Lagardère Travel Retail positions itself to take advantage of a changing marketplace

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 Hennessy house 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.

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.

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.

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.

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.

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.

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.

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.

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.