Middle East duty free retail sector confident in riding out economic storm
Industry News 10-December-2008
UAE. An impressive attendance of 388 duty free and travel retail delegates from across the Middle Eastern region and beyond underlined the overall positive message delivered at this year’s MEDFA Duty Free Conference, held at the Beach Rotana Hotel in Abu Dhabi on 25 and 26 November.
Against a backdrop of global market turmoil and looming recession, the Middle East remains a bright beacon of growth, prosperity and market confidence. Whilst recognising that the region is not immune to global economic downturn, the theme – Investing in the Future – could not have been more appropriate with landlords, retailers, and suppliers all talking of continuing investment in the region’s travel, tourism and infrastructure and an assured long term vision for duty free and travel retail.
Travel retail sales figures for the region remain buoyant with growth well ahead of the global average and MEDFA President Anthony Chalhoub, keynote speaker Dan Cappell, Vice President-Non Aeronautical Revenue, ADAC and Doug Newhouse of Travel Retail Business all set an optimistic scene. True the region has felt the effects of the downturn with a 2.8% drop in September passenger traffic - the first fall in four years - yet travel retail sales are up overall 16% year on year with highlights such as Dubai Duty Free reporting 27% growth. This compares to passenger growth through Dubai in the same period of 12%.
Chalhoub and Cappell both summarised the continuing investment in the region with video presentations by Marshall Arts bringing to life the growth and development at airports such as Abu Dhabi, Sharjah, Dubai, Cyprus, Cairo, Casablanca and Johannesburg. Chalhoub emphasised that the industry should not, however, become “complacent in thinking we are not affected” by economic instability.
The credit crunch, fluctuating exchange rates, and oil prices all present “challenges and opportunities” for the industry. We must work together, to build “solid and stable foundations for our business to ensure a soft landing after turbulent times," he said.
But the expectation remains that the Middle East will be resilient. Historically the region recovers more quickly than other regions from global and regional problems; Beirut International Airport and its travel retail business being a case in point. Cappell said the region continues to invest more per passenger in tourism, airlines and airports than any other region with Abu Dhabi alone setting aside US$200 billion for its 2030 Master Plan and he remained confident that any downturn in passenger traffic ‘does not necessarily mean lower revenue’.
Abu Dhabi, with its new T3 opening next year, T1 redevelopment plans and longer term Midfield Development is a shining example of the region’s long-term vision. A panel discussion involving Cappell, Henrik Andersen (SSP), Peter Baumgartner (Etihad Airways) and Craig McKenna (DFS) left delegates in no doubt that it is business as normal.
“We are sticking with our projections of 15% to 20% percent annual growth,” said Baumgartner, whose 6 million passenger airline has recently committed US$43 billion to 205 new aircraft. “We do not consider that the downturn has jeopardised the 2030 master plan at all… there is no reason to shift from our commercial mandate.”
McKenna of DFS agreed with the sentiment. “We see Abu Dhabi as a fantastic growth market,” he said, anticipating continued growth rates of 25% plus. The key remained to “drive spend ahead of passenger growth. If the product is right, people will buy," he said.
Cappell supported the view. Whilst admitting that a drop in traffic would necessitate a revision to budgets, he reiterated: “We will have to be more creative at driving penetration, conversion and spend. We are concerned but ultimately it is our responsibility to get as much out of the passenger as we can.”
Is this view just too optimistic though? Rohit Talwar, CEO of Fast Future, warned that the industry should not ignore the seriousness of the global problem, but should “step back and look at what is going on around us”.
There may be 1,100 new hotels and new aircraft proposed and/or under development in the region by 2020. But business and first class passengers in September fell by 13.8% in the Middle East and 18% in the Far East compared to 8% globally.October was not expected to be any better.
Talwar, a leaading futurist, called for a reality check. There are a lot of winners in the travel chain, including travel retail, but in the middle the airline model is “broken”, he said. Globally, airlines are US$200 billion in debt; 30 airlines have failed and 30 more are on the brink of collapse.
“It is not enough to look at your own numbers,” he cautioned, “you need to look at what’s going on in the world and analyse alternative scenarios and how you would deal with them." This could vary from a total loss of confidence with Europe, the US and Japan remaining in recession with subsequent massive sales losses to recovery by the end of 2010.
“No-one has a clue how deep this problem is,” Talwar advised. Already Starbucks has closed 600 outlets after earnings dropped 96% and Volvo Truck sales reduced from 60,000 between April and June 2008 to just 115 in July-September.
“Don’t cling on to your current plan for dear life, be prepared to develop alternatives for rainy day scenarios,” he said. Understand the wider picture: the trends and challenges; be prepared to rethink “the playbook”; develop a foresight culture; and be prepared to look outside the box for ideas and innovation. Look at ways to extend the revenue stream, extend the service and extend horizons.
Talwar also pointed to an increasingly dominant Asian and wealthy aged population as birth-rates in Europe and the US decline and advancements in science continue. In 40 years the world’s population will have increased by 3 billion and the prospect of living beyond 100 increases every year. The industry needs to recognise the true wealth of older people. "I see very few products aimed at the over 60s in travel retail," he said.
Perhaps that’s because, according to Horizon’s Dr Ian Cesa, the under 50s generally get a “much greater kick” out of travel shopping. In his presentation 'The Top 10 Things You Must Know about Travellers from the Middle East', Cesa put forward several thought provoking facts.
Based on a survey of 1,000 citizens and expats in various Middle East locations on behalf of TFWA, Horizon noted that travel retail continues to miss out on several sales opportunities. For example, travellers spend 43% of their budget on clothing and beauty, but many buy outside duty free. High spenders believe that department stores offer better prices than duty free; fewer than half of travelers believe duty free offers the best prices.
Over half of duty free purchases are planned before the trip starts, particularly for liquor, tobacco and electronics. However, there is still huge confusion over LAGs with nine out of ten travelers not fully understanding the rules over carrying liquid or gel products. Bargain hunting attracts a 44% share of spending compared to 29% for travel retail exclusive products, although the latter is the main given reason for purchasing.
Based on comments from Iranian travellers, the economic downturn does not appear to have affected travelers’ desire to shop. In fact in 2009 the majority expect to spend more. But are retailers offering them the right products? Interview footage of passengers at Dubai and Abu Dhabi airports highlighted requests for better business facilities, higher quality restaurants, child care, more fashion brands, improved choice of "different items" and "things to do apart from shopping".
Portland Design's Ibrahim Ibrahim said shopping is “no longer about stores but about stories” and retailers and suppliers have to do more to engage the customer.
Creating a wow factor and making both the airport retail and inflight experience more exciting will become crucial. Digital retailing and better use of in-store media are fundamental ways to better engage the customer and entice them to spend those extra dollars and both Maureen Johnson of Portland, and Bob Pritchard, international marketer, gave delegates several pointers to better use of technology.
Pritchard’s upbeat presentation told the stark truth about how much business retailers are missing by not using web and mobile phone technology. He used Pizza Hut’s link with Kiss FM to sell 35,000 pizzas in one minute using SMS as an example of the phenomenal scope digital retailing offers. Obtaining a database was vital; from an initial database of 10,000 names in two years retailers could have 20,000 people buying from an online store, half of which had never visited the actual outlet.
Turning to the online channel, travel retailers could sell a far wider range of products and tap into a market 20 or more times bigger than their passenger throughput. With a database of 100 million names, ‘I could generate US$50 million sales by this afternoon. It’s easy’, he said.
In a panel discussion where suppliers and retailers switched hats, John Sime from Emirates also called for better use of technology to sell product, specifically inflight. He said buyers were too arrogant, they should remember that they sell products and are not magazine publishers. He called for a new business model, with no listings fees, where airlines were less risk adverse and more proactive.
James Prescott from ARI-ME, Stuart Bull from Mars International Travel Retail and Inge de Groot from Hugo Boss gave their own imaginary role reversal “wish lists”, the common theme being more open and honest discussions between landlords, retailers and suppliers with the good of the consumer in mind, rather than focussing on “the deal”.
Prescott called for more flexibility to test new products and new ideas in store, reminding delegates of Rohit Talwar’s comment that “the best way to test a new product is to put it on the shelf and see if it sells”.
The importance of staff knowledge and training on all sides was stressed; a topic discussed in more detail by business strategist Barbara Wold whose presentation on 'Investing in Human Resources' underscored the importance of the manager’s active role in employee training with three keys to success: positioning training as a privilege, not a chore; obtaining senior management ‘buy-in’; and playing an active role in the initiative.
Also taking part in panel discussions were: Patrick Bouchard, Puig; David Francis, JTI; Mahesh Govind, Airports Company South Africa; George Horan, Dubai Duty Free; Sherif Toulan, International Duty Free Trading & Agencies; and Mike Hill, The Patron Spirits Company, while video presentations included comment from Catherine Saurais, NITR; Phil Humphreys, Diageo; and Eric Tarrall, L’Oreal.
Humphreys’ comment that while no one in business in the Middle East should believe they will be unaffected by the current climate, there remain huge opportunities for growth summed up the suppliers’ viewpoint.
The conference was organised by TFWA on behalf of MEDFA, with moderation by Dermot Davitt of The Moodie Report and Doug Newhouse of Travel Retail Business.
MEDFA and TFWA expressed thanks for the support of their generous sponsors including platinum sponsors Abu Dhabi Airports, who hosted a superb Gala Dinner at the Emirates Palace, Dufry for a wonderful beach cocktail, along with Emirates Airlines, Nivea, The Patron Spirits Company, ARI-ME, Hamila Duty Free, Dufry, Sharaf DG and Dubai Duty Free.
Gold Sponsors were Philip Morris, Puig, Guerlain and Equss. Silver sponsors were Cairo Airport Duty Free, Guylian, Calvados Boulard, U’Luvka Vodka and Al Fakher. Thanks also went to Nestle International Travel Retail with KitKat and IDF for sponsoring the coffee breaks, Traveller International and Hamila Duty Free for the lunches and Skysales for the portfolio. DFS, Dubai Duty Free and Bahrain Duty Free also provided prize draws.