A sustainable partnership?

DAY 1

“How often is the concept of partnership truly delivered?” asked The Moodie Davitt Report Founder & Chairman Martin Moodie in his opening speech. In a hard-hitting session, all three sides of the traditional Trinity model attempted to answer this question by giving their vision of partnership in travel retail.

Pernod Ricard Global Travel Retail Chairman & CEO Mohit Lal examined the concept of partnership from a brand perspective. He opened with a challenge: “I start by saying what we all know, which is that more and more travellers will travel and planes will fly; travel has seen tremendous growth in the past and it is something that will continue to grow. But for the ecosystem to benefit from this growth then it needs to adapt and it needs to change.”

He added the travel retail ecosystem needs to adapt to stay fit for purpose. “From the conversations that one has, it would appear that the health of the ecosystem has declined. If that is happening, when do we need to act? The time to act is now,” he stated.

Lal called on industry stakeholders to show greater courage, focus on long-term viability (and contracts), create a sustainable Trinity partnership and offer premium retail space. He also outlined the need to focus on travellers, intelligently leverage data, stimulate the travellers and leverage the strategic importance of airports to make the travel retail industry more sustainable in the long term.

Trinity perspectives: From left to right, Pernod Ricard Global Travel Retail Chairman & CEO Mohit Lal, London Heathrow Airport Retail Director Fraser Brown, The Moodie Davitt Report Founder & Chairman Martin Moodie (moderator), China Duty Free Group President Charles Chen, and Lagardère Travel Retail Head of Strategic Development Asia Grant Fleming

Mohit Lal: “Travellers have their purse strings loose; it is for us to come together to extract value from those purses and to put value into the ecosystem”

On the sustainability of the Trinity partnership, he added: “The franchise model is something that doesn't allow this high risk [to be] converted into high opportunity. I often see retail at an airport likened to a factory. Why would you set up a best-in-class factory to produce best-in-class products if you know that by the time you have the factory up and running, you would need to dial down that factory and allow someone else to build an identical factory with the same products for the same consumers?”

He added: “Travellers have their purse strings loose; it is for us to come together to extract value from those purses and to put value into the ecosystem.”

There are many positive factors influencing the travel retail ecosystem

But there are also many questions that need addressing

It is up to the Trinity to take advantage of the unique retail environment

Lal questioned the franchise model as something that doesn't allow high risk [to be] converted into high opportunity

Among other factors, he called on industry stakeholders to show greater courage, focus on long-term viability, and offer premium retail space

Delegates heard the airport perspective from London Heathrow Airport Retail Director Fraser Brown. He said Heathrow prides itself in having a strong relationship with its stakeholders and putting the passenger at the centre of its approach in order to ensure it does business and grows sustainably.

“We have moved a long way away from being a passive operator. We don’t see ourselves as rent collectors, it is our responsibility as airport operators to look after passengers and other members of the ecosystem; we consider them part of Team Heathrow,” he said.

It has been debated if the Trinity should be extended to be a Quaternity to take account of airlines as a stakeholder. Brown argued that advertising concessionaires should also be a part of the partnership. “Where you get a brand, advertising associated with it, retailer and airport working together; when you utilise that, you get Team Heathrow,” he said.

Lal and Brown then took part in a compelling panel session, which also featured retailer insight from China Duty Free Group (CDFG) President Charles Chen and Lagardère Travel Retail Head of Strategic Development Asia Grant Fleming.

Unsurprisingly, the recent decision by DFS not to bid for the liquor & tobacco concession at Singapore Changi Airport (and the dearth of bidders) was discussed by the panel.

This prompted a wider conversation on concession models and their sustainability. Fleming called for a model where retailers take a share of earnings. “There are many different airports with many different models and every airport – no matter how forward – has to be approached differently. But a share of the EBIT would be fair,” he said.

Fraser Brown: “We don’t see ourselves as rent collectors, it is our responsibility as airport operators to look after passengers and other members of the ecosystem”

Among other factors, he called on industry stakeholders to show greater courage, focus on long-term viability, and offer premium retail space

The physical experience differentiates airports from online offers

Airport retail takes a lot of space – but is it being maximised?

The offer must be attractive to the passengers travelling at a particular airport

Digital platforms can be utilised to improve the customer experience

Brown added that, if airports are to expect high minimum annual guarantees, the onus is on them to deliver an exceptional consumer experience, which in turn can deliver high commercial revenues. He told delegates: “As an airport, you can’t expect high minimum annual guarantee if the airport doesn’t live up to that.”

Asked what influenced CDFG not to bid on the Changi contract and whether it reflected a wider flaw in the airport tender model, Chen said that CDFG typically does not comment on single airport bids. He praised the “fantastic” Changi Airport but emphasised that CDFG has to be financially responsible in any offer.

“We always think that retailers, airports and brands have to be on the same table,” he commented. “It should be fair. It is not just for the airport to make money and for the retailer to lose money – we cannot do that. In China, for example, we have a lot of ways we can do the business.

“This is why at CDF[G] we have a new department called New Travel Retail, where we do ecommerce, pre-order and even now the downtown stores. So, in the future, all airport contracts should be fair. That’s why this time we did not attend the bidding – it doesn’t mean we won’t bid on the future in Singapore – I love Changi Airport. It’s one of the most beautiful airports in the world. But contracts must be fair.”

Words of wisdom: Charles Chen (left) and Grant Fleming offered their views on the Trinity model and current industry trends

Chen continued: “For a company such as CDFG we need to earn money to return to our shareholders. We don’t want to lose money for many, many years. Every company has a strategy. Why has CDFG grown so fast over recent years? Because every step and every action we have taken is in accordance with our strategy. We have to have a reason for everything we do.”

Chen also commented on the importance of Beijing’s new Daxing International Airport (where CDFG officially inaugurated its stores on 18 November). He praised the spectacular new airport and said that CDFG is proud to open its new stores there. He emphasised the rapid growth in Chinese travellers worldwide and said that CDFG aims to be the prime shopping experience for the Chinese traveller – not just in China but also in overseas locations such as Cambodia where CDFG’s business is “very good”.

Asked about the impact of social turbulence in Hong Kong on business, Chen said that CDFG’s strong concession partnership with Lagardère Travel Retail at Hong Kong International Airport had actually helped limit the damage. Penetration and average transaction value had both risen in the first half of 2019, he added.

Chen said that CDFG will continue to focus on serving the Chinese passenger, with particular emphasis on their overseas travel and shopping habits. “Now the Chinese traveller is global and we have to remember that,” he commented. “Soon they will have all the big luxury brands available in China with localised offers, so they are looking for something else when they go overseas. We have expanded with good business in Cambodia and Macau, so we are focused on downtown opportunities.”

“We have to have a reason for everything we do.” Charles Chen updated delegates on CDFG’s progress. The company has taken great strides in the industry in recent years and continues to seek opportunities both at home and abroad.

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The Moodie Davitt eZine

Issue 271 | 19 November 2019

The Moodie Davitt eZine is published 20 times per year by The Moodie Davitt Report (Moodie International Ltd).


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