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Why HMSHost ended its exclusive deal with Starbucks

The restaurant operator opted out of a nearly 30-year arrangement as demands for airport concessions evolve.
Photograph courtesy of Starbucks

For the past 30 years, HMSHost and Starbucks had an exclusive arrangement that worked out well for both parties. The concessionaire would put Starbucks into airports in new markets, giving the coffee chain exposure to new sets of customers as it grew. And HMSHost got exclusive rights to operate a popular and growing brand.

But last week, HMSHost opted out of that exclusive arrangement. And the result says a lot about how the market for restaurant offerings inside of airports has evolved.

“It was just a really good relationship for both sides,” HMSHost CEO Steve Johnson said in an interview. “It’s still a good relationship. It’s just time to do something a little different.”

HMSHost operates more than 400 Starbucks locations in North America, and that won’t end anytime soon. The two companies said they will continue to work together, only the arrangement will no longer be exclusive. Starbucks can work with other airport operators while HMSHost will be able to operate other coffee concepts.

“HMSHost is going to continue to be a partner, but they will be in a model where they are not exclusive, which gives us a range of options to better serve our customers,” Starbucks CEO Kevin Johnson told CNBC last week.   

Both companies say the end of the arrangement will provide them with greater flexibility to meet the demands of airport consumers.

Starbucks has become a popular destination for morning airport travelers, and the holiday season solidified that status. Kevin Johnson said the volume of traffic the company saw in airports during the season was “phenomenal.”

The company is reconsidering how it locates in airports, with ideas such as pop-up stores that move around airports based on time of day and when travelers arrive and depart. “It is clear we have got to reinvent and rethink how we do this,” Kevin Johnson said.

For Bethesda, Md.-based HMSHost, meanwhile, the end of its Starbucks deal gives the company access to local and regional brands airports covet.

HMSHost, which operates restaurants in more than 120 airports and 80 travel plazas, has worked with Starbucks since it opened the brand’s location in the Seattle airport nearly 30 years ago. And for much of that time, the deal worked because airports wanted more national brands that consumers knew and recognized.

Yet more recently, the market has shifted. Airports are increasingly demanding contracts that provide a healthy dose of local concepts. For instance, Phoenix Sky Harbor International Airport features local concepts such as Wildflower Bread Co. and Olive & Ivy. The Minneapolis airport has Blue Door Pub and Black Sheep Pizza locations.

“Airports change,” Steve Johnson said. “They’re no longer all national brands. There’s a really good mix of national, local and regional brands. That’s what’s making our industry so dynamic.”

Yet HMS couldn’t compete for contracts that required local coffee chains. “We’re missing out on great opportunities,” he said. “We were somewhat hindered in being able to bid competitively because of that.”

He said the demand is coming both from airports that want more local fare and from consumers that have broadened their dining horizons.

“Airports are very interested in making sure their airport represents their local community,” he said. “It can include some national brands. But they want to make sure that in Los Angeles, there’s a flavor of Los Angeles. Phoenix is the same.”

“While the passenger might not be able to stop to eat in Phoenix, they can get a taste of what the food in Phoenix is like at the airport.”

Starbucks, he said, “has done an incredible job of creating a coffee culture in the United States. Now a lot of different coffee operators are taking advantage of that.”

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