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adapting to change

By Andrew Telli john

image by ©iStock/talipcubukcu

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Shifting Landscape Creates Challenges, Opportunities For Small Businesses And ACDBEs

As Raleigh-Durham International(RDU) prepares for upcoming concessionsopportunities for currency exchange andTerminal 2 concessions, airport staff areconducting outreach sessions, as they havemany times in the past.

But the messaging has been tweaked thistime around. RDU executives have beenencouraging potential bidders to widen theirscope when thinking about possible partners.

“I emphasize to interested parties that ouropportunities are available to everyone,”says Ingrid Hairston, director of businessdevelopment at RDU. “If they are or seethemselves as interested in providing ourcustomers with service, then they have tolook at all the ways around the businessmodel in order to be able to compete.”

Consolidation of traditional primeconcessions operators and requests forproposals calling for single operators at afew of the nation’s largest airports havebeen eye-opening changes to the industrylandscape. Many stakeholders are stillwaiting to see the impact. One of the most

prominent questions remains how thesechanges will affect the future of small,minority- and women-owned firms certifiedas Airport Concessions DisadvantagedBusiness Enterprises.

New Approaches

Some say the return of larger or single-package RFPS and fewer large companiesto partner with might make it harder forACDBEs to access opportunities. Aquasi-developer approach also alters theplaying field.

Former Airport Minority AdvisoryCouncil Chairman Don O’Bannon, whonow operates The Law Office of Don T.O’Bannon, says the most important issue ifairports continue moving to a more privatedevelopment model is ensuring that thereare opportunities provided to certifiedminority and women-owned companies.

“The public sector bidding process,although cumbersome, provides a levelplaying field and has opened opportunities to

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ACDBE firms,” he says. “There is potentialin the context of a private developmentmodel, that is not subject to the same rules,to not provide the same degree of access forthose firms that are new entrants or ACDBEfirms that are not well established.”

Others say that while there are challengesto overcome, the changes provideopportunities for those willing to work tofind and capitalize on them.

But that, sources say, means firms must beopen to new ways of doing business. At RDU,that could mean two or more small businesses– specifically ACDBEs – with complementaryskill sets may want to consider teaming up ina bid. That possibility has always existed,Hairston says. But with the shrinking numberof operators, RDU wants to ensure that asmany viable companies as possible find waysto compete for opportunities.

“We’ve asked folks to think beyond thetraditional box that concessions has been inwhen it comes to contracting,” Hairstonsays. “If you think about, ‘Do we have topartner the way we’ve partnered in thepast?’ No, you probably don’t have to dothat. You have to partner with people whocan help you realize the goal you have setfor yourself.”

Paul Brown, principal with Paul BrownConsulting and CEO of the airportoperations group at ACDBE-certifiedTransportation Consortium of New York,says the ACDBE community will adapt andfind new, smarter ways to participate in thebidding stages of airport projects.

Brown agrees with the approachHairston is taking at RDU and adds that heexpects more airports and concessionaireswill follow suit.

“Others are thinking the same way,” hesays. “I expect the ACDBE community andthe partnering community to evolve andcome up with some new ideas to make thiswork.”

Such partnerships have happened on asmaller scale in the past, says Bill Swift,president and CEO of Business TravelerServices Inc. Swift says he once recommendedto James Paschal from Paschal’s and HermanRussell from Concessions International thatthey bid together as a joint venture on space atHartsfield-Jackson Atlanta International(ATL).

“They won it, and they operated it formore than 15 years very successfully,” Swiftsays. “I believe that is one course of action– that these ACDBE firms can now amass

participation in their own group.”And it may be necessary, he adds, as

consolidation likely will affect some of thelong-term relationships that have beenbuilt between primes and oft-used partners.

“ACDBEs can consolidate … and bestronger as a group than they are asindividuals,” Swift says.

Subcontracting Versus Joint Ventures

Currently, Brown says, many ACDBEsare built well for participating in running abrand or an operation but not necessarily foroverall concessions management. So, ratherthan bidding as primes, that likely meanscontinuing to grow and gain experience viapartnerships – either joint ventures orsubcontracts – until they’ve gained enoughexperience and size to bid as primes.

“That’s where the next level is going tohappen,” he says.

Subcontracts, many say, are the best way forACDBE companies to quickly gainexperience that could lead them to largeropportunities because the entity is responsiblefor running an entire operation. Thosearrangements have fallen out of favor with

Ingrid HairstonIngrid Hairston, director of businessdevelopment at RDU, saysconcessionaire consolidation hasairport officials recommending thatpotential ACDBE bidders in upcomingopportunities expand their scope whenconsidering potential partners.

Paul BrownPaul Brown, principal with Paul BrownConsulting and CEO of the airportoperations group at the TransportationConsortium of New York, says it’ll takesome time, but ACDBEs, primes andairports will adapt and find new ways tomeet program goals.

Bill SwiftACDBE partners have bid togetheron space at airports before, butdoing so on even a few spacescould create challenges withrespect to raising capital, says BillSwift, president and CEO ofBusiness Traveler Services Inc.

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prime operators in recent years, as airportswere offering smaller packages that left primeswith fewer options for spreading out the risk oftheir investments.

A recent RFP at Midway (MDW),however, called for a single prime operatorthat can run up to 60 percent of what willbe a newly modernized concessionsprogram. The entity must sublease at least40 percent of the program, with the endproduct resulting in at least 37 percentACDBE participation.

Solicitations structured that way, Brownand others say, could provide those primeswith enough risk mitigation to startswinging the pendulum back towardsubcontracts – not that joint ventures areentirely without merit.

It’s a fine way to get experience, but it’s“hard to say how much of your own shipyou are running,” Brown says.

For example, a company that has a 10percent stake in a joint venture withresponsibility for sourcing might excel atthat aspect of the business, but that doesn’tteach them anything about recruiting,human resources, finances or many otherfunctions. Subcontracts force small operatorsto independently operate and thus get a feel

for every aspect of the operation.“Joint ventures are a very valuable tool in

the introduction of a concessionaire into theindustry, but it can also be limiting because youare not giving a small contractor a large enoughrole where they are really learning how toconduct business in an airport,” says Bob Silvas,president of the Silvy Group. “It doesn’t go farenough to make them independent enough tocompete on their own.”

Smaller Prime Potential

Regardless of the model, observers saythere will continue to be opportunities forACDBEs to participate, even eventually atthe prime level if they are willing to put inthe time and effort to truly learn the industry.

CMS Hospitality, under founder andchairman Clarence Daniels, grew from astartup in the mid-1990s into a formidablecompany that eventually won a bid tooperate as a prime concessionaire at LosAngeles International (LAX).

CMS recently agreed to sell a portion ofits business, including 16 restaurants atLAX and McCarran International (LAS),and Daniels announced his retirement.

Clarence Daniels’ son Anwar Daniels,

president and chief operating officer, and GregPlummer, vice president of development, havetaken over the remaining CMS contracts, bothof which are joint ventures at LAX, and plan tocontinue expanding CMS into the future.They’ll consider any type of arrangement, be itprime, subcontracting or joint ventures.

“We’re businessmen, we’re open to allopportunities,” Anwar Daniels says.

But the partners make clear the companysuccessfully ran locations as a prime forseveral years and principally plans tocontinue doing so going forward. Theconsolidation, he acknowledges, changesthe landscape – but he thinks it’s in CMS’favor. When there are smaller packagesavailable, the company is a likely candidateto bid as a prime.

“There are fewer prime companies,”Anwar Daniels says. “That means there isalso more room for new smaller primecompanies. That’s one of the areas we’vebeen able to take advantage of.”

They acknowledge that not all ACDBEfirms will be ready to do so right away. Ittakes time to learn the business.

“This is no disrespect to anyone, but allACDBEs are not created equally,” Plummersays. “It’s easier said than done … When

Bob SilvasMore important than consolidation is the commitment of airports toremember the purpose of theprogram is about making sureACDBEs have an opportunity tolearn the business, not just meetinga participation number, says BobSilvas, president of the Silvy Group.

Anwar DanielsConsolidation might make it harder to find a prime partner, but it opens the door for moresmall prime operators, anopportunity for ACDBEs, saysAnwar Daniels, president and chief operating officer at CMS Hospitality.

Greg PlummerIt’s easier said than done, butACDBE firms with a willingnessto invest blood, sweat and tearscan build the skills necessary tobid on concessions space as aprime, says Greg Plummer, vicepresident of development withCMS Hospitality.

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you really want to take the time to learn thebusiness, and you put in the blood, sweatand tears into the business, you’re going toreap the rewards. That’s what allowed us tobe successful.”

Capital Pressures

While it may not happen for a while,Brown says, the one dream scenario for anairport ultimately might be for an ACDBEor team of ACDBEs to bid and win a largeproject as the prime operator. Under thatscenario, he says, ACDBE participationgoals likely would be met by the presence ofthe prime, and the program could be filledsolely on the strength of the brands, withoutthe pressure of just making a number.

“You can still include all the ACDBEsyou want, but it doesn’t hamstring theprogram,” Brown says. “And if you have agroup that is sensitive to diversity at thehead of it, it makes it easier for the ventureto walk in step with a diversity ethic. You’llmake the number in a way that reflects thefabric of the surrounding community.”

Whether bidding as a single entity orpartnering with another, one long-term issuestands as the biggest roadblock: capital. Even

if airports continue creating smaller packageson which potential ACDBE partners can bid,they still will need to find ways to come upwith $500,000 to $1 million per location todevelop and open whatever spaces they win.

“And that’s only for the construction,”Swift says.

That’s not to say it can’t be done, butsmaller firms or two combined firms willlikely have to find some third-party investorsto help get their operations running. Thathas often been challenging in traditionallending environments for ACDBEs, butsome help may be on the way. Swift and atleast one partner are in the process ofpursuing a federally-regulated Small BusinessInvestment Company, or SBIC, whichpotentially could help provide capitalassistance for the industry’s small businessesand ACDBE companies.

Absent something like that, ACDBEpartners likely will need to find some privatefinancing to help make a dual bid work.

Capital is always a major challenge facingACDBEs, agrees Silvas. But he and othersalso agree that financing, consolidation andsolo-operator RFPs are not the only issuesfacing minority- and women-ownedbusinesses trying to break into the business.

Silvas says the current challenges areexacerbated by airports and programcompliance officials who sometimes losesight of the program goals. He claims thosefolks, at times, are prone to overregulationand focusing more on making sure a specificparticipation number is being met ratherthan ensuring that the contract in questionis actually an opportunity for an ACDBEoperator to learn the business.

Because of that, Silvas says he’s not surehow much of an issue consolidation will befor ACDBEs. If airports continue creatingopportunities by splitting bids into packageswith at least some smaller ones that certifiedcompanies can compete for, then thosefirms will win, learn and potentially grow,Silvas says. If airports only focus on meetinga goal, most of them will be met throughjoint ventures that are less productive forcompanies that want to expand into biggerthings in the future.

He notes, “It’s the responsibility of theairport to embrace the objective of thepolicy.”