Portugal contract a “game changer” for ARI, says CEO Ray Hernan

“This is a game changer for us. It gives us added scale, it builds on our strong credibility as a retailer in this market, and it’s a tribute to the professionalism of our teams.” With these words a delighted Aer Rianta International (ARI) Chief Executive Ray Hernan greets the news that the company has won a seven-year joint-venture contract with ANA Aeropuertos de Portugal to run duty free and duty paid stores at eight airports. With ANA as 51% shareholder, ARI (49%) will set up a new JV company to manage the business, which spans 9,500sq m at airports that include Lisbon, Faro, Porto, plus locations in Madeira and the Azores. Combined, these airports served around 60 million travellers in 2019. The concession scope embraces 34 commercial spaces, including duty free anchor stores, satellite shops and fashion & beauty stores. Hernan tells The Moodie Davitt Report: “First of all it’s a very positive piece of news for all of our team. We have gone through a very robust bid process, in competition with one of the biggest and very best in the business [incumbent Dufry - Ed] and to hold our own reaffirms, we believe, the professionalism of our teams, our track record and our commitment to customer service.

“It’s huge credit to the business development team directly involved in the process but also to the teams that show how good we are as a retailer and as a partner every day. “We have had an amazing track record in partnerships and joint ventures over the years, and I think that resonated with ANA, as did the ambition and vision we have for retail at the airports. Now we’re looking forward to working with the teams that are already in place at the airports to bring that to life.” ARI, adds Hernan, will bring its own best practice to play at the new locations in terms of service, design, marketing, offer and technology. Crucially, it will do this while embracing the need to differentiate airport by airport, including a strong Sense of Place at each (as the images on this page show). Here, UK-based The Design Solution played a key role in the project.

“We are known for our bespoke propositions,” says Hernan. “We didn’t make a single proposition to fit all the airports, we put forward individually tailored propositions, both in terms of the brand and the shop-fit. “Add in changing customer expectations and behaviour and it is clear that we must go more local in terms of our design and product mix. We have had a lot of success with the Kypriaka concept in Cyprus and plan to build a concept around the flavours of Portugal across the airports there. “We will also complement that with The Port Cellar idea, leveraging what Portugal is known for and using our lessons from say, The Irish Whiskey Collection. We will bring in new brands and showcase them in a way that is also Portuguese. “All of this is also about providing an experience. What we have learned is that people are desperate to reconnect and engage post-COVID. And that engagement comes in various ways, through our people, our design, our fit-outs and so on. An example here is that we will feature the famous Lisbon yellow tram in the store at Lisbon Airport. It’s about aligning that Instagrammable moment with a shop fit that is localised and very Portuguese.

“On top of that, while we have a Portuguese duty free store concept, each airport will also feature its own recognisable branding. We want to bring out details from Porto or Madeira or the Azores so that they resonate with travellers in each location. I think that level of detail also struck a chord with ANA. We have what we think is a compelling brand and marketing strategy, and gave a lot of thought to how we will maximise revenues for the airports. “We are also embracing the lessons from other channels, in areas such as sustainability – from fit-out to shopping bags – as well as digitalisation. We will bring the Click & Collect and Shop & Collects element that we do well elsewhere to Portugal, alongside ecommerce, to expand choice in how people want to shop. And over all of that we’ll layer the customer service mentality and human engagement that we aim for in all of our locations, in a great environment that stops people on their journey.” ARI plans to evolve the offer too; Hernan highlights innovations such as the Pre-Loved boutique that ARI first opened at Montreal Airport last year, and notes the potential for health & wellness concepts. “We won’t go in with a big bang or wholesale change to the ranges. Core categories such as wines & spirits and beauty will remain key. We see areas coming to the fore such as wellbeing, and also those that reflect customer demand for gifting and self-treat.”

Hernan in particular notes the backing for this bid that ARI had from the supplier community. “We had great support from the brands. We proactively went out to them in advance of the bid and said we could not advance this opportunity without them from a new business point of view. And to be fair they supported us very strongly.” Asked how ARI gauged the potential for this new business amid the uncertainty of COVID-19, and how difficult it might be to make money, Hernan said: “We have always been acutely conscious of not bidding for the sake of simply gaining market share or scale. This had to deliver profitable growth for us going forward and we believe it will. “We are a relatively small business and have always been very selective in what we bid for. We have a disciplined selection process and ensure that we are always strong on the technical side of our bids. In Portugal we recognised an opportunity in our knowledge of the demographic of passengers and the mix of business and leisure airports. There is a core duty free element in which we specialise, including via Brexit with the UK-bound traveller, which is a significant cohort. “So balancing all of that, we decided to be aggressive but not to try to win at all costs. Our board is very conscious that we must deliver a strong rate of return and we had to benchmark against that. “And then with COVID, we have reassessed our whole business in terms of our efficiency and our structures. We looked at every part of our model to see how we could become more competitive. We have smaller teams but we have very specialised and professional teams in place now.

“And part of that is leveraging our strong relationships with brands as well, as I mentioned. Without access to the brands and getting the best possible deals from the brands, we wouldn’t have been able to bid. So all of that combination enabled us to succeed here.” Leaning on the input of the existing teams on the ground will be an important element in making the business work, Hernan adds. “We are certainly not going in there saying we know everything. We want to leverage the knowledge and experience of the teams that are there already. And that is going to be a critical part of the transition over the next number of months. We are not setting up this business from scratch, we are taking over an existing operation with an existing team. We have a plan to transition and work with the teams there, which will bring an extra dimension to the proposition.” On the impact of this important contract for ARI more widely, Hernan says he would like it to have a ‘halo effect’ across the group.

“We are enthused by this wonderful opportunity we have been given by ANA to create a compelling proposition, and we also aim to repay the strong trust that the brands have placed in us to present them in the best way possible. “We also want to engage with other airports that are interested in an agile and flexible partner like ourselves. So we are out there seeking new business, but not at any cost.” The DAA board has been strongly supportive of ARI’s drive to expand internationally, and Hernan says that being part of an airport group helps in conversations with other airports. “Our CEO Dalton Philips has been four-square behind our ambitions, as has the board, but they want us to do it in a disciplined way. They were wholeheartedly behind our bid for Portugal. “I believe our success in winning and delivering, in terms of the return for the group, will help us to go and seek further business, especially with the pipeline of new tenders increasing post-COVID. “We are well placed. ARI has a great heritage but this success shows that we are also ambitious and confident about the future.”