How popcorn is saving cinema chains
The economics of popcorn, sodas and snacks.
Cinema chains are a tough business.
I mean financially.
The fixed costs, like rent, are high. And you need to spend a lot of money to keep everything up and running. If those weren’t enough, cinema chains these days are facing tough competition from platforms like Netflix. As a viewer, why go to a theater when you can watch the same movie in your living room? So, this shift in viewing preference has put pressure on theaters’ revenue predictability. The demand isn’t as strong as it used to be, say, a few years ago.
Example: AMC, one of the largest cinema chains in the world, reported a net profit margin of -0.34% in 2024. Yes, that’s a minus.
The icing on the cake?
Ticket sales aren’t high-margin products. Why? Because they’re shared with the movie studios. Often as high as 50%. Therefore, only 50% remains, which barely covers cinema chains’ expenses.
So, how do these chains survive? By selling high-margin products like popcorn, sodas and snacks. Sure, the revenue share (as compared to ticket sales) of these products is low, but the gross margins are high. Often as high as 80%.
Why are the margins so high for popcorn? That’s because of monopoly pricing power. If you’re at the movies and smell popcorn, you’re basically forced to buy some. You don’t have an alternative like you’ve in a normal marketplace. You know you’re buying the popcorn at double the market price, yet you buy.
Take an example. Let’s say a ticket costs $20. The gross margin per ticket is $5 (50%). Now, a viewer on a visit spends $12 on popcorn. The gross margin per popcorn is $9.60 (80%). So, as you can see, the viewer spends $32 ($20 + $12) and the theater gets a gross margin of $14.60. The revenue shares of ticket and popcorn are 62.50% and 37.50% respectively. But the gross profit shares of ticket and popcorn are 34% and 66% respectively.
Yes, the script flips. Though ticket sales are a big part of the revenue, it’s the popcorn that drives a sizeable chunk of the gross margin.
Note that here popcorn also means snacks and sodas.