Across the country, theater chains are exploring a key question: Can booze bolster blockbusters?
Theater stocks have slid recently as tentpole after tentpole has disappointed at the box office in 2017. Shares of both Regal Entertainment Group (RGC) and Cinemark Holdings Inc. (CNK) - Get Report have fallen about 10% over the past three months, and AMC Entertainment Holdings Inc. (AMC) - Get Report and Imax Corp. (IMAX) - Get Report shares are down more than 25% from where they were in April.
Part of the problem has been a weak slate of new offerings from studios -- the summer has seen just two bonafide blockbusters so far, with only Walt Disney Co.'s (DIS) - Get Report "Guardians of the Galaxy Vol. 2" and Warner Bros.' (TWX) "Wonder Woman" exceeding $300 million at the domestic box office. Moviegoing historically has been a content-driven business, meaning that business will dry up at the theater if none of the movies look appealing.
While the films in theaters will forever remain the primary motivation for people to go to their local cinema, theater chains are now attempting to add to the allure of going to the movies with premium benefits. One such benefit is alcohol service, an increasingly widespread option in theaters across America.
"It's a trend we began to see at the beginning of this decade, and a lot of specialized theaters are now offering alcohol as part of their core service," said Daniel Loria, editorial director at Boxoffice Media LLC. "Alcohol service is also a part of AMC's strategy -- it's part of what they're focusing on expanding right now."
Indeed, AMC announced that it opened its 250th "adult beverage concept location" last month, a noteworthy development considering that AMC was serving alcohol at less than 10 of its theaters just seven years ago. MacGuffins Bar & Lounge, taking its name from an Alfred Hitchcock plot device, is the theater company's platform for selling drinks, with a menu that contains wine and craft beer, plus specialty cocktails at select locations. The strategy so far has been quite successful, with AMC's food and beverage revenue increasing 63% year-over-year to $397.9 million in the first quarter of 2017.
"When theaters first implemented the option for alcohol service, the concern was that it would not be an incremental option," said B. Riley & Co. senior analyst Eric Wold. "You never want to give up an $8 soda for an $8 glass of wine [the profit margin is much smaller on the latter]. However, theaters have found alcoholic beverages to be incremental to what people have been buying in the past."
Indeed, AMC's alcoholic beverage strategy has been so successful that other theater chains have followed the example. Regal Cinemas now has 156 locations that serve alcohol, with 75 more to come in 2017. And Cinemark has about 100 locations where moviegoers can sip on an adult beverage while enjoying their film.
"For a lot of people, it makes the environment more comfortable and fun," Wold added. "That's why you're seeing Regal and Cinemark emulate this strategy that AMC started."
While AMC may have been the first major theater chain to emphasize alcohol sales as an added feature, other industry players have been serving booze for decades. Alamo Drafthouse, for example, has sold draft beers as well as movie tickets since its founding in 1997. The 28-cinema chain sees about two-thirds of its revenue come from food and beverages and one-third from ticketing. That ratio is inverted for the major theater chains, which usually get two-thirds of their revenue from admissions.
"We frequently see people stay around for drinks after the film, especially at locations that have an attached bar," Alamo Drafthouse beverage director Bill Norris said. "New Alamo locations generally have a 12-item cocktail menu, 48 draft beer lines and a focused bottle selection."
The depth of Alamo's alcohol menu is likely a key part of its concessions success. Its strategy of releasing new drinks coincides with the debut of anticipated movies. Recently, the chain did a twist on the whiskey- and amaro-based Paper Plane cocktail by adding a lemon garnish in the shape of lasso for the debut of "Wonder Woman".
As alcohol service becomes a more widespread option, AMC and other theater chains may start expanding their menus as well. One glaring obstacle to the growth of this phenomenon, however, is the negotiation of liquor laws, which vary on a state-by-state basis. Currently, 32 of the 50 states allow movie theaters to sell alcohol in any auditorium. In the remaining states, the laws get a little stiffer.
In New York, for example, theaters cannot sell alcohol unless they also have an installed kitchen. Gov. Andrew Cuomo's 2017 state budget proposal to legalize liquor sales at all movie theaters was rejected, and a subsequent push faces an uncertain future. Cuomo has argued that the sale of alcohol in movie theaters would be a boon to local economies. Given the trendiness of alcohol service in cinemas across the country, he certainly has a good point.
Regardless of whether or not New York legalizes liquor in its movie theaters this year, it seems likely that alcohol laws will be relaxed further down the road. Exhibitors are sure to push for looser regulations as alcoholic beverages continue to enhance the appeal of the moviegoing experience for a large number of consumers.
With theater chains such as AMC and Regal also expanding their food menu, as well as introducing new amenities such as reclining chairs, alcohol service drives home the point that going to the movies is now a multidimensional experience: Moviegoing is no longer just about the movies anymore.
"We're seeing a revolution of the concession stand, and of the theatrical industry as a whole," Loria said. "The question is no longer what do I want to see -- it's how do I want to see it?"
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Editor's Pick: This article was initially published on July 7, 2017.