Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
Michelle Gayer was pretty skeptical when first approached about trying to take Salty Tart, and its selection of pastries, breads and cakes, into Minneapolis-St. Paul International Airport.
She’s primarily familiar with seeing national brands and other big-name companies operating there.
And she had been a supplier to another operator there previously until the companies could not agree on payment terms.
So, it took a lot of meetings, plenty of financial discussions and some cajoling by a potential licensing partner, in her case Midfield Concession Enterprises, before she would agree to have her concept make a run at space in Food Truck Alley at MSP.
“I was hard to get,” she says. “Totally skeptical.”
Even now, as Midfield runs day-to-day operations at MSP’s version of Salty Tart, which is performing well, Gayer admits to being just “skeptically optimistic” about the move. Her team is at the airport daily delivering freshly made product.
The rules and regulations, logistical hurdles — Salty Tart doesn’t deliver via the airport’s hired third-party logistics firm, but instead delivers right at the curbside – and other challenges, such as finding employees or parking, have her firmly in the camp of having no desire to run an operation there by herself.
“I wouldn’t even consider it,” she says. But since the day-to-day responsibilities lay with Midfield, she adds, “I’m okay that we’re there.”
Liz Grzechowiak, assistant director of concessions and business development, acknowledges the uniqueness of the airport concessions model.
“Typically, you can tell when someone is really green,” she says. “They’ll call and ask the question ‘what’s your lease cost per square foot.’ You have to pull back.”
That’s because the Metropolitan Airports Commission, which operates MSP and six reliever airports, is obligated by the state to put its concessions real estate and other contracts through a competitive bid process. And the contracts are lengthy, so the opportunities don’t arise often.
“It comes in cycles,” she says. “Those cycles have a tendency to be few and far between.”
For those who have an interest, Grzechowiak says airport staff has an ongoing “interested parties” list. Those who request it will receive information when opportunities arise.
Airport officials also aim to help potential business partners get a sense of the differences between operating at the airport and a more traditional location on the street. When MSP started hosting those events in advance of its recent concessions overhaul, more than 300 people attended. The event included a meet-and-greet opportunity for small business operators to meet larger partners who were planning to place bids.
Those meetings are important, Grzechowiak says, because the airport typically does not do direct leases with small business. Instead, it uses a “batch” model. So, if there are 50 total locations available, they might be broken into several packages, each with several locations. But the packages are large enough where a small business owner isn’t likely going to be competitive alone.
Build-out costs starting at $400-per-square-foot, staffing challenges, parking and security are other barriers to small business operators.
“If you think it’s difficult staffing your business street side, it’s even more difficult doing it in the airport,” she says.
The best route into airport concessions for a small business, then, is partnering through a lease agreement with one of the “prime” concessionaires with the experience and resources to successfully navigate the world of airport food and retail operations. During a recent two-phase concessions overhaul, about 40 percent of 80 total locations went to local brands.
So, while you might still find a Burger King, a Wendy’s or a Chili’s at MSP, you’re almost as likely to find locals, like Salty Tart or Black Sheep Pizza or Republic or any number of the other popular purveyors you might find in Edina or St. Paul or Minneapolis or Woodbury.
Matty O’Reilly, owner of the Republic restaurant, is thrilled to be in the airport, but he also acknowledges the learning curve and says he could not have done it alone.
“The nature of the specifics of the RFP itself are so detailed that unless you have worked alongside a company that has done this, it would be incredibly intimidating and almost too daunting to proceed,” he says. “I could not have done it alone. Once you know that, then the real work starts with really getting comfortable with the process.”
He started two years ahead of the bid process, going to meetings, researching and talking to people from the industry. He did a ton of pre-bid preparation and interviewing potential licensing, but he didn’t expect to be selected. He decided to bid, in part, because there was low risk for him. If he didn’t win, he says, little would be lost. If he did, he’d have space in the high-visibility building with someone else doing most of the day-to-day heavy lifting.
O’Reilly partnered with SSP America to open the Republic location at MSP, which comes complete with live music performances. He was involved in interviewing the general manager before that person was hired and he does consult with SSP on menu changes.
SSP covered the build-out costs, staffing and day-to-day operations. The companies communicate regularly. And, assuming the restaurant performs well, he gets a check at the end of the month.
While he acknowledges he couldn’t have done it alone, O’Reilly is thrilled with Republic’s airport outlet.
“If you are lucky enough to win what really is the downside?” he says. “There are only X number of restaurants at the airport and the airport is really smart about not oversaturating. They can tell you which locations are going to be the busiest. There are things we can’t control on the street side. From what I’m watching, it’s performing well and I’m content.”
While it’s an entirely different business model and it includes many challenges, it is possible to make a living running concessions in the airport.
Pady Regnier, CEO of St. Croix Airport Retail Inc., had 10 stores in three mall locations, including the Mall of America, when she got involved with a concessions overhaul at MSP 16 years ago. She spent quite a while learning the industry.
“I jumped in and figured it out as I went along,” says Regnier, who adds that strategy might not work now. Build-out costs have gone from around $250-per-square-foot when she started to around $1,000-per-square-foot in some airports now. “You have no room for error if you want to operate yourself.”
But the choices, at least upfront, were the same: Do you want to operate yourself, license or franchise, or come in as a supplier for other operators?
Will you want to work the long hours? Is it worth it to deal with the headaches of finding employees, getting them cleared by the Transportation Security Administration to work at the airport, only then to lose some of them because getting there and parking to work can be a hassle?
“If it’s not right, don’t be afraid to say ‘I dodged a bullet,’ Regnier says.
She also spent several years in advance of the procurement she initially won building relationships with MSP’s staff and with operators. Finally, she researched various certifications, learning that as a woman-owned business operator, she was eligible to become an Airport Concessions Disadvantaged Business Enterprise. That helped her become an attractive partner for the larger operators, who typically must incorporate minority- and women-owned firms into their packages.
“This is a vehicle that can make a small business more attractive to work with larger operators who have more financing available,” she says.
So, for Regnier, the answer several years ago was yes, she wanted to make a go of it in the airport. And it has worked out so well that she has now closed her mall stores to focus on expanding in airports around the country. She has 27 locations in five airports. Some she runs herself. In others, she is a joint venture partner, meaning she has various specific management responsibilities in tandem with a larger operator.
Regnier just recently decided not to renew her Mall of America lease. She loves the mall, but airports have similar characteristics. “You have the energy, this is the place to be,” she says. “It has constant traffic, happy customers if they are not too crabby about the TSA, a dynamic customer base. If you are trying to build your brand, you’ve got the best eyeballs in the world.”
She adds: “If you’re not looking at airports for an opportunity to build your brand in a pretty fast way you are missing a big opportunity,” she adds. “It’s where the most coveted eyeballs are.”
MSP completed phase one of its concessions overhaul in 2017, with 35 retail units and 15 restaurants. Construction started after the Super Bowl this year on locations won in phase two. They will all open by December 2019.
Grzechowiak says the next significant food opportunity will come in 2022, when the Terminal 2 program will be revamped. Retailers will soon have an opportunity to bid on some retail merchandise units, which are upscale kiosks.
While these opportunities may seem a ways into the future, she adds that it’s important to start early – at least two years from the time you know there is going to be a lease. Then you can start working to find the right partner and make sure you have time to get any questions answered.
Businesses that contact airport staff now also will be on the radar in the event that a location doesn’t work out and needs to be replaced. The airport won’t make that determination alone, but can pass along names to its operator partners.
While concessions are possibly the most visible opportunity at the airport, Grzechowiak says there also are opportunities to become product suppliers.
Construction opportunities arise for small businesses from time-to-time, as well. MSP, says spokesman Pat Hogan, is a part of the state’s Targeted Group Business program, aimed at finding opportunities for small, minority-owned businesses to partner with large operators.
So, while getting into the airport can look daunting, Grzechowiak adds that it can be a tremendously worthwhile leap of faith.
“There are 90,000 people in the building every single day,” she says. “The brand exposure on an international level can change your business.”
CONTACT
MICHELLE GAYER, Salty Tart: 612.874.9206; in**@*******rt.com; www.saltytart.com.
LIZ GRZECHOWIAK, Minneapolis-St. Paul International Airport: 612.713.8746; li*************@****ac.org.
www.metroairports.org.
MATTY O’REILLY, Republic: mo*******@**.com; www.republicmn.com.
PADY REGNIER, St. Croix Airport Retail: pa**@**************rs.com; www.airportretailers.com.
As the name suggests, Owatonna-based Kamp Automation looks for customers with a process they’d like to automate. It could be a small, inconvenient, tiny part that people can’t assemble. It could be a high-volume product so needed that the customer can’t find enough labor to produce it in the necessary quantities. “We’ll work anywhere from medical device companies to the seed industry for corn and soybeans,” says Kent Patterson, co-founder, president and CEO. “We just jump all over wherever there is custom automation.” The company started in his garage. Patterson and his partners built a machine. The company started to grow to the point where now it has 48 employees — and had a bunch of people and stuff in different locations. “We went from a garage to a shop to a shop and just kept moving to new places and signing leases,” he says. “We got to a point where it’s like, OK, this is getting big enough and sustainable — we felt that we wanted to look for our own space.’”
