Chim Esteban, travel retail’s great pioneer, looks forward

Jose Maria ‘Chim’ N. Esteban III, pictured at Mactan-Cebu International Airport: “Anywhere where the traveller starts moving, we’ll be fulfilling their different needs at different points in the journey.”

Publisher’s introduction: Jose Maria ‘Chim’ N. Esteban III is the pioneer of international standard duty free and travel retail in the Philippines. In early 1987 he was charged by President Corazon C. Aquino with heading a task force responsible for mapping out a new state-controlled business called Duty Free Philippines (DFP) with just US$91,000 in capital at his disposal.

He became the retailer’s first General Manager and drove its progress from a difficult start-up with sales of less than US$10 million in its first year to a US$219 million turnover by the time he left in 1992.

After that he remained close to the organisation as a supplier, and in 1998 became a sub-concessionaire to Duty Free Philippines – later adding perfumes & cosmetics to the concession offer.

Today he heads a thriving family business as Chairman of Landmark Management Services and Landmark Management P&C and founder of Regent Travel Retail Group, a portfolio that embraces duty free and duty paid airport and downtown retailing, airport food and beverage, brand distribution and extensive local market interests.

He told Martin Moodie during an interview at Mactan-Cebu International Airport that prospects for travel retail in the Philippines have never been brighter underpinned by fundamental changes in the consumer demographic.

The Moodie Davitt Report’s special publication on Duty Free Philippines’ 25th anniversary, published in 2012, honoured Chim Esteban’s immense contribution to the country’s travel retail industry.

Martin Moodie: Chim, you came into the business the same year as me, 1987. In that time, you’ve seen a profound evolution of duty free and travel retail in the Philippines. It strikes me that you and your group are at a watershed now, a turning point. There are great opportunities coming up, and the market’s in change.

Chim Esteban: The market is significantly changed and we have strong growth. There are opportunities in terms of the growth of infrastructure for the traveller, which is driven by market growth. That in turn represents a virtuous cycle positively affecting me.

We’re seeing the modernisation of our air travel and modernisation of air terminals, and we see opportunity everywhere we can ‘touch’ a traveller. So, we've really broadened the way we look at travel retail. Our birth was from duty free, but today we think that the business is much larger than just purely the traditional duty free business.

President Cory Aquino congratulates Chim Esteban and Duty Free Philippines colleagues on the retailer's landmark dual Frontier Awards of 1989 for ‘Airport Operator of the Year’ and ‘Best Marketing Campaign’.

Chim Esteban (next to a later Duty Free Philippines General Manager Lorenzo 'Enchong' C. Formoso) shows one of the 1989 Frontier Awards to Department of Tourism management.

The amount of domestic travel in this country, not just by Filipinos, is clearly huge and growing.

It’s tremendous. I remember back to five or six years ago, when I first broached the idea at the [TFWA] Singapore conference about our idea of this expanded travel retail market.

What struck me back then was the total number of air moves throughout the Philippines. There were about 14 million a year, and we only had five million tourists then. Today we must be in the area of 60-plus million moves with seven million tourists.

So the growth has been exponential and the only limiting factor in that growth has been in infrastructure. So once the infrastructure gap is somewhat relieved, then you’ll see another spurt and another plateau. Because you’re seeing a population here which is growing in affluence. You’re seeing a younger generation who spends their money on travel. That is their primary investment, in lifestyle. So those are the guys who are driving this market.

Chim Esteban on why the moment is now for travel retail in the Philippines.

Mactan-Cebu T2 is an example of how the quality bar can be raised in a mid-sized airport, says Chim Esteban.

And that infrastructure change is largely coming about through this wave of privatisation?

That’s right, privatisation of the airports, seaports, land ports – every major industrial entity in the Philippines that is into the business of moving people.

And you’re saying basically wherever they move, we’re going to be there. Whether it’s in domestic airports, international airports, expressways, or even tourist destinations.

We’ll be there. We are there today. Anywhere where the traveller starts moving, we’ll be fulfilling their different needs at different points in the journey. And we’ll be trying to expand the market by increasing the offerings to a wider range of travellers.

"In Cebu we have the great opportunity of working with a wonderful partner, the airport, whose vision was clear. They wanted to create a maximisation of revenue and a high-quality offer, and who wanted us to curate that offering to the customer."

How much of a benchmark is the new terminal at Mactan-Cebu International Airport?

Cebu is the model of the way we think the future is. In Cebu we have the great opportunity of working with a wonderful partner, the airport here, whose vision was clear, who wanted to create a maximisation of revenue, who wanted to create a high-quality offer, and who wanted us to curate that offering to the customer.

We effectively have creative control over whatever the customer sees [commercially] in the airport. And that’s not only for the purpose of aesthetics, but it’s also for the purpose of maximising the basket. So it’s great. It’s an example of what can be done in a medium-sized airport – and even in a small airport – of maximising the revenue, measuring the penetration, and creating a great traveller experience.

It’s a beautiful airport architecturally. It’s got a high-class retail and food and beverage offer, by any standards – regional airport or otherwise. Having put in a lot of investment, are you happy with results?

All of the projections we made with respect to return and with respect to profitability are being met and in fact have been exceeded in the first seven months. Yes, we're very, very confident. We haven’t missed a number yet.

The Cebu product mix has been carefully chosen to generate greater in-store dwell time and drive higher penetration.

You’ve also got a lot happening in coming months. In Terminal 1 there will be an extensive overhaul of the food and beverage and retail offer. Tell us about that.

Well, even as a terminal by itself this is one of the largest domestic airports in the Philippines. Because in Manila, we have four terminals. This Cebu terminal (T1) will undergo a complete revamp, to create an international level of offering for food and beverage and for retail.

We’re challenging the retail thinking by creating a mix here which will develop higher penetration and which will cause more dwell time for the passengers in the stores. In the airport, we have a partner who is looking at a diversity of offerings. We have a partner in food and beverage, SSP, who is really working on the mix and the numbers. And then in convenience, we have a partner in WH Smith who have a great, great business model that allows us to respond to every demographic in every terminal. So it's a good mix.

Your business model is very interesting. You've got alliances in every area, whether it's DFP as a critical partner on the duty free; SSP on the food and beverage; WH Smith; and the airport itself. So there's partnerships the whole way.

And, of course, also with the different brands we work with. What we also bring to the table is that we develop our own consolidated multi-brand concepts. We think that multi-brand is an important model for a smaller airport environment. It’s a model which has been overlooked to a great extent in the airport development over the years because everyone seems to be focusing on mono-brand shops. We’re working hard in multi-brand in every category, from toys to athleisure to gadgets. So it’s a very efficient use of space.

The airport now has a retail proposition befitting its status as the gateway to Cebu, the primary resort destination in the country.

One of the things that struck me today walking the airport, and in talking with you and with your son, Joey, was that this may be a regional airport, but it's a very international one. If you look at the passenger mix – dominated by Koreans and Chinese and Japanese, especially of course in the international area, but even in the domestic – you’re talking not only international passengers but very high-spending ones.

The reason here is because it’s a regional domestic area in a major international hub. A much larger proportion of the passenger traffic is foreign, versus in Manila, which is still significantly Filipino. So we have that great customer base. But it has its own challenges. We as a business have always been focused on the Filipino traveller for many years, and now we have to sort of change our hats, and everything from language to training to the presentation changes.

"This shows you the kind of potential and what a regional airport can be in a country like the Philippines"

So, we're learning, and we have to learn quickly, because as you know, these trends always ebb and flow. We have to take advantage of it while it’s here. But this will be for the long term. Cebu is the primary resort destination in the country. And this region in the Philippines is where most of our resorts are. This will be a very interesting project well into the future.

Looking at the Chinese traffic, the airport authority was telling me today that effectively there was hardly any Chinese traffic here four years ago. Now there’s a lot, 15 percent of the mix, which obviously translates into a much higher ratio of spend, and the growth is extraordinary. That’s really transforming the commercial fortunes of this airport.

Yes, and to the point that this airport is aggressively already building for the future. They've already applied for a second runway. So this airport has the distinct advantage of having capacity, where Manila doesn’t. That's the problem of growth in this country for tourism, and I hope it’s addressed over the next five to ten years. But this shows you the kind of potential and what a regional airport can be in a country like the Philippines. [→ Continued on next page]

A Moodie Davitt Report publication | Philippines Travel Retail

Partner's Message