend money while in the theatre.

The VIP experience allows patrons to purchase entire meals and alcoholic beverages in addition to traditional concession foods such as popcorn and soft drinks. Access to VIP auditoriums enhances the movie-going experience for patrons, but more importantly for Cineplex, it encourages their customers to spend much more on food than they typically would if they were sitting in a regular auditorium.

Van Lange notes that VIP auditoriums have had a “significant influence” on their food sales since the program was introduced a couple of years back and says that the VIP option has been very popular with moviegoers looking for an experience they can’t find at home.

“We’re always looking for ways to expand and improve our food offerings for guests,” said Van Lange. “But we still rely on traditional concessions as our primary source of revenue.”

A portion of Cineplex Inc.’s third quarter financial report annotated in DocumentCloud:

(Click inside the annotation to see the entire document and other annotations)

Source: Cineplex

Cineplex currently controls 79 per cent of the box office market in Canada – a significant majority in comparison to their local competitors. But according to Lo, Cineplex may struggle to keep their customer base over time as online streaming options become more popular.

“Increasingly, there are new substitutes for the movie experience such as Netflix or illegal streaming,” says Lo. “It’s a good strategy for Cineplex to keep their movie ticket prices as low as they can to attract customers, and then hopefully they can get them to spend money once they are through the door.”

Looking forward to Cineplex’s fourth quarter, there are many opportunities for the company to maximize food profits. The release of Star Wars: The Force Awakens for example has lead to record box office sales across Canada and likely will have a positive impact on food sales.

“I think Cineplex still has some way to go in order to try and capture more of the customer’s wallet,” says Lo. “Of course, not everyone who walks into the theatre is going to buy food, but I don’t think five dollars per patron is anywhere near what Cineplex could potentially make.”

Cineplex’s stock prices

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