FAB 2024
The investor view
Palladin Consumer Retail Partners CEO Mark Schwartz gave an insightful investor viewpoint on the attractiveness and potential of the airport food & beverage sector in conversation with The Moodie Davitt Report President Dermot Davitt.
Schwartz and his company are involved in acquiring and actively managing corporations in the consumer products sector. He has taken on various roles within the companies he has invested in or advised, including CEO, Chairman and active board member.
Notably, he and Palladin were key players in the rise of the airport consumer electronics retailer InMotion in North America to more than 120 locations, before it was acquired by WHSmith.
More recently, Palladin bought into Tailwind Concessions, Schwartz taking a director’s role with a mission to scale up the company. The partnership has been successful so far, with Tailwind strengthening its position as a leading food & beverage and retail airport concessionaire; it now operates more than 140 concessions, including over 90 F&B venues, across 45 North American airports.
Palladin Consumer Retail Partners CEO Mark Schwartz (left) spoke to Dermot Davitt about the key metrics investors seek in the airport concessions sector
Schwartz said Palladin is taking a patient approach to building the Tailwind business. “It’s become more challenging to get the right return [typically Palladin aims to get a +300% return on investment within five years -Ed]. You can perhaps cut your way to profitability in a short period of time, but that’s never going to be sustainable. In the airport industry, it’s about long-term growth.”
On current challenges in the airport concessions industry, Schwartz commented: “There’s been increased labour costs, increased cost of raw materials, interest rates have gone up, rents have gone up, all of those factors are making our life a little more challenging.
“You have to choose the business you go for carefully. There’s lots of RFPs that we’ve passed on in the last year, where we’ve looked at the model and we said ‘this just doesn’t pencil out’. We’ve been surprised sometimes at what airports have proposed for certain spaces [in terms of financial expectations], but there’s lots of airports and lots of opportunities where we think we can work with the airport directors and their teams.
“For us, it’s much more about partnership, where the airport recognises that it has to be profitable for us if we’re going to keep investing in the business, as well as being profitable for them too. In some cases, we have been pleased to see that lease terms have been lengthening, because it takes us longer to get a return on that investment.”
Asked about the wider attractiveness of airport concessions as an investible business, Schwartz said: “If you provide something in the right way, at the right price point, and put in the proper amount of planning and diligence and systems, there is no reason you can’t provide a product and service to the consumer in an airport very successfully.
“You generally know the enplanement numbers and the traffic patterns during the day. You can staff up or down accordingly to service that customer. With the analytics behind it, it is much more predictable than other businesses. These types of channels where we find it a little more predictable in terms of how the consumer is shopping – that’s what attracted us to the airport industry.”
Schwartz – who has brought in support from former InMotion CEO Jeremy Smith and former ARI Chief Executive Jack McGowan – said those fundamentals caught the attention of Palladin when it started looking at the Tailwind business during the COVID period.
“We were very impressed with their CEO and President Jeff Switzer and what they were doing during COVID, adapting and surviving to keep all of their operations open and stay cashflow-positive. We noticed a strong base there that we thought we could help to take to the next level. It’s been an interesting journey so far.
Mark Schwartz: "If you put in the proper amount of planning and diligence and systems, there is no reason you can’t provide a product and service to the consumer in an airport very successfully"
“They were mainly focusing on F&B in the smaller airports, including some with as few as 250,000 annual enplanements. In a lot of our airports, we’re the only food & beverage and retail provider, so it really is a lot easier to start curating that whole experience.
“We’ve been growing and we’re trying to work with Tailwind to still keep that focus on the regional airports, but we’ve expanded to go up to airports with up to 5 million enplanements.”
Giving a long-term outlook for Tailwind’s business, Schwartz concluded: “We’ve already almost doubled the size of the business and we’d like to take it to the next level. It’s about adding infrastructure and systems to hopefully doing things better for our airport partners, and then enabling us to grow.
“We’re very positive about the aviation industry today, both domestically and internationally. Travel is here to stay.”
FAB eZine
August 2024
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