Interview – Lagardère Travel Retail
Lagardère Travel Retail positions itself to take advantage of a changing marketplace
On the eve of The Trinity Forum in Shanghai, Lagardère Travel Retail Chairman and CEO Dag Rasmussen and Chief Business Officer Ambroise Fondeur talk acquisitions, expansion, the Chinese opportunity and crucially, how new traveller dynamics are reshaping the world of travel retail. [This feature updates our recent interview with the company, which appeared in our October Print Edition]. By Dermot Davitt.
Editor’s Introduction: With managed sales of €4.5 billion (including food & beverage) in 2017, Lagardère Travel Retail is firmly established as one of the top five travel retailers in the world today.
It is now a fully-focused,pure play travel retailer,having sold its remaining distribution activities, and parent Lagardère Group recentlydoubled down on travel retail as a core part of its strategy. Managing Partner Arnaud Lagardère has called travel retail “the growth engine of the group”. Alongside Lagardère Publishing, the travel retail arm is now one of the group’s “priority pillars” and a central focus of group investment.
With that backing the company has also played its part in industry consolidation in recent years. In 2015 it swooped to acquire US North American travel retailer and restaurateur Paradies, and in August this year, it built on this position by striking a deal for airport restaurateur Hojeij Branded Foods (HBF), subject to final approvals.
The new combined North American entity becomes the third-largest player in travel retail and dining in North American airports, with annual sales of more than US$1.2 billion (US$350 million from food & beverage).
The drive for growth is mirrored in other regions too. The roll-out of the company’s Aelia Duty Free stores is nearing completion in Europe; it is building on gains across travel essentials, F&B and duty free – its three key business platforms – in China and the wider Asia Pacific region, and is seeking to grow in the Middle East too.
We spoke to Chairman and CEO Dag Rasmussen and Chief Business Officer Ambroise Fondeur about the key projects and developments.
Dag Rasmussen: Increasing convergence between channels.
Ambroise Fondeur: Paris investment a priority.
The Moodie Davitt Report: With The Trinity Forum taking place in Shanghai this week (31 October-1 November), how is your China strategy taking shape?
Dag Rasmussen: It has been an evolution. We started with a presence in press, we became a news & convenience retailer in travel and non-travel environments, and now we are a fully-fledged duty paid and fashion operator, and are entering food service. [The recent to partner with Dean & DeLuca deal will play an important part in the strategic expansion of Lagardère Travel Retail’s airport food retail portfolio, and began at Hong Kong International (HKIA) -Ed].
We want to do this through master franchises where possible. This means we cover different business channels, some operated by ourselves but then finding the best partner brands for the rest of the operation. That’s a model we have developed in fashion and food service and it has been positive.
In China, our next steps are to develop right across duty paid retail, fashion, food and travel essentials. There are so many opportunities and our win rate is good. We have the right team, we are moving at the right speed and we can support that drive well from our global base. Importantly too, the top line is growing in China, as is profitability. It’s a strong market for us.
Foodie fusion: Pictured left to right, are Khun Somsak Hongsrichinda, Managing Director Dean & DeLuca Asia (Thailand); Dag Rasmussen, Chairman & CEO, Lagardère Travel Retail; Khun Sorapoj Techakrasri, CEO, PACE Development Corporation; Emmanuel De Place, Asia Pacific COO, Lagardère Travel Retail; Eudes Fabre, Greater China CEO, Lagardère Travel Retail; Cissy Chan, Executive Director – Commercial, Hong Kong International Airport.
The full opening of the new Duty Zero by cdf stores in July marked a significant moment for Lagardère Travel Retail and partner China Duty Free Group at HKIA. How do you assess the performance and that partnership to date?
Dag Rasmussen: It has met our expectations so far and we are happy. We forecast significant growth after the reorganisation of the stores in July. That didn’t come immediately but we are seeing in the latest figures that it is coming. The is performing very well and can offer ideas for other brands about how they present their offers. Our partner CDFG brings many new Chinese brands, we bring the best of international brands and this is an optimal mix. We would not have won this contract ourselves and I don’t think CDFG would have won on their own either.
On the joint-venture model, in Hong Kong this was the best solution and the only one that would have worked for that location. It’s about what works best in each situation. In other cases it can be best to be a sole concessionaire, but it’s case by case.
Duty Zero by cdf: The latest numbers suggest recent store investment is beginning to pay off, says Dag Rasmussen.
Click on the image to access our on location report about Hennessy's first airport flagship store.
Click here for our special e-Zine on Duty Zero by cdf at Hong Kong International.
Acquisitions remain on the agenda for the company. Can you outline how you see the Hojeij Branded Foods (HBF) move reshaping the company’s position in North America, notably in F&B? How does this accelerate your progress worldwide?
Dag Rasmussen: This secures our position as the number four company in food service concessions worldwide. We will make north of €800 million next year in food. It also brings us huge credibility in North America, where the market is very much about food service and convenience.
We made a big acquisition with Paradies in that region three years ago and we started to develop food at that point. We are gaining critical mass with this new acquisition, with tremendous market potential. HBF operates more than 120 bars and restaurants in 38 airports in the USA and Canada today, and this is a platform to grow in North America.
Second, it strengthens us in food service internationally. We will be working closely with our North American team to leverage the food service brands, in particular in-house brands that HBF has developed, on a global basis. This brings us new brands like Vino Volo and bring us relationships with brands like Wendy’s, Chick-fil-A, Illy and others. Food is a local business but brand sourcing and development is global. It is about getting the right local hero to the airport and the fact we can do this on a bigger scale helps us. We are discussing now how we can take Vino Volo to the international stage in a bigger way.
Investment is on the agenda across the retail estate; Cairns Airport pictured.
Does that acquisition cement your view that food & beverage is key to the future? How does it sit with your other key business lines, duty free & fashion and travel essentials?
Dag Rasmussen: Every day proves that our strategy of pursuing the F&B opportunity is the right one. The convergence between business is changing; between duty free and travel essentials between duty free and food and between travel essentials and food.
We have successes when we increase the food offering in travel essentials, when we include food at Aelia Duty Free, when we make food more convenient or accessible. It is the future.
We hear duty free operators complain about spend per passenger, but for me it’s not an issue. That is just natural when much of the traffic growth is coming from low-cost travel. It’s logical that you’ll have dilution and that your average spend will not grow in the traditional ways. We have to work to grow that spend, but travel essentials and F&B are there for that.
In travel essentials we have twice the penetration levels that we have in duty free. In some airports we have double-digit growth in travel essentials. Why? Because of low-cost passengers and because we anticipate what consumers want and then offer them what they need. It can be profitable too. Not if you have the same rent as duty free, but the rent that applies in travel essentials can be very profitable, and in sales per square metre terms it can even be more than in duty free.
Also, if you want to optimise customer satisfaction you need travel essentials and food service. We have great fashion stores where we are happy with five transactions in a day. But that doesn’t lead to overall consumer satisfaction. You need that through these other channels that appeal to a much wider base.
Daily DXB: Lagardère Travel Retail has opened a food hall celebrating global cuisine at Dubai International. It is is organised around five stalls, with attractions such as a souvenir photo booth stand, a strength stall, live pizza tossing and vocal and dance shows.
Do airports understand these changing dynamics well enough?
Dag Rasmussen: More of them do now. The point is to have the best offer for food and travel essentials that attracts the traveller and allows the business to grow. We have a great brand in Relay that proves it. We also add new partnerships like TripAdvisor with our US team, which is now being exported to Hong Kong. We are proud of that. We are working with the TripAdvisor team to get to the next level of travel essentials for them.
Our innovation team can help with these brands to develop a high positioning for the airport but still satisfy people. Travel essentials should not be built on optimising rent, it should be built on maximising satisfaction, maximising the airport image and catering for all needs, including low-cost travellers.
What do these new dynamics in travel and in travel retail mean for industry partnerships?
Dag Rasmussen: Airports need to ask themselves whether fixed percentage rates are the best solution to incentivise retailers? How can they incentive travel retailers to reallocate square metres to the most productive and growth-driven categories, instead of waiting for the end of their contract?The question is how can we maximise value by focusing more on commercial strategies rather than focusing simply on rent?
I always believe in listening to the other party. We shouldn’t simply bid on the MAG, we should seduce the airport with our commercial approach but in a way that allows some flexibility as the world is changing at an accelerating speed.
You cannot have contracts that don’t allow flexibility. If PMI brings ‘heat not burn’ smoke-free products, but at different margins, how can we have the same rent? You have to deal in good faith, agree that the world is changing and ask how can we adapt the contract? We have new brands that don’t have the power of the old brands, are more mass market and don’t command the same level of profit, but are popular with people, so how can we introduce them? It’s better for all of us if we do it but how? We have to be open and accept exceptions. It’s not about negotiating rent downwards, it’s about growing the business.
Some airports are listening and showing the way. Geneva is an example. There is a flexible concession, we didn’t bid on the maximum MAG. And I believe there is a collective view among retailers that this is a new direction.
Setting the template: The ‘New Age’ beauty concept opened at Paris CDG 2E earlier this year will be rolled out across the retailer’s stores in the capital.
Let’s talk about some key locations and your recent progress in each. What are the next steps for development in Paris and beyond that the wider European market?
Ambroise Fondeur: In Paris, we are at the start of a major renovation programme, which will touch all terminals in the coming years. In total we will open or refurbish 16,000sq m of retail space in the next 24 months.
This year we opened the upgraded areas at Paris Charles de Gaulle (CDG) Terminal 2E, Hall K. Next year come core category walk-through stores at CDG 2E, Hall L and Orly Junction, each with the ‘New Age’ store design that first appeared in Hall K. Alongside this we’ll see a major programme of fashion and speciality retail, including new brands and concepts.
In 2020, there will be the new CDG Terminal 1 opening, Orly South (international) and the CDG T2 B and D junction. That is quite an extensive programme, and it will enable Paris to continue its upgrade of the retail experience.
Around the rest of Europe we are at the end of our roll-out of the ‘next generation’ Aelia Duty Free concept across the network. Over the past three years this has taken in Rome Fiumicino, Nice, Lyon, Prague, and Warsaw, among others. We have completed work on Geneva with the opening of our final shop, the main departures store, in October, and we completed our Venice stores in July. Our next big project in Europe will be at Rome Fiumicino with a brand new Schengen terminal to open in 2020.
In Vienna we won a recent major fashion contract for an 800sq m Fashion Gallery store. We won that thanks to our team that came through our acquisition of Gerzon. We are already a food operator in Vienna, we have travel essentials and there again, we can grow the business across the three business lines.
Aelia Duty Free’s striking walk-through stores have helped transform the commercial environment at Nice Airport T1 and T2.
Can you update us on your progress towards opening in Abu Dhabi, and ambitions in the wider Middle East?
Ambroise Fondeur: In Abu Dhabi, the latest news from the airport is that the Midfield Terminal is scheduled to open towards the end of 2019. We are gearing up our plans for that timing. [Lagardère will run the core duty free categories of liquor & tobacco, confectionery and fine foods in partnership with Abu Dhabi Capital Group – Ed].
In Saudi Arabia we completed the renovation of our store at Dammam Airport last year and over the summer we completed work on our two stores at Riyadh Airport. We are looking at the tender for Jeddah’s new terminal though it’s not clear what will happen next.
The Middle East is very interesting for us and a focus of investment. We have set up a new office in Dubai, and we will open a new supply chain there to serve Saudi Arabia and later Abu Dhabi.
Elsewhere in Asia Pacific, you have made a big investment in the Auckland International Airport duty free business, though in competition with Aer Rianta International. What progress have you made there?
Ambroise Fondeur: We completed the main departures walk-through in Auckland in December and updated arrivals in recent months. We are renovating travel essentials with Relay and adding new local concepts to the line-up there too.
It’s a dual-operator model of course and for that reason this market remains difficult. Having two operators can confuse consumers and doesn’t allow the full potential to be maximised, we feel.
In terms of meeting your ambitions for expansion, do you have the right structure in place now?
Dag Rasmussen: We are flexible of course but empowering people at country level is critical so that when they engage with airports or brands they can make decisions themselves. On the business lines, the team has made tremendous progress; Ambroise oversees all three lines to make them consistent and to push across all three. We have both a proactive approach in the way we attract brands, and also listen to the needs of each country so we can offer the best service.
Ambroise Fondeur: We need to be open to adjustments but the local teams are empowered, with the help of supportive global teams. It is working efficiently.
Dammam Airport: The Middle East is a focus for growth, with Saudi Arabia and soon Abu Dhabi part of the network.
Turning to the bigger industry picture, how do you see the strength of the various product categories within the duty free & luxury business evolving?
Ambroise Fondeur: Managing the evolution of the category dynamics is a priority for us, as traveller profiles and needs change. We need to have flexibility to adapt the offer in the stores to what the shopper requires.
In terms of the highest-growth categories, I would highlight those driven by convenience and impulse. We have a successful impulse programme across our stores, which we will be accelerating in the coming months. That runs across categories, from beauty masks to smaller size liquor packs to snacks. These are items that resonate with travellers.
In the more traditional categories, we see skincare, alcohol and food performing well. Skincare is aided by strong growth among Chinese but also by new segments, notably the drive for heathy, natural products. Perfumes and fashion are still growing but are more mature and are not seeing the growth rates they did previously.
The categories that are struggling this year are tobacco and make-up. Tobacco unfortunately appears to be in mid to long-term decline, though it will be interesting to see how new technology and ‘heat, not burn’ solutions can offset this.
In make-up, a star of the past two to three years, it has become more difficult. We’ll see what happens there after a period of strong growth.
Lagardère Travel Retail Chairman and CEO Dag Rasmussen says the company is stepping up its dedication to innovation in response to “a need to fast-track our time to market and be able to test new ideas quicker”. Pictured are members of the ‘Innovation Booster’ programme.
What more would you like to see from brands to drive innovation in the business? Is the push for intensive in-store personalisation among brands the right answer for retailers and for consumers today?
Ambroise Fondeur: We would like to see more differentiation. All the brands realise the value of travel retail as the most attractive niche within retailing. But they need to go further and really differentiate what they do in travel retail versus what they do elsewhere. We are fully ready to work with them on innovation, but it means real differentiation, not just packaging adjustments. It’s a priority for us in coming years.
The other priority is to lift the experience in-store. The growth areas in retail today are travel retail and e-commerce, and where we win is in the physical customer experience. That means working with brands to improve the experience, including through better staff interaction.
On personalisation, the big challenge is how to adapt this to a fast transaction environment like travel retail. Yes, personalisation is key but we haven’t seen fully convincing solutions, so it’s up to us and the brands to try to find these.
What more can airports do to help engage travellers in the retail areas? Are layouts optimised for today’s traveller?
Dag Rasmussen: The retail and food layout is critical in determining commercial success at an airport. We recommend that our airport partners engage with us so we can discuss the optimum layout together. It’s not easy. Each airport is different, and the flow of travellers is different. Too often we as retailers discover the retail layout only when tenders are issued, which is sub-optimal. We encourage landlords to talk to us in advance about how to optimise their retail and food activities.
Engagement with the consumer comes in other ways today. Where is Lagardère Travel Retail on the digital journey? What can the other stakeholders do to assist you in this?
Ambroise Fondeur: We see digital as an enabler for facilitation and for experiences in-store, so it’s not about digital per se. Digital is a way to create new services like click & collect, to reserve products or to see what’s available at the airport. It can empower staff to serve the travellers with content. Here, brands can help us by providing content that encourages interest among potential shoppers. In addition digital can help us improve our payment solutions, which can be a pain point for travellers.
The other area is data, in which we are not yet expert enough. All parties are still too shy in sharing data. We see most value in greater collaboration between airports and retailers on this, and we at Lagardère Travel Retailare fully open to sharing. We can mix our own data with theirs to better understand the traveller and how they behave, and in the end facilitate their shopping experience. This in turn can optimise value creation in our shops.
What are the big business priorities for Lagardère Travel Retail today?
Dag Rasmussen: For me there are several things. They include profitable and disciplined growth, which means choosing our tenders and acquisitions. It means having motivated teams and looking for excellence in operations, across retail and food. It’s about being the best partner for brands and airports so they are sure we deliver the optimal value to all parties. We also aim to have the most agile organisation – combining local and global – and pushing that to next level.
All of that is underpinned by what we call our four enablers. There is Innovation. There is Digitalisation, which is separate from Innovation as we don’t want innovation to be only digital. There is Process & Systems and there is Talent & CSR. The last of these is very important, and Ambroise is taking a lead on this now. We are convinced about its importance but have not taken a consistent approach to date. We expect all of what we do to be touched by CSR, including sustainability, in future and are talking to suppliers about what we can do now. After all, the major challenge, risk and opportunity is the planet at the end of the day.
The Moodie Davitt e-Zine | Issue 250 | 30 October 2018