The Hindu Business Line : Of popcorn, soda and movie tickets

The other day, one of my friends was complaining that popcorn and sodas are costlier inside movie theatre complexes. In some cases, branded food products such as soft drinks are sold at a price higher than the maximum retail price. Why is food so expensive inside these complexes?

You and I can watch a movie in the comfort of our living room. That we prefer to go to a theatre is because of the experience. This experience is a bundle of two products — the movie itself and the food products such as popcorn and soda.

Suppose a theatre prices a movie at Rs 500. It would be pushing away fence-sitters. These are people who are price-sensitive and would rather watch a movie at home if the tickets are expensive.

It does not help the theatre if lesser people buy costlier tickets to watch the movie. As a business proposition, the theatre is better off selling more tickets at a lower price. That way, it can run full-house, recover its fixed overheads and generate higher profits.

The costly bundle

If the movie experience is a bundle and the tickets are priced lower, the margin has to be higher on the other part of the bundle. That is one of the reasons why popcorn and sodas are costlier inside a theatre complex.

Theatres are indeed better off pricing tickets lower and food products higher. Why? People who want to have popcorn and sodas inside the theatre are less price-sensitive than the fence-sitters. These are people who always have the urge to eat while watching a movie, even if they are not particularly hungry!

The pricing has little to do with monopoly effect. That is, the theatre snack bar does not charge you high prices because it is the only outlet offering you all the food products inside the complex. If that were the reason, you and I would, perhaps, sneak some soft drinks and home-made popcorn inside. That we do not is because the prices are not exorbitant but just costlier.

(The author is an investment strategist.)

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