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How Movie Theaters Used Alcohol, Comfy Chairs to Weather Box Office Downturn

Fewer people went to the movies during the twilight months of 2014, and yet the country’s three largest theater chains were able to handily beat Wall Street’s expectations when they posted their fourth-quarter earnings recently.

One major reason that Regal, AMC and Cinemark were able to outshine projections was that their investments in sprucing up their menus and offering other amenities such as reclining chairs and reserve ticketing appear to be paying off.

It’s a sign that an industry that was resistant to change and often neglected to think of snacks as anything beyond popcorn and soda has begun to broaden its culinary and hospitality horizons.

“They’re getting more creative,” said Tony Wible, an analyst at Janney Montgomery Scott. “Each theater operator is trying to optimize the theaters in their footprint in a way that’s right for their local communities.”

At AMC, concession sales soared 8.8% to $215.3 million, while the amount that patrons spent at the snack bar climbed 13.5% to a record $4.46. At the same time admissions fell 4.5% to $460.3 million amid an industrywide box office decline.

Cinemark saw food and beverage sales rise 6.4% to $214.8 million, while concession revenues per patron increased 4.6% to $3.20. Meanwhile, ticket receipts fell 1.9% to $404.7 million in the fourth quarter.

And Regal’s concessions jumped 14.4% to $222.1 million. The exhibitor didn’t endure an admissions dive, but that had more to do with a quirk in its reporting calendar that added a few days to its fiscal year than it did with a surge in ticket buyers.

“People have been more receptive to reclining seats than a lot of people would have expected, and to wine and beer in theaters,” said Matthew Harrigan, an analyst at Wunderlich Securities. “Theaters recognize they have to do more to remain competitive with the proliferation of entertainment alternatives.”

Today’s movie theaters aren’t just vying with buzzy television shows such as “The Walking Dead” and “Scandal” when it comes to enticing customers to hit theaters. They’re also competing with digital diversions — smartphones and mobile devices that have the potential to make moviegoing seem passe, and a digitally connected audience for whom two hours without texting is a punishing exercise.

In response, AMC has committed to investing more than $600 million outfitting its theaters with more comfortable seating and is experimenting with dine-in service at some venues. Like AMC, Regal has begun serving alcohol in roughly 30 theaters and is expanding its dining offerings to include finger foods such as boneless chicken wings and corndog nuggets, while Cinemark also offers high-end cocktails such as margaritas and specialty beverages tied to hit movies like “Fifty Shades of Grey” in select locations.

“Anything they can do to make the experience better helps them fight that couch potato syndrome,” said Marla Backer, an analyst with Research Associates.

The domestic box office fell more than 5% last year, but theater stocks remained resilient. That was largely because 2015 is expected to see a financial windfall for theater chains as Hollywood rolls new entries in the “The Hunger Games,” “The Avengers,” James Bond and “Star Wars” franchises.

There’s another factor that may guard against volatility. Major studios have been snapping up release dates farther and farther into the future, with studios such as Warner Bros. and Disney announcing the debuts of their DC Comics and Marvel movies five or six years before they premiere.

“It’s comforting to know what’s coming down the pike,” said Wible.

That kind of knowledge is as comfortable for the investment community as one of those oversized reclining chairs.

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