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Case Study for Southwestern University Food Service Revenue

Prepared by Tanner Cheek

Submitted to ERAU Worlwide In Partial Fulfillment of the Requirements for MGMT 524

Embry-Riddle Aeronautical University Worldwide Online Campus August 2013

Statement of Problem: After moving to a larger stadium it is unknown if the revenue from concessions will turn a profit or be a loss for the stadium. I need to find the total costs, revenue for each item, and break-even point (BEP) for each item. Finally, estimate the revenue needed per attendee for concessions to break even. Assumptions: In preparing the break-even price for each item, the gross number of each item was modified to ensure real world reliability. E.g. because you cannot sell 8686.67 soft drinks, all gross numbers were normalized to whole numbers. Soft drinks, coffee, and hot dogs were rounded up, while hamburgers and misc. snacks were rounded down. Costs for each item and initial pricing point of each item has been set by Mr. Maddux as shown in Table 1. Table 1 Pricing of Items Selling Variable Price Cost Soft Drink \$1.50 \$0.75 Coffee \$2.00 \$0.50 Hot Dogs \$2.00 \$0.80 Hamburgers \$2.50 \$1.00 Misc Snacks \$1.00 \$0.40

Costs: Fixed costs for operations include food preparation salaries, rental fees, and booth operation fees. As shown in Table 2, total fixed costs per game are \$26,060. Table 2 Total Fixed Cost Salaries for Food Services Stadium Rent Booth Employee Pay Total Fixed Cost 100,000 per season \$2 per square foot 6 emp./booth at \$7 an hour (100000/5)+(2400*2)+(6*6*5*7) \$20,000 \$4,800 \$1,260 \$26,060

Revenue Needed Per Item: In order to recover the fixed expenses, a percentage has been assigned to each category of food. The total fixed cost was multiplied by the fixed cost percentage of each item to find the profit needed for each item to break even. Table 3 Expected percentage of fixed cost 25% 25% 20% 20% 10% Revenue Portion of Total Revenue Fixed Cost to Sales Needed to Needed to Break be Covered Break Even* Even 6515 8687 13030.5 6515 4344 8688 5212 4344 8688 5212 3473 8682.5 2606 4342 4342

Soft Drinks Coffee Hot Dogs Hamburgers Misc Snacks

Sales needed per attendee: By adding the revenue of each item, we see that total sales must equal \$43,431 per game in order to break even. With expected attendance of 35,000 people, average sales per attendee would be \$1.24 in order to break even. With attendance expected to grow to 60,000 with the new stadium, average sales needed drops to \$0.72 per person. According to a study done at University of Miami, average concession sales per person at college football games ranges from \$1.50-\$3.50 per person per game. (Whisenant, Dees, Bolling & Martin, 2013) There is no reason to believe the concessions will not make a profit for the stadium.

Whisenant, W., Dees, W., Bolling, M., & Martin, T. (2013). Concession sales: The examination of novelty effect and consumer mood. Retrieved from http://www.ijern.com/images/April2013/01.pdf

*Items with the highest sales were rounded up because they have a higher chance of selling more items per game than items with lower expected sales numbers. Misc. snacks are multiple items with expected sales equal to hot dogs and coffee so it was also rounded down.