What happened
Shares of AMC Entertainment Holdings (AMC +1.89%) were soaring in morning trading Wednesday after the movie theater chain announced it had hired an executive who previously served in PepsiCo's Frito-Lay division to fill the newly created position of vice president of growth strategy.
Ellen Copaken also served at Hostess Brands (TWNK +0.00%) and will be charged with helping to expand AMC's popcorn business. The movie theater stock was up 9.7% at 11:27 am ET on the news.
Image source: Getty Images.
So what
Although movie ticket sales might get most of the attention because they help gauge where the theater operator's business is heading, concession sales are where a cinema makes its profit. Hugely marked-up prices for puffed kernels of corn, boxes of candy, and flavored carbonated water are where AMC makes its money.
Where ticket sales account for 54% of AMC's revenue, compared to just 35% for food and beverage sales (other items, such as screened ad sales, account for the balance), the concession stand carries gross margins of 84% versus 59% for the movies themselves.
Coming up with additional ways to boost food profits even further represents an easier path to increased financial stability compared to the relative fixed costs of film exhibition.
Now what
CEO Adam Aron said he's been outspoken about wanting to transform his business, with "our planned venture into the multibillion-dollar popcorn industry being a significant example of our doing so."
AMC announced last fall that it was looking to brand its popcorn for sale through mall retail kiosks, home delivery, to-go packages at theaters, and ready-to-pop microwaveable packages sold in supermarkets and convenience stores.
As long as it doesn't include the heavy markup popcorn carries at the concession stand, it's a worthwhile endeavor for the movie theater chain to try, and Copaken's experience with consumer packaged goods should be invaluable.
