Barely a week into his new position as chief executive of Bethesda-based HMSHost, Tom Fricke faced his first setback.
The company lost a multimillion-dollar bid to redevelop and operate two travel plazas on Interstate 95 it had operated since 1987.
The Maryland Transportation Authority on Jan. 23 awarded the deal to Miami-based Areas USA, which proposed a $56 million redesign. It would earn the state an estimated $488 million in revenue over the 35-year span of the contract.
HMSHost cried foul over the bidding process, saying the winner was the only aspirant allowed to renegotiate its offer. The company said the state undervalued the potential earnings on its $75 million redesign by $80 million. What started out as a protest turned into a lawsuit to block the deal that is now pending in Baltimore City Circuit Court.
Fricke is not discouraged by what he sees as a minor setback in an otherwise promising future for HMSHost.
Operating dining and shopping venues at 112 airports and 101 travel plazas is paying off handsomely for HMSHost, he said. Sales rose 5.2 percent to $2.5 billion in 2011. And Fricke said he expects another prosperous year as the company rolls out new restaurant concepts and opens new travel plazas.
“We’re off to a great start,” Fricke said, declining to comment on the lawsuit. “And I will not be deterred.”
Coming off a stint as chief executive of Cartridge World, an ink and toner retailer with 1,700 stores in 63 countries, Fricke is well-versed in multinational operations, but not so much in food service. Spending hours at the elbow of the executive chefs in the company’s test kitchen is helping, as is dozens of visits to its airport eateries.
Airport dining comprises at least 60 percent of the company’s business. Fricke sees the sector in the midst of transforming from a haven for fast-food joints to a place where higher-end concepts can thrive.
“Consumer preferences don’t change just because they’ve gone through security or are stopping on the side of the road,” he said.
HMSHost has developed a collection of restaurant concepts that it is opening at a handful of airports. In February, the company introduced Bubbles Wine Bar and Beaudevin Wine Bar at Chicago O’Hare International Airport. HMSHost said it will open more concepts this year that it is keeping under wraps for now.
Innovation is important. In recent years, the number of passengers boarding aircraft has slipped from 7.5 percent annual growth in 2004 to 2.5 percent last year, according to the Federal Aviation Administration.
Fricke said that shift in consumer traffic because of fuel prices and the sluggish economy has meant being more creative in structuring concessions. These days, HMSHost places some of its Starbucks stands in baggage claims to capture more customers.
HMSHost is also contending with rising food costs. Fricke, as a result, expects that margins may shrink.
The company has been tinkering with its highway rest area strategy. Two years ago, HMSHost entered into a joint venture agreement with Ontario-based Kilmer Van Nostrand to develop and operate 23 travel plazas along two highways in Canada. They have redeveloped 14 of those plazas.
The company recently lost some rest stop contracts in Florida, but is opening the redeveloped South Somerset Plaza in Pennsylvania next month.
“On any given day, we got four or five different sites where there is pretty heavy construction going on, or new concepts coming in,” Fricke said.
One of HMSHost’s most notable domestic projects was the Delaware Welcome Center Travel Plaza, completed in 2010 following a $35 million renovation. Fricke said the company had hoped to redevelop the two Maryland rest stops in a similar fashion to the sweeping glass and steel structure. The Delaware plaza netted $17 million in sales last year.
Despite their dispute, the Maryland Transportation Authority holds HMSHost in high regard. “We were never dissatisfied with Host’s performance as an operator,” said Harold Bartlett, executive secretary of the authority. “It’s just in the competition, they just did not get the highest evaluation.”