Examination of Witnesses (Questions 120
- 139)
WEDNESDAY 31 JANUARY 2001
MR ROBIN
YOUNG, MR
GUY WILSON
AND MR
CHRISTOPHER O'BOYLE
120. To what extent was the fact that both of
the consultants and indeed the others you mentioned in reply to
questions, were suggesting such high figures? To what extent did
that give you the confidence to put the price up from £5
to £6.95? Was it on the basis that you thought you had a
cushion?
(Mr O'Boyle) It was on the basis of the
current research which was carried out in January 1995 specifically
to establish the visitor numbers and the pricing. That was an
independent survey carried out by a reputable organisation. That
showed the average expectation of price to enter the Armouries
was £6.54; that was the public's perception of what they
would be paying in January 1995 for an attraction which was about
to open. So you move it to the next price point. At that price
point, £6.95, the MEW research showed that we would get 850,000
visitors.
121. A question mark has to be raised about
their judgement as well. I just wondered why we were given figures
which suggested a £5 price when the eventual price established
was £6.95. You have indicated that all of the consultants
you used gave you their views about the price sensitivity. Why
were we not given figures based on the £6.95 or what £6.95
would have been back in 1992?
(Mr O'Boyle) The Schroders' model which
was put out to invite private sector interest actually inflated
those pricing assumptions. The actual base MORI and Grant Leisure
1992 prices were inflated in the model which came out.
122. What price are you now charging for entry?
(Mr Wilson) We are now charging £4.90
for an adult.
123. Do you consider that to be the major reason
why you have now gone up, as I understand it, back to about 400,000?
(Mr Wilson) No, sadly we have not yet.
I do not know where you got that information from.
124. I thought I heard that earlier on. Perhaps
you could tell me where you are in visitor numbers at the present
time.
(Mr Wilson) Yes, I will indeed. Our projection
in 1999 when we took over in August was that in the current year,
2000-01, we would achieve 180,000 visitors. We believe we are
on track for that. Actually what we saw in this last calendar
year was a downturn in visitor numbers compared to the previous
year in the first three quarters of the year and an upturn of
16 per cent in the last quarter. So we are hoping that we have
stopped the decline and that we have turned the corner and are
beginning to go up. The signs for this January, which is not yet
complete, so far are that we are 40 per cent up on the same period
last year, so we are very hopeful that the reducing prices, changed
marketing and the emphasis we put now on events to drive numbers
of visitors coming through will have an effect and we are looking
forward later this year to introducing free entry and "Quids
In", which we believe will drive the visitor numbers up further[8].
125. Did you drop the price straight from £6.95
or has it come down in stages?
(Mr Wilson) The adult price in July 1999
was £7.95, but Mr O'Boyle and RAI had introduced a number
of season tickets which were cheaper.
126. Do not go too much into the complications.
You dropped from £7.95 directly to £4.95.
(Mr Wilson) Yes, in December 1999.
127. Can you tell us what the percentage increase
in the cost of parking at the centre is and the percentage increase
in the cost of those who would seek to have a meal at the visitor
centre within the period since you have taken over those functions?
(Mr O'Boyle) The price is still the same
for the car park as it was when we opened in 1996. It has not
been moved. The pricing of our food offering is broadly in line
with inflation over that period.
128. You would not say it has gone up significantly
greater than inflation.
(Mr O'Boyle) No. In fact it is covered
by the franchise agreement we signed which is in place now as
to what the pricing regime is.
129. On the basis of the revised figures you
think you are going to get on the new price, how much deterioration
is there in the income for the centre? You have the smaller number,
180,000 at £7.95; you are now going to get X with £4.95.
What will be the deterioration in your income?
(Mr Wilson) This last year our visitor
income was £480,000 across the museum. Obviously it will
go down further when we go for "Quids In" and free entry.
Our main purpose is to live within the budgets we are given and
to make the museum prosper as a public service and that is what
we are attempting to do. We believe a lower price, although it
reduces the amount of money we may have for a few years, is in
the long term interests of the museum and therefore we are budgeting
carefully for that.
130. Mr O'Boyle, have you seen a significant
deterioration in your income based on the lower numbers which
are now attending?
(Mr O'Boyle) Yes, we have on the day
visitor side, because our spend per head is a direct relationship
to the throughput. The good news is that people are actually spending
more so the per capita has gone up. The primary income line is
the corporate hospitality and that is seeing strong growth still.
(Mr Wilson) I can endorse that. We found
that our shop income has gone up since we have taken over and
we now have a spend per head of over £4[9].
We have fewer people, but they are spending quite a considerable
amount per head in our shop, which is good news as well.
131. May I ask what the overall rationale of
your marketing programme is? Is it to maximise within reason the
numbers or to maximise the income?
(Mr Wilson) We see the two now as synonymous,
especially moving towards free entry, because the closer we get
to free entry, when we are only going to have one income stream
coming into the museum and that will be through the shop, the
more—
132. Do you have a strategy to move to free
entry? What timescale are we talking about?
(Mr Wilson) We have accepted the Government's
offer and therefore we shall be going for free entry for children
and senior citizens from the beginning of the next financial year,
beginning of April, and then going for "Quids In" for
adults from 1 September[10].
Our marketing strategy is based round that. What we are doing
now is targeting far more the audiences we know will come and
are coming and telling them about what we are doing and trying
to increase the return visits. We are finding that successful
in the sense that a large number of special events at weekends
is bringing in considerable numbers of people.
133. I suspect you have already figured out
that the reason why I am moving between the two of you is the
issue of cross-subsidy. Is that an issue you had considered in
your mind and have you thought that moving towards free entry
and the possibility of a significant increase in the numbers attending
would be of great benefit to RAI and in the circumstances, if
it is, whether you should share in it in some way?
(Mr Wilson) It should indeed be of benefit
to RAI and yes, it will be of benefit to us too. The sooner RAI
can pay off the bank debt, the sooner we get 20 per cent of their
gross turnover. If they could pay off their bank debt next year
the museum would benefit the year after. It must be in our interests
as a museum to do what we can within the remit we are given statutorily
to help Royal Armouries (International) to pay off that debt because
we shall then get more money more quickly.
134. Can you confirm that at the time of the
negotiations between RAI and yourselves no indication was made
that you would be reducing the price or indeed that no information
was available that the price would eventually reduce to zero for
entrance to the museum?
(Mr Wilson) No, I cannot, because in
1999 there was already talk, was there not, because it was hoped-for
Government policy from the time of the last election to move towards
free entry. So we could not say we have not discussed it because
we have. Whenever we discussed it between ourselves, either before
or after the re-negotiation, we accepted that from a business
point of view for Royal Armouries (International) and from a museum
perspective, our perspective as well as a business perspective
from the Royal Armouries, it would be a very good thing for both
of us.
135. I am not going to ask either of you whether
you have gone out to consultants to find out what they would say
about the visitor numbers on the basis of no charge, because it
probably would not be worth the paper it is written on. However,
let me ask Mr O'Boyle the same question as Mr Steinberg asked
him earlier and that is in relation to whether or not the shareholders
are ever going to receive any return on their investment. You
indicated earlier that you thought it was only a theoretical level.
Based on the likelihood of free entry and, one hopes, the reasonably
significant increase in the number of people visiting and therefore
using the car park and eating the food, would you like to re-assess
whether or not you think the shareholders will eventually get
a return on their investment?
(Mr O'Boyle) As I said, there is theoretically
the possibility from year 30 onwards in the current models. Those
models factor in already a substantial beneficial impact from
the critical mass of passing trade that Clarence Dock will deliver
to the museums. There is already factored in to those figures
substantial growth based on those passing visitors. I do not know,
and I am not going to commission any consultants to tell me, what
the likely impact will be. We think it could be potentially 50,000
to 100,000 visitors if Clarence Dock becomes what we believe it
will be, a very vibrant centre for Leeds.
136. Mr Young, do you think it would be important
in these circumstances for the Armouries to sit down with RAI
in the context of free entry to see whether or not there should
be some benefit to Armouries as well as to RAI from that additional
attendance which will undoubtedly ensue from that change in policy?
(Mr Young) Benefit to the Armouries already
accrues under the renegotiated deal. As soon as—and it is
going to be a long time away—the bank debt is paid, that
triggers a clause which says the Armouries share in the proceeds.
That is already dealt with in the renegotiated contract.
Mr Rendel
137. What is the capacity of the museum? How
many could you get through?
(Mr Wilson) The designed capacity was
1.3 million. It was built for 1.3 million spending what was regarded
at the time as a reasonable amount of time in that sort of museum,
about two and a half hours. What we have found since opening is
that the average visit time has hovered around four hours. If
you extrapolate from that, probably the maximum capacity of the
museum building is 600,000 to 650,000 visitors a year.
138. I hate to sound cynical, but it sound a
little bit as though some of the people think they ought to spend
a bit longer there in order to ensure they get value for money.
Perhaps that is why they are coming out saying they think they
have it. If you are going to get anything like that, that is seven
times what you have now. Mr O'Boyle was indicating earlier that
if the thing had been free you would have actually exceeded design
capacity. The place would have been unlivable and the visitor
experience would have deteriorated very rapidly.
(Mr O'Boyle) We had situations where
with some of the very popular exhibitions we introduced we were
getting 6,000 visitors on peak days. Because it a high days and
holidays, you get 6,000 one day and you can get under 600 the
next day based on school holidays. The visitor experience substantially
deteriorates when you get to those levels.
139. I understand that but you seemed to indicate
that you thought you might get up to that sort of situation, presumably
fairly regularly, if it were free. It is going to be free. If
you are going to get up to something like 1.3 million, you are
not talking about a substantial growth which was factored in.
I think you said something like 100,000 extra was your substantial
growth factor and you are not talking about 100,000 extra you
are talking about 900,000 extra. If you get those extra numbers
through then presumably your profits are going to soar.
(Mr O'Boyle) They will spend less time
in the restaurants and cafeteria because they have a finite size
and we have already seen that when the numbers go up the per capita
goes down. There is a trade-off in terms of actual revenue.
8 Note: The actual increase in visitor numbers for
the last quarter of 2000-2001 was 86.1%. Easter 2001 saw a 230%
increase on Easter 2000. Back
9
Note: The figures available at the time of the hearing showed
35% of visitors spending in the shop. The average spend per head
of those was £4.11. This gives a spend per head of all visitors
to the museum averaging it at approximately £1.55. Back
10
Note: See Evidence, Appendix 2, page 21 (PAC 171). Back
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