The reason why movie theater food is so expensive?

In today's world of endless streaming platforms, with Oscar-nominated directors now producing Netflix exclusives, you're more likely to hang out at home on the couch then spend an evening at the movies. In any case, who wants to worry about getting dressed and finding a parking spot? But when you venture out to the movies at the theater, you'll soon remember that there's still nothing quite like the old-school magic of the movie-going experience.

It's the excitement of waiting for the lights to go out, the roar of the speakers and the act of watching the story on the big screen with a shared audience. What better food to represent the experience of freshly made popcorn in a movie theater or something like that? Even with the classic dinner and movie date night combination, the rich, buttery popcorn aroma at the box office is enough to make anyone's mouth water. While we'll never tolerate dollar store candy and snacks in your pocket and purse , it's easy to do so once you check out the high menu prices of movie theater food. So, why exactly is movie theater food so expensive? In fact, there are many reasons why movie theater food costs so much.

Cinemas can charge whatever they want for the food they want!

Sometimes the answers to life's great mysteries are frustratingly simple. It's easy to do the math and note that the cost of a bucket of popcorn and a large fountain drink can run upwards of $15 , which is usually more than you would pay for an entire box of microwave popcorn packets and a case of soda cans from the grocery store. So why is there such a difference?

In short, cinema is a business like any other. Unless you sneak food in, once you're in, there's no other food competition. In that sense, movie theaters can basically charge whatever they want because they can and customers will still pay for it. For example, two professors at Stanford University and UC Santa Cruz even found that concession sales tend to be actually much higher during periods of low attendance. This means that more "loyal" moviegoers are also more willing to consistently pay for movie theater food, no matter what the movie.

Inflation will definitely affect the price of food in cinemas

Ah, yes, inflation, the great equalizer of money and price differences. We all have older relatives who complain about the rising price of gasoline, which in their day used to cost "just a nickel". Or, if you're lucky enough (depending on your point of view), you may be old enough to notice market changes in some of your favorite industries, such as fast food, craft breweries, and even general grocery store prices.

Just like any other market, movie theaters are not immune to economic changes. In the last 20 years alone, the average cost of a movie ticket has more than doubled . In 1990, the price of a movie ticket was about $4.22, while in 2019 the average ticket price reached $9.16. Depending on where you live or the movie theater where you like to watch movies, this price will definitely be higher. Just as movie ticket prices have risen over time, it makes sense that concession stand prices will steadily climb along with them.

But when it comes to cinema food, the price is usually increased

Even if the price of a box of Milk Duds, some nachos and a blue Icee for a night out at the movies is definitely higher than it was in 1987, the "changing times" statement about inflation is not the only reason. Markups, where anyone selling goods or services "marks up" prices to cover overhead, are a basic way for businesses to make a profit. But what is the number of concession stand items that movie theaters actually mark up?

In his 2008 book Why Popcorn Costs So Much in Movies, and Other Pricing Conundrums, Richard McKenzie, a former professor at the University of California Irvine Merage School of Business, explores some of the specific markups that appear in most movie theaters. In popcorn alone, he found a markup of nearly 806 percent when comparing the average cost of a movie theater vat at $8 to the actual cost of the raw material at 90 cents. Even the price of candy usually doubles: a small bag of plain chocolate beans sells for about $2 at Walmart, while it can cost more than $4 at the movie theater. Again, even though most customers know they're overpaying, it doesn't usually slow down business.

Food is a way for movie theaters to make money without actually pricing it

While movie ticket prices have certainly risen along with concession stand merchandise, they are still not exactly the same. But why is that? Wouldn't it make the most sense for movie theaters to simply raise the price of admission to guarantee more money up front, even if only half of the patrons actually buy food? Economist Ron Baker explains that by not setting the barrier to entry too high, cinema owners are actually able to segment their customers through a "two-part tariff" pricing strategy. This is equivalent to paying an upfront fee for the opportunity to purchase a product.

Customers like students and seniors are usually less likely to spend money and, in most cases, receive some sort of upfront discount on their tickets to begin with. However, "theater owners don't want to turn these customers away, so they lower ticket prices by charging higher prices to snackers," Baker said. A post on his company's blog . "When you buy a movie ticket, what you're really buying is an opportunity - an opportunity to enjoy the movie, or enjoy it with popcorn."

Concession stands are usually where cinemas really make their money

Suppose, for the sake of argument, that individual movie theaters actually wanted to raise their ticket prices. While this would be disastrous for consumers, it actually makes sense from a business perspective. Think of the price increases we would see for the latest blockbuster movie event Star Wars , a Marvel movie or a popular children's animated feature film. The problem is that movie theaters are tied to the studios that distribute the movies. Ticket prices are separate, so studios usually take about 60% of ticket sales, although this can change as theaters and studios negotiate separate arrangements. But in any case, the studio is taking most of the money that comes from the tickets.

For movie theaters, the average profit margin is about 40 percent. Considering that they must also cover the indirect costs of operation, such as electricity, employee salaries, projectors, seating, etc., it is no secret that concession stands are the (literal) bread and butter of movie theaters. All in all, concessions end up representing about 40% of a movie theater's profits, even though they only account for about 20% of revenue.