Beverage pricing: They're still not listening

Kyle2154 said:
I would rather us go from 35% to 33% than 15% to 18%. It's simple math.

so... some more simple math then...

(CF)

2009: 33% 2010: 31% 2011: 29% 2012: 27% 2013: 25%

(Disney)

2009: 18% 2010: 21% 2011: 24% 2012: 27% 2013: 30%

uh oh

There aren't enough jobs for the kids graduating high school and college now. Adding more kids will just increase the number of folks who list Ohio or Michigan as their birth state but who live and work in another part of the country.

Things that have nothing to do with whether or not you're pricing things right today:

Kyle2154 said:
-Cedar Point has always 'over charged' for pops when you compare them to the local 7/11.
-Shoot, sorry, I used factual financial data, sorry.
-Net income, and stats you provided simply venture off track into including things like the debt, which has nothing to do with operations or pop prices.

The thing Fanboy2154 seems unwilling to concede is that you're bound to make less money in a down economy one way or another, and it often comes down to how much you can minimize the hurt. Maintaining your room rates and letting them go empty is not minimizing the hurt. Minimizing the hurt matters when you've got enormous debt, and EBITDA does not tell that story.

And actually, occupancy does make a huge difference to Cedar Fair as a whole, because that resort business is such a huge part of the company's income. I don't have a recent annual report near by, but wasn't it as high as $100 million at one time? For a company that does barely $900 million a year, that seems pretty important to me.

Bringing the topic around, you can point to how per cap spending was "only" down 1%, but it ignores the longer trend, of incremental prices year after year that were not in line with the rate of inflation, and eventually they broke the curve where per cap is maintained. It also ignores the emotional response of your customers, who over time feel that the value proposition is lost, and don't come back. Is that the feeling you want your customers to have when they're already dealing with a crappy economy? That's short-sighted and has no strategic value.

Companies in awesome shape don't throw hail Mary sale offers to deal with their debt, by the way.

RideMan said:
Group sales were awful all over last year. One surprisingly candid comment actually came from Holiday World, where they claimed that their group sales was down significantly last season. And yet, they set an attendance record, meaning that their walk-in traffic more than made up for the loss of groups.

What that tells me is that the people who visited their park as a part of a group had such a good time that when "The Company" decided not to host the annual picnic at the park last season, those people opted to go to the park on their own.

Indeed. I remember having a similar conversation with one of the family members or managers that went just like that. It reinforces my earlier point that if you can't make the right value proposition, or worse, leave your existing customers feeling it isn't worth it, you're screwed.

In fairness, Jeff, and to put the credit where it is due, I think I actually got that tidbit from one of your podcasts...only the interpretation is mine. :)

But this is getting back to what I have been saying all along: when an outfit like Cedar Point screws up with something like in-park pricing, or customer service, or really anything that is related to the in-park experience, one of the big problems for the organization is that the measurable effects won't show up immediately. Hypothetically, if I have a poor experience in the park this season, I still come to the park, I still buy my ticket, I still rent my hotel room, I still buy my lunch, and I still park my car. This year, I still have a positive impact on the park's balance sheet even though I had a negative experience. The impact of my negative experience doesn't actually show up until *next* season, when I decide not to come, or to change the nature of my experience...when I opt not to stay in the hotel, or I don't buy lunch.

Unfortunately, this leads to a few problems.

One is, when the poor numbers come in, the natural tendency is to ask, "what are we doing wrong" when the correct question to ask is, "what did we do wrong". Because the problem isn't necessarily that things are bad now, it's that people got disgusted the last time they visited.

Second, and more seriously, recovery is extremely difficult. Because people who don't come to the park don't know that the food value has been fixed, or the operations have improved, or whatever the bad thing was has been fixed. You don't run an ad campaign that says, "We re-routed the seat belts on Millennium Force this week" in an effort to bring back disgusted former customers; that just doesn't work from a marketing perspective. There are some things that can be done with promotions, but it's a whole lot more expensive than just giving people the value they expect the first time around.

--Dave Althoff, Jr.

I agree with you Dave. Every business out there makes mistakes. Look at Microsoft for example. When they released XP there was a bunch of problems, but people still bought the operating system because you need an operating system to run your computer.

The same logic that you said applies to us as Coaster Fans. If we have a bad experience, that doesn't stop us from coming. WHY? Because we love Cedar Point!

RideMan said:

But this is getting back to what I have been saying all along: when an outfit like Cedar Point screws up with something like in-park pricing, or customer service, or really anything that is related to the in-park experience, one of the big problems for the organization is that the measurable effects won't show up immediately. . . The impact of my negative experience doesn't actually show up until *next* season, when I decide not to come, or to change the nature of my experience...when I opt not to stay in the hotel, or I don't buy lunch.
--Dave Althoff, Jr.

OK, question: How much of the 2009 EBITDA/attendance/visitor decline is due to:

A) CP screwing up price points
B) CP not putting in a 500 foot coaster
C) Bad customer service/crappy food
D) The Great Recession.

I side with Jeff "you're bound to make less money in a down economy one way or another, and it often comes down to how much you can minimize the hurt."

Anyone who thinks that "D" is not the majority of the problem please riddle me these:

A) How come CF's cash flow INCREASED from $310m to $340m to $350 prior to the Great Recession. Did CF nail the price points back then and stopping the .25 cotton candy cause the problems?

B) I guess people must really HATE Maverick & Behemouth & Diamondback and are refusing to spend their money with CF. Either that or switching to Chick-Fil-A really hurt CP with the "Eat More Beef" demographic.

C) How much better was the Customer Service/Food in 2008 than it was in 2009? Perhaps high unemployment rates made it harder to higher quality employees.

D) How come CF is projecting higher EBITDA for 2010? Have they aced pricing all of a sudden? Satisfied every complaint voiced on this board? Seen signs of an improving economy? Maybe different ketchup is worth $30m in cash flow.

You are assuming that things were fine and dandy in 2008.

The pattern of declining attendance coupled with steady or increased per-caps that align with higher prices goes back a number of years.

I agree that the economic conditions have hit Cedar Point hard, and last year's summer weather pretty much sucked. But we've been watching the slow 'deterioration' of the park for almost a decade, even when the economic and weather conditions were fine, or at least weren't horrible. Attendance has been declining and adding a 400' roller coaster didn't help. Which begs the question: What went wrong? And how do they fix it?

The economy and the weather and whatever other outside influences you can think of are good excuses. But this is the kind of business that should be able to withstand those outside pressures. And as much as people (including me) hate to compare Disney and Cedar Fair, the fact remains that Disney's attendance has grown or remained flat while Cedar Point's has declined. The same can be said for other parks as well. So even in a challenging economy, it is possible to grow attendance and improve profitability.

--Dave Althoff, Jr.

^we disagree on two points:

1) There is no objective financial evidence to support a claim that "we've been watching the slow 'deterioration' of the park for almost a decade, even when the economic and weather conditions were fine, or at least weren't horrible." Cash flow had been increasing until 2009. The distribution had been increasing until the 2009 payout. Yeah, attendance has been down but, until 2009, profitability had been up. You can charge less and make it up on volume, or charge more, lose volume and make it up on margin. Or, some combination of the 2. CP tried cutting admission & prices on food/beverages (http://pointbuzz.com/NewsStory.aspx?id=872). It didn't work, so they switched to higher prices and a lower attendance higher percap model. Was this the right combination? No Idea, but Cash Flow went up so it certainly wasn't the wrong combination.

2) I have no idea to to subjectively measure "we've been watching the slow 'deterioration' of the park for almost a decade, even when the economic and weather conditions were fine, or at least weren't horrible." Certainly adding Millie, TTD, & Maverick cannot be described as a "decline," although some might argue trading WWL for Maverick is a decline. The food seems about as good/bad to me as it ever was. Of course, I have 10 years more experience selecting eating places at CP :). I think trading the fountain for the new kiddie splash area is a deterioration, but Planet Snoopy an upgrade from Peanuts Playground. Others would disagree. But one thing is clear: cash flow had been increasing until the Great Recession.

2 Questions:

A) If there had been no recession would CF's cash flow increased or decreased?

B) What combo of prices would you (a generic "you" not necessarily Dave) select. Remember, CF cut admission & food & beverage prices for 2006 and people are complaining about the 2009 & 2010 combination, so be sure and maximize profits by selecting something in between ;). Jeff already has bonus points for pointing out that CP did not maximize room revenue in 2009, so no copycats. :)

I didn't see where CF broke out hotel revenues separately in its annual report. They do have a line item for net revenues from hotel rooms, food and other attractions outside the parks. Looking back through to 2004 numbers, the highest of those net revenues was $74.8 million in 2007. In 2004 and 2005, it was about 10% of total net revenues. In 2006-09, it was about 7.5% of total net revenues. Actual numbers from the hotels themselves are less than that. My point wasn't that the hotels mean nothing to CF only that they mean a lot less to CF than they do to Disney which is set up as a resort location with guests expected to visit multiple days and thus stay overnight. As a result, I would expect the reactions to potential vacancies to be different.

How much survey work do parks conduct/can they conduct it terms of the issue of visitor satisfaction? Views on what made for a good experience would number as many visitors you have but I would expect that if it could be done right, trends can be determined. Just not sure if parks do that or practically speaking can do that.

What role do folks think regional population has on attendance? At some point, don't you max out on attendance potential without some population growth? How many parks are able to draw significant portions of their visitors from outside the region? I know there are a lot of folks on here and CB who visit parks all over the country but what percentage of park visitors are like that? I visit CP every year and have made opportunistic visits to other parks every year or so in connection with travel nearby. I have liked those parks for the most part but its unlikely I will ever visit any of them again. Big advantage that Disney has is worldwide draw. In this country that allows them to draw from areas of the country that are growing. Seems to me that some parks have niches. Kennywood strikes me as a park that is much less intense than CP with more green space. Many people like that but not everyone does. I suspect that model doesn't require the addition of the latest/greatest ride/attraction every year or two though.

Our family is a great example of one that has simply decided the value isn't there...and it honestly makes me sad because some of the best times of my life happened during our yearly visit.

Every year since 1989 we have stayed between 2 and 4 nights in a Hotel Breakers suite (usually suite 1325 at the end of the rotunda hallway) during a late June weekend. During the first 15 years, we typically travelled with a few other families...all staying in the Breakers together. However, five years ago the other families began to perceive a loss of value and stopped going. We continued our yearly ritual, but for many of the reasons pointed out in this thread, this is the first year we will not be planning a trip to Cedar Point. It's amazing (and and pitiful) that for nearly $300 a night, we've stayed in a suite that's had the exact same furnishings for over the last 20 years we've been staying there. It was just plain dingy last summer.

Some of the food changes that I've read about seem to be a move in the right direction, but other changes like the soft drink pricing only further cements our feelings that our yearly trip to Cedar Point is no longer worth the money as it once was.

Okay, good to know about the prices. I'm going to keep a cooler in my trunk with ice and pops. I'll pay for rip offs on food, but not for pop.

Lots of interesting conversation in this thread. I will simply add this: the issues many on here complain about are directly attributable to Mr. Kinzel. He is intimately involved with pricing, hotel upgrades (or lack of them), and capital projects.

And yes, this is not a problem that developed as a result of the bad economy. Things have been heading in this direction for years and I'm sure Jeff and I could count the number of years in a row that we have been saying CFs crutch of "attendance down...but per cap up" was a false hope that was going to be haunting.

Let's not lose sight of other issues like raising the parking fee right smack in the middle of August several years in a row. Talk about a hail mary that likely impacted the guest experience in untold ways.

Captain Hawkeye said:
1) There is no objective financial evidence to support a claim that "we've been watching the slow 'deterioration' of the park for almost a decade, even when the economic and weather conditions were fine, or at least weren't horrible." Cash flow had been increasing until 2009. The distribution had been increasing until the 2009 payout. Yeah, attendance has been down but, until 2009, profitability had been up.

I think the biggest measure of customer satisfaction, everything else remaining the same, is attendance. Even before the great recession hit, attendance was on the decline. If people stop coming, there has to be a reason. If that reason is value, wrong mix of entertainment, atmosphere, or whatever the cause is, cash flow and distribution being up means nothing because it is not sustainable.

Food and beverage prices at CP were actually reasonable for many, many years. I believe sometime during the late nineties, after attendance was up and per cap was down, someone asked Mr. Kinzel during an investor conference call what can be done to bring per caps up. He said "they have some ideas". Basically that meant raising food prices and reducing quality, nothing innovative or anything like that. They even cut the burgers back from 1/3 lb. to 1/4 lb. but kept the same price. To me, part of the fun of going to the park is eating all of the food. If the prices are so high, I have to watch what I'm buying, that really has an impact on how much I enjoy the day. Coincidence or not, but ever since Mr. Kinzel came up with that idea on fixing per cap spending, Cedar Point has trended downward, with even the big ride years not giving the bump in attendance expected from the past.

Actually, if you look at the 2005 and 2006 pricing you will find that they did NOT reduce beverage prices, which again, is what this thread is about. They did try to play a funny sort of "high-low" game where prices were reduced a little on certain items and raised a lot on others. I am pleased to report that it looks like the food rates have been adjusted again this year; nothing is cheap, but some of it seems to be better than in the past. But the drinks keep getting more expensive. The only time I can remember them ever dropping a drink price was the year they went too far with the vending machines; I think Jeff referred to it as "insulting" at the time.

I put the scare quotes on the word "deterioration" for a reason. It isn't really the best word for what's happening, but as we are talking about a decline of any kind...even if it is just watching the attendance tank...it does apply.

The take away from all of this is that the health of the organization goes beyond the bottom line, because the increasing cash flows are immediate, but don't tell the whole story. And that is because the cash flow is being propped up in an unsustainable way. It is unsustainable because the people who do visit the park have a finite amount of financial resources, and the size of that crowd is dwindling. What many of us in this thread are saying is that steps need to be taken to reverse that trend and get butts in the park again. What we are hearing from our co-workers is that they are choosing not to go back to the park because is it too expensive, which is code for it doesn't offer good value.

--Dave Althoff, Jr.

Pete said:

I think the biggest measure of customer satisfaction, everything else remaining the same, is attendance.

Of course, NOTHING has been the same. Detroit has lost 25% of its population, the worst recession since the great depression, the Wii.

Pete said:
Even before the great recession hit, attendance was on the decline. If people stop coming, there has to be a reason.

Let's see, admission is still cheaper now than it was in 2005. The park has added Millie, Wicked Twister, TTD & Maverick, plus flats like Maxx Air & Skyhawk. Perhaps if CF raised admission prices and removed those rides attendance would spike like it was 1999.

Or perhaps the reason is Detroit has lost 25% of its population, an economy in CP's market area that has been on the decline for years, the Wii.

Pete said:

If that reason is value, wrong mix of entertainment, atmosphere, or whatever the cause is, cash flow and distribution being up means nothing because it is not sustainable.

Absolutely. However cash flow had increased until 2009, and, if CF's projections are right, will increase this year. Apparently value, mix of entertainment, atmosphere, or whatever is not wrong. I'm not saying that CF has nailed it, far from it, but they have gotten it enough right that cash flow & distribution had been sustainable until the Great Recession.

Pete said: I believe sometime during the late nineties, after attendance was up and per cap was down, someone asked Mr. Kinzel during an investor conference call what can be done to bring per caps up. He said "they have some ideas". Basically that meant raising food prices and reducing quality, nothing innovative or anything like that.

Except they have cut admission prices and in 2006 they cut food prices. Now, I'm going to argue that charging lower admission than you did 5 years ago is "innovative." Perhaps dumb, but innovative.

Dave said: Actually, if you look at the 2005 and 2006 pricing you will find that they did NOT reduce beverage prices, which again, is what this thread is about

To quote from the article that I cited above, "Throughout the entire park, all food items, except one, are either staying the same or being reduced in price, Cedar Point spokesman Bryan Edwards said Wednesday." Also, "On average, prices on food went down 20 percent" And "a 20-ounce Pepsi soft drink bottle, $2.39, compared to last year's $2.75" It may not seem like they cut prices, but they did--for 1 season.

God knows I find CP's food horribly overpriced. I find the food at the movie theater horribly overpriced. But when they did reduces prices apparently attendance & beverage consumption did not shoot through the roof. Also, Disney keeps raising prices--except during the Great Recession--and they do not have declining attendance.

I think free soda with admission would be a great idea. Would it skyrocket admissions? No idea. But cutting prices in 2006 didn't seem to. (BTW, how much of Holiday World's increases have come from a comparatively strong farm economy? I'm not saying 100%, but $15 per bushel soybeans sure puts people in a mood to spend $$$. Compare & contrast to Detroit.)

Dave said:
And that is because the cash flow is being propped up in an unsustainable way. It is unsustainable because the people who do visit the park have a finite amount of financial resources, and the size of that crowd is dwindling

I have heard Gonch debate that on the podcast, so I steal from him.

1) How many people can you physically fit into CP? (Or KI or CW?) Can you provide an acceptable guest experience for 4m or 4.5m people? Gonch has argued that 3.5m is about the physical limit. Disney has built how many extra parks to facilitate their growth? As noted earlier, the 3 biggest amusement parks outside of CA & FL (no lake effects snow) are CW, KI & CP. How many more people can you cram in before people think it's too many?

2) Why can't you have fewer people but have each of them be more profitable? How is that not sustainable in a growing economy?

Dave said:

What we are hearing from our co-workers is that they are choosing not to go back to the park because is it too expensive, which is code for it doesn't offer good value.

And what are they doing instead? Spending extra $$$ on 3D movies & that "value priced" theater soda? Or are they conserving $$$ fearful of the economy. When commissions are plentiful I find lots of things to be a good value. When commissions are down, that gets redefined.

Again, I agree with your theory, but if it is true, how come fewer people are going despite admission prices being lower THAN 5 YEARS AGO? Do people really base that much of their decisions on the price of Pepsi? Or does a deteriorating local economy make even lower admission prices seem unreasonable?

And why did everyone else (Disney, theaters, sports teams) get away with raising prices for years? Until the general economy turned bad.

I agree with Jeff, CP needs to adjust things. Perhaps lower resort rates, increase Park admission charges. Perhaps jack up resort rates but offer bigger discounts on Park admission & give vouchers (gift cards are too 21st Century :)) for free food to resort guests. Or a different combination. Certainly $13 for a $5 foot long sub is too blatent. But, look around, things aren't cheaper at the ball park or a movie theater and no one talks about their long term deteroration.

This is such a waste of time at this point. People are just too damn cheap to accept that whats best for their wallet may not be best for the park. They'll ignore all signs of operational success in the process.

*sigh*

How many times do you need to be called out before you stop making an asinine, completely baseless argument?

Called out? I stand, firmly, in that I believe in EBITDA for operational purposes, and that Cedar Fairs EBITDA is well and above that of Disneys.

Please keep in mind that ebitda takes everything, operationally, into consideration, net income, net revenue, gross revenue, attendance, etc., etc....

Kyle2154 said:
People are just too damn cheap to accept that whats best for their wallet may not be best for the park.

Except that no one has made that arguement yet.

Captain Hawkeye said:

Let's see, admission is still cheaper now than it was in 2005. The park has added Millie, Wicked Twister, TTD & Maverick, plus flats like Maxx Air & Skyhawk. Perhaps if CF raised admission prices and removed those rides attendance would spike like it was 1999.

Isn't that the issue? I've said it before that admission is a steal. Its not quite Six Flags' giving away the gate, but it is close. Cedar Point has slashed admission and yet is still bleeding attendance. That must say something about the experience once guests are in the gates.

JuggaLotus said:

Kyle2154 said:
People are just too damn cheap to accept that whats best for their wallet may not be best for the park.

Except that no one has made that arguement yet.

Well, it's easier to marginalize the counter-argument, as opposed to, you know, having to defend your own. :)

JuggaLotus said:
I've said it before that admission is a steal. Its not quite Six Flags' giving away the gate, but it is close. Cedar Point has slashed admission and yet is still bleeding attendance. That must say something about the experience once guests are in the gates.

Damn right. Hike the ticket price to around $55, and give people "free" stuff, like soda. I mean, it's worth a try, since things aren't going so well.