Taking the Trinity conversation forward

Following on from discussion of the industry’s future direction by Bain & Company and Castlepole Consulting at the APAC Dialogue event (see previous page), Martin Moodie led a Q&A session with industry stakeholders for their reaction and to gauge their concerns and priorities today.

The new consumer, the concession model and the airport experience were among the key themes addressed by a panel of leading industry speakers at the APAC Dialogue webinar. Guests from the airport, retailer and brand sectors expanded on their views of the COVID-19-enforced changes in the industry – and their strategic priorities. Reacting to the main themes raised by Bain & Company and Castlepole Consulting about the industry’s future, Ontario International Airport Chief Commercial Officer Dan Cappell highlighted the issue of contract lengths (which have been generally running for longer over the past decade and more), noting that building in additional flexibility with lower capex – as Bain & Co’s Mauro Anastasi suggested – is not easy to resolve for either airport or retailer if time lengths are reduced. “Previously a ten-year period would validate the investment from a retailer. But with shorter terms it becomes a real challenge.” William Grant & Sons Managing Director Asia Pacific Doug Bagley said: “One thing is to ensure we have a common approach to vaccines and testing so we can get travellers to travel at scale. There will be disruption to the travel process. We also know there has been an explosion of ecommerce growth and price is not a key differentiator. I think it’s time to rethink. The way we offer a more seamless shopping experience lies at the heart of what we need to do.”

Setting the scene: The Bain & Company/Castlepole Consulting put the case for a reimagined contract model to encourage innovation and investment – discussed by panellists from across the Trinity

“We don’t know who the customer will be in 2030 so we may need to change duty free to food or food to essentials, as new consumers come through”

Auckland Airport Head of Retail Lucy Thomas added: “We know that the categories have shifted on the High Street and are evolving on the High Street and online. So defining what travel retail means in a post-COVID time is crucial. There is excitement in travel and we can own that space but we must think about what we bring to the experience from all parties in the Trinity.” Lagardère Travel Retail Chairman & CEO Dag Rasmussen agreed on the importance of partnership data-sharing and CRM. “Travel retail has the best customers in the world and I still see this as a bricks & mortar channel. We have to improve but penetration is not that bad if you add food, duty free, travel essentials. So let’s take our strong points and make them stronger. “What I really agree with is that we need flexibility. We don’t know who the customer will be in 2030 so we may need to change duty free to food or food to essentials, as new consumers come through. Could we have long-term contracts but with flexibility built in, with profit sharing part of that? It will take time but the starting point is how we can share profit. That can offer flexibility as the agendas are then more aligned. If that had existed we wouldn’t have had discussion over terms during COVID as [that system] is more resilient.” King Power Group (Hong Kong) Group CEO Sunil Tuli, speaking in his own capacity (rather than for APTRA, which he heads) added positively: “We are looking at many unknowns. But I don’t see travel retail moving away to domestic. People will still come to airports and shop. There is a price advantage, especially in luxury goods so I think we will do well. Ecommerce is key but we have always had competition, in the past from discounters and parallel traders, and we will overcome competition again I believe.”

Click on the video to access the APAC Dialogue session in full.

Embracing omnichannel

On the priorities ahead, Lucy Thomas reinforced the message about embracing ecommerce and blending the best of digital and physical worlds. For Auckland Airport, omnichannel has become even more of a priority through the crisis. “When international travel has been shut we have pivoted to domestic duty paid as travellers still want these products and to buy them online. Ecommerce is not competition, it’s part of our business. “Also, if you don’t have travel, what are you as an airport? What do we own, what can we control? I am looking ahead to 2025 but I’m also concerned about what I can do now or next year as priorities for diversification. And without aviation we’re in the business of creating value without spending money, which is a focus for many people. “If we do switch on travel quickly, there is also a core customer base that we really must focus on in Kiwis and Aussies. We know them, we understand them, they matter to us. They are our lifetime customers and we need to be able to engage with them.” Offering the Ontario International Airport view, Dan Cappell said: “The reduction in passenger numbers is of course a concern but we are at around 50% of pre-COVID levels – one of the highest in the US – and have managed to keep most retail and F&B outlets open. We have to look at our product mix, we have to raise our game in omnichannel but then so do most airports and operators compared to domestic retail. We know a new generation lives online, believes it represents value and that is a challenge. “Also, there’s the as yet unknown impact on business travel in the future. It’s a big driver for airline yield just as business travel is for travel retail. If we do see LCC share increasing, it’s an issue for airline profitability and the speed of recovery.” On his priorities at the Californian airport, Cappell added: “Full integration of the airline into the discussion is critical. The airlines are the lifeblood of the industry. If we want to become more relevant, and we find a way to integrate the airlines into the model, we can capture market share and lift our relevance.” Dag Rasmussen said that “uncertainty” will remain a key issue for some time to come.

Auckland Airport: A focus on the lifetime customers, Kiwis and Aussies

“We have to be open-minded, flexible and ready for more change. Also, the focus on digital is critical. Yes, omnichannel is important but I think the ecommerce element is less relevant for us than it is for downtown, where it’s life or death. For us it’s incremental and we see that in China, where it adds value. We see why capex should be more around digital but that also means lifting the in-store experience, making the journey more seamless, how we speak to the customer and help our salesforce better interact. “Then the other change is the evolution of the business model to greater value sharing, with more flexibility. “Priorities for us are to be more customer-centric, working with both airports and brands sharing data to know the customer better. I don’t care about owning data; I just want to know the customer better. We can do more with our insights into behaviour, for everyone in the system.

“The focus of debate has always been around MAGs and contracts and I feel if ever there was time for change it is now. Whatever the compromise is, someone has to pay.”

“Another is a switch to a more sustainable industry. Each of us has to show we care and we can use our stores to communicate how much we care about the planet. The other priority is unlocking potential in the value chain through changes in the business model.” Doug Bagley said: “One important thing is to bring excitement to the traveller. We need to come together to deliver that in the shopping experience. If you look at ecommerce or department store luxury, how do we really bring a shopping festival feel back to people once they return to airports? “Price is another issue. I don’t think it’s the way to convince and excite shoppers. There is room to improve penetration levels from low double digits but usually we look at the customer in the store, but we are not engaging with them through their journey. That is how we can radically shift penetration. We can tell authentic brand stories, using targeted messaging along the way. That is what excites me. We have to be differentiated, exclusive and surpass other channels that compete with us.”

Digital tools complement the physical store experience for Lagardère Travel Retail in China (Shanghai Hongqiao T2 pictured)

Talking Trinity

Speakers also addressed how they see Trinity partnerships evolving. Dag Rasmussen said: “The Trinity is very closely linked to our priorities. It’s about sharing and working together. We have had many tough discussions within the Trinity – with airports, with brands – and are probably stronger from this. We are having fairer, more transparent discussions today, but the next step is sharing and ensuring that airlines help the airports and retailers to increase sales, to their benefit and to that of the entire ‘Quaternity’. Dan Cappell said: “The focus of debate has always been around MAGs and contracts and I feel if ever there was time for change it is now. Whatever the compromise is, someone has to pay. There are hundreds of billions of dollars that need spending on infrastructure as travel recovers. We can focus on the non-aeronautical side, but not all airports have huge land banks and if you’re going to reduce your share of non-aeronautical revenue you might add it to passenger service charges, but that in turn pushes ticket prices up. I’m open minded but if you take revenue from one source you have to move it elsewhere.” Lucy Thomas said: “There are different things going on. Yes there needs to be some flexibility and innovation in how we handle risk and each airport might handle it differently due to their funding models. So flexibility means different things. Some of us have very different business drivers; what works for the airport may not work for the retailer or the brand. “Then there is the fact that the airline can work with non-aviation retailers and even do home delivery. So there is the Trinity, there is the Quaternity, then there’s multi-Trinity in all the ways to sell things. So the task for us is to have a hard look at what we do. Talking to a leading retailer I was struck by what they said, that the core is focused around those items they know will sell. Now the consumer is used to seeing a full range in generous square metreage on the High Street, but at the airport they don’t get to see that. They see less stock in fewer square metres, with the retailer committing to selling what sells well. “So as airport, retailer, brand, can we offer range, excitement and variety when the consumer sees what they saw two years ago because it sells to the majority? That is a challenge. So we have to ask ourselves what we each bring to the party?” Doug Bagley said a “revolution” and “reinvention” was needed to ensure successful change. “If we’re able to focus on the experience to drive footfall and drive more footfall, and find a way to link concession rates to performance, that may move us in the right way.”

The meaning of innovation in travel retail today

As part of the APAC Dialogue webinar, we asked speakers what innovation in the airport commercial and travel retail sectors represent to them today? Ontario International Airport Chief Commercial Officer Dan Cappell: “The rapid integration of tech from A-Z across the experience from processing, biometrics and so on though the journey.” William Grant & Sons Managing Director Asia Pacific Doug Bagley: “Innovation is at the heart of our opportunity. If you take the many touchpoints, limited editions, exclusives we can offer and you overlay that with omnichannel experiences for the ‘always on’ consumer, that is the step change we need. Travel retail as a channel can still add value and build equity for brands.” Auckland Airport Head of Retail Lucy Thomas: “It’s about what works for the customer [through] omnichannel and digital and social media; it’s not what we are selling, it’s how we are selling. It’s about the relationship with the customer.” Lagardère Travel Retail Chairman & CEO Dag Rasmussen: “Innovation is how we understand the consumer evolution. What will they become? There is one big opportunity also that is a weakness. We reinvent ourselves at the end of each contract, re-capex everything, which downtown does not do. We can do this with much shorter cycles than downtown, so let’s seize the opportunity.” King Power Group (Hong Kong) Group CEO Sunil Tuli: “Innovation is about contracts. Not just asking for MAGs to be removed but looking at different models. We have worked out different mechanisms that work for everybody. I would like to see this with airports: more flexibility.”

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The Moodie Davitt eZine Issue 293 | XX March 2021

The Moodie Davitt eZine is published 15 times per year by The Moodie Davitt Report (Moodie International Ltd). © All material is copyright and cannot be reproduced without the permission of the Publisher. To find out more visit www.moodiedavittreport.com and to subscribe, please e-mail sinead@moodiedavittreport.com

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