O’Hare prepares to bid for lucrative dealership deals

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A request for proposal is expected to be issued late this year or early 2023, according to the Ministry of Aviation.

It’s one of the largest concession sets in the industry, says Stephen Freibrun of ICF International, an aviation consultant who works primarily for airports and airlines. “It’s a great opportunity with a demographic that has shown the ability to spend,” he says.

It’s also the first time in more than two decades that the catering contract, which exceeds $250 million in annual sales, has been bid after several false starts. It remains to be seen whether it will continue to be a single contract or whether it will be broken.

“Everyone’s been waiting for this for years,” says Ezequiel “Zeke” Flores, CEO of Chicago-based Flying Concessions, which operates food and retail stores in O’Hare and will soon open in Midway. “I’m crossing my fingers that it finally happens.”

Concessions are a small but important part of O’Hare’s fundraising operations, like other major airports, which rely on restaurants, bars and retail stores to attract travelers but also provide revenue which reduce the amount paid by airlines in landing fees and rent. pay airport operating costs. They are also an important source of employment. Around 1,300 people work in the domestic terminal concessions.

In 2019, O’Hare earned $86.7 million, or 6.9% of his total revenue, from restaurants, bars and retail sales.

HMS Host in Bethesda, Maryland, has held the catering contract since 1999. It pays the city 16.75% of its gross sales. In 2019, that was $42 million in rent out of $252 million in revenue. HMS Host declined to say what its net income was.

Hudson Group, based in East Rutherford, NJ, operates retail stores in domestic terminals under a contract that was awarded in 2013. In 2019, Hudson’s newsstands generated $66.6 million in dollars in sales and contributed $17.7 million to the airport.

There are about half a dozen large companies that typically bid for airport concessions and usually partner with a variety of partners, including local restaurants. Potential partners are already talking, industry insiders say, and incumbents are likely to bid as well. Several concession operators contacted by Crain’s said they were aware of the potential contract at O’Hare coming up for a bid, but declined to comment on their plans.

HMS Host’s contract expired in 2012, but the bidding process was delayed by various forces, from negotiating a new long-term lease with the airlines which included the overhaul of one of the three terminals airport nationals, a change of mayors and, most recently, a global pandemic that has crushed air travel.

Hudson’s lease began in 2013 and expired in 2020.

Both leases, along with those held by other airport concessionaires, were extended during COVID-19 and expire March 31.

It is unclear what the next contract will look like. Over the years, airport officials have floated the idea of ​​breaking it up into smaller pieces, which would spark competition and bring different types of restaurants, bars and retail stores to the airport, potentially making it more attractive and generating more revenue than a single contract. .

Traditionally, O’Hare has leased concession space in terminals to a single operator or developer who pays airport rent and/or a percentage of sales.

More than a decade ago, the city signed a 20-year agreement with Westfield, now known as Unibail-Rodamco-Westfield, which partnered with concession operators Hudson and Areas under a a $26 million overhaul of the Terminal 5 concessions space.

Another option is for individual restaurants to have leases directly with the city.

The city declined to comment on what the RFPs might look like.

POST-PANDEMIC REALITIES

The domestic terminal agreements are O’Hare’s first major concession contract to be competed since the COVID-19 pandemic emerged in early 2020. O’Hare’s passenger volume is growing, but it’s still 21% lower than pre-pandemic levels.

The pandemic has brought some changes to concessions, such as contactless or contactless ordering, including vending machines and mobile food ordering and delivery for travelers. “You may not see as many storefronts. You might see virtual ‘ghost kitchens’ and food halls,” says Freibrun, citing an example at Raleigh-Durham International Airport.

“In a post-COVID world, we are likely to see lower percentage rents due to a myriad of factors – inflation, the cost of fit-up and finishing space, the rising cost of labor – which puts pressure on the (financial) dealerships,” he adds. . “The only levers the airport has to help a concessionaire are to charge less rent, extend the term of their contract, or contribute a capital investment needed to create a high level of finished concession space.”

Another complication is the city’s plan to tear down the existing Terminal 2, the oldest of the three national terminals, and add two satellite terminals, by 2030. It’s the centerpiece of a massive 8 .5 billion dollars which could change the number of passengers and the economy of concessions. The new terminal will serve passengers arriving on international flights by American and United.

Also expect the city to pay close attention to involving local vendors owned by women and minorities, a priority of Mayor Lori Lightfoot and City Council. When the city awarded a concession contract to Midway five years ago, more than half of the revenue went to disadvantaged businesses, which was well above its goal of 32%.

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