Popcorn, sandwiches give birth to a new business model for PVR, IndiGo

An airline that generates more revenue from in-flight food sales and a cinema chain that earns more from the sale of popcorn and food cuisine than from ticket sales might seem to have flipped their business models upside down.

But for PVR Cinemas and IndiGo, some smart business strategies have helped them sustain themselves through crests and troughs. What looked like an add-on service has turned into a goldmine for these two companies and a model for the rest.

For decades, ticket sales were a cinema chain's primary measure of success. However, PVR Cinemas has turned this model on its head by generating substantial profits from food and beverage sales. With various snacks, gourmet food options, and beverages, PVR Inox, as the company is known post its merger with Inox, has made the concession stand a central part of the movie-going experience. The high profit margins on these items have proven to be a financial boon.

Profiting at 35,000 feet

IndiGo Airlines, known for its low-cost fares and efficient service, has similarly found a goldmine in food sales. Unlike traditional airlines offering complimentary meals, IndiGo charges for its in-flight food, allowing it to keep ticket prices low while driving significant profits. This strategy aligns with the airline’s no-frills approach, turning what could be seen as an inconvenience into a profitable opportunity.

Food sales' profitability in cinemas and airlines can be attributed to high markups and low production costs. For PVR Inox, a bag of popcorn that costs a few rupees can be sold for several times its production cost. IndiGo similarly benefits by selling premium pre-packaged meals and snacks, leveraging the captive audience and convenience factor.

Indulgence spending

The success of these strategies hinges on consumer psychology. Moviegoers and travellers are often more willing to indulge in discretionary spending during these activities. The idea of “treating oneself” at the movies or on a flight justifies the higher prices consumers are willing to pay for snacks and meals.

PVR Inox has gone beyond traditional popcorn and soda, introducing gourmet options that attract a diverse clientele. Limited-time offers themed snacks, and premium food items have made the concession stand an essential part of the cinema experience. Strategic marketing campaigns and promotions ensure that customers are aware of these offerings.

IndiGo offers a wide range of in-flight meal options, from simple snacks to full meals, catering to different tastes and dietary needs.

Diversification, risk management

The success of PVR Inox and IndiGo in ancillary revenue streams highlights the importance of diversification in business strategy. By not relying solely on their core services, these companies mitigate ticket sales risks or fluctuations in passenger numbers. This diversified revenue model provides a buffer against economic downturns and industry-specific challenges.

Offering high-quality food and beverage options also enhances the overall customer experience. For PVR Inox, it makes a night at the movies a more enjoyable and comprehensive outing. For IndiGo, it turns a routine flight into a more pleasant journey. Both companies benefit from improved customer satisfaction and loyalty, which can translate into repeat business.

Challenges ahead

One key challenge is maintaining the quality and consistency of food offerings. PVR Inox must ensure that its food is fresh and appealing despite the high customer turnover. However, the airline faces logistical challenges in providing fresh, safe, and tasty food at high altitudes.

Both companies must carefully balance pricing to ensure their offerings are perceived as good value for money. Overpricing could deter customers, while underpricing could erode profit margins. Finding the right balance is crucial for sustaining profitability.

The success stories of PVR Inox and IndiGo Airlines in generating significant revenue from food sales illustrate a broader trend in modern business. By leveraging non-core revenue streams, these companies have not only enhanced their profitability but also improved their customer experience.

This shift towards diversified revenue models highlights the importance of innovation and flexibility in today’s competitive landscape. As other industries take note, the lessons learned from PVR Inox and IndiGo could inspire similar transformations across various sectors.

Non-core revenue streams

For the fiscal year 2023-24, IndiGo Airlines reported significant financial performance improvements, leveraging non-core revenue streams effectively. The airline's in-flight food and beverage sales generated approximately ₹850 crore, maintaining a robust profit margin of 70%, which translates to around ₹595 crore in profit from these sales alone. IndiGo's total revenue for the fiscal year 2023-24 was ₹58,500 crore, with an EBITDA of 14 per cent, approximately ₹8,200 crore.

Comparatively, Barbeque Nation's revenue was ₹790 crore for the fiscal year 2023-24, showing that IndiGo's in-flight food and beverage revenue continues to rival well-established restaurant chains. IndiGo's strategy also enhanced customer experience, with an average order value of ₹275 and approximately 32% of passengers making food purchases, equating to around 90,000 passengers daily across its 2,000 flights.

In the same fiscal year, PVR Inox reported a total revenue of over ₹6,200 crore, with food and beverage sales contributing approximately ₹1,958 crore, accounting for around 32% of total revenue. The profit margins on these sales remain substantial, with typical gross margins of around 75%, reinforcing the importance of non-core revenue streams in the cinema industry.

Diversified revenue streams

These figures illustrate how both IndiGo Airlines and PVR Inox have successfully diversified their revenue streams, highlighting the significance of non-core business segments in sustaining profitability and enhancing customer experience.

IndiGo's strategy has also positively influenced customer experience. With an average order value of ₹250, approximately 30 per cent of passengers on each flight make food purchases.

This translates to around 83,000 passengers ordering food daily across IndiGo's 1,800 daily flights, enhancing the overall travel experience and contributing to passenger satisfaction and loyalty. In the case of PVR Inox, with an annual footfall of around 151 million patrons, a customer spends ₹132 on F&B items per visit, which indicates the robust demand for premium food options in cinemas.