Here's why Suncoast Representation Services went down in flames when a large competitor entered the market and slashed the commissions it paid.
THE BUSINESS: Provider of services and tickets to tourists FOUNDED: 1980 CLOSED: January 1999 PRIMARY CAUSES OF DEATH: Entry of a large competitor into the market; sharply lower commissions paid by supplier
As a teenager, Laraine Frahm traveled from her native England to Finland and Canada to work as an au pair. She was soon on the move again, signing on with a tour operator to greet Canadian tourists disembarking at Florida airports. In 1980, at age 24, she founded Suncoast Representation Services Inc.,, which specialized in booking Florida vacations, especially in the Orlando area, for visitors from abroad.
Her timing could hardly have been better. That year almost 170,000 foreign tourists flew into Orlando International Airport. By 1998, drawn to such attractions as Walt Disney World's Magic Kingdom and the Hollywood theme park at Universal Studios, 2.1 million visitors from overseas were flocking through Orlando's portals. Frahm's business, which included sales of tickets to the city's tourist sites, took off. "She grew along with the industry -- exponentially," says Bob Baydale, a theme park consultant and former competitor of Frahm's.
Of course, Frahm's success contained an inherent risk: it might inspire larger competitors to invade the market. She had negotiated yearlong deals with Universal and other tourist-site operators that supplied Suncoast with discounted tickets in huge lots. But once Universal deemed it expedient to enter the market against her, her contract with the entertainment giant proved to be ephemeral protection. "I never dreamed I'd be competing with my suppliers," Frahm says.
In the early years Suncoast had offered "meet and greet" services -- welcoming foreign visitors and arranging tours -- in addition to acting as an agent for tour operators and making hotel and car rental reservations. The opening of Universal's extravaganza, in 1990, boosted her business as a broker of theme park tickets. Sales of the Universal tickets quickly became one of Suncoast's primary moneymakers.
The deal worked this way: Universal discounted its tickets by as much as 27%, with the rate depending on volume. At desks in the lobbies of large Orlando hotels, Suncoast hawked the tickets to tourists at a slight discount off the regular admission price. In 1997, Frahm was selling millions of dollars' worth of tickets a year on behalf of Universal, Disney, and other theme park operators, although the margins varied. In that peak year of the company's growth, Suncoast and Frahm's six affiliated travel-related businesses employed 365 people and had $60 million in sales.
By then, however, Universal's ambitions for its tourist business in Orlando were growing as well. It had broken ground on a second theme park in the city, Islands of Adventure, and announced plans to build three on-site hotels. And soon Universal was outbidding Suncoast for the right to occupy the guest services desks at Orlando hotels. "They felt that if they could control the market, they could guide hotel guests to their own properties," explains Baydale. According to Frahm, Universal insisted on renegotiating its deal with Suncoast and slashed her company's ticket discount to 10%. That erased Suncoast's profit margin and enabled Universal to capture about 60% of the company's theme park ticket sales. (A Universal spokesperson declined to comment.)
As Suncoast struggled with new competition in Florida, it had to confront a different kind in Britain. Disney Stores and a large London-based broker began selling tickets to Orlando sites. Frahm countered by setting up her own office in London and selling tickets through British travel agents, but high marketing costs and steep agents' commissions cut into her profit margin.
Suncoast's last profitable year was 1996. Two years later, as Frahm's losses mounted, she tried to unload Suncoast, but it was too late to sell. Forced by its creditors to liquidate in January 1999, the company listed $1.5 million in assets and $9.5 million in liabilities.
Now no Suncoast-like brokerage remains in Orlando, says Baydale, with the possible exception of several real estate companies that offer deeply discounted tickets to visitors who take quickie tours of time-share condos.