re: Concessions at The Box

Man what a small-brained take

quote:

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So there is no incentive to increase sales?

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Not at the expense of profit margin.

Aramark pays LSU a percentage of total revenue, not profits. For football and baseball, LSU’s commission starts at 45% of total sales and actually increases with total revenue (up to 52% of sales over $6.5 million annually).

So Aramark gets 55% (or less) of total sales, minus their operating costs and cost of goods sold.

In return for the heavy commission, Aramark gets a captive market with no competition. This arrangement has some consequences:

- Since LSU’s commission is based on revenue, not profit, Aramark has a strong incentive to focus their efforts on the highest-margin sales (for example, fountain drinks).

- Additionally, they have a fairly strong disincentive against waste, as the full burden of waste hits Aramark’s bottom line after LSU’s cut.

- The captive market means many people will buy something, even if Aramark doesn’t have whatever they actually want.

- Adding variety likely means A) adding items at lower margins or reducing margins on other items (due to economies of scale) and B) increasing waste, while C) having limited/disproportionate impact on total sales since everyone who buys food is buying from Aramark anyway.

The net result is that Aramark has little incentive to add variety/quality unless that variety/quality is going to bring in customers who would not have bought anything otherwise. The contract has language around quality and fan satisfaction but it’s a secondary motive that has to be actively enforced by LSU.

ETA: The TL;DR is that there are plenty of scenarios where a marginal increase in sales can actually be a net negative for Aramark’s bottom line, and that’s without getting into their margin expectations as a company (which may mean that increased sales at lower margins are viewed negatively, even if they are technically a positive for the bottom line).