CLIENT OBJECTIVE
Our client, Lumen Cinemas, an Italian cinema chain, has seen its profit decline and wants McKinsey's help to understand why and how to restore it.
BACKGROUND INFORMATION
Lumen runs multiplex cinemas in mid-sized Italian cities. It earns money from ticket sales, from food and drinks such as popcorn and soft drinks, and from advertising shown before the films. A share of every ticket goes to the film distributors. Most of Lumen's other costs, such as rent, staff, energy and maintenance, don't change much with the number of visitors. Since the pandemic, films reach streaming services sooner, and audiences come back mainly for big releases. Lumen's sites are older than those of a premium chain that has been expanding with large halls and reclining seats. The CEO wants a clear view of what is driving the decline before deciding what to do.
What could explain the decline in Lumen's profit?
The team pulled together Lumen's visitor numbers and spend per visitor for the last four years. What do you take away from Exhibit 1?
Exhibit 2 shows Lumen's cost structure and advertising revenue. How has Lumen's profit changed between three years ago and today, and what drove the change?
The CEO has just learned that the premium chain will open new multiplexes next year in Lumen's three largest cities. These cities bring in 30% of Lumen's visitors. Where the chain opened elsewhere, existing cinemas lost about a quarter of their visitors. What does this mean for Lumen?
What could Lumen do to bring more people into its cinemas, or earn more from each visit?
Lumen Cinemas (McKinsey)
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