Industry Concessions

Towards a ‘new normal’ for airport concessions

On 11 April, The Moodie Davitt Report and the Airport Restaurant & Retail Association jointly hosted a key conference session at the Summit of the Americas in Palm Beach on the future of concessions at airports. We report highlights of an engaging session on some vital themes facing the sector.

The IAADFS-organised Summit of the Americas in Palm Beach on 10-13 April was a first valuable opportunity since 2019 to gather together the regional duty free industry in person. It also presented players in the airport concessions business with the chance to openly discuss some of the challenges presented not just by COVID-19 but also by the underlying structure of the market. The future of concessions was the key theme of the event’s first panel session, co-organised by The Moodie Davitt Report and the Airport Restaurant & Retail Association (ARRA). Speakers included Dallas Fort Worth International Airport Executive Vice President of Customer Experience & Revenue Management Ken Buchanan, ARRA Executive Director Andrew Weddig, Hudson CEO Jordi Martin-Consuegra and Lagardère Travel Retail COO Americas Jean-Baptiste Morin. As The Moodie Davitt Report President Dermot Davitt noted in his introduction, while there has been a rebound in North American domestic traffic, many airport concessions still have a long way to go before they recover. The pandemic also exposed fractures in the business model that were just below the surface pre-crisis. He said: “It is clear that the travel retail industry won’t bounce back until we collectively evolve the business model, ensuring its financial structure is sustainable and resilient.”

Talking about the Trinity: (Left to right) ARRA Executive Director Andrew Weddig; Dallas Fort Worth International Airport Executive Vice President of Customer Experience & Revenue Management Ken Buchanan; Hudson CEO Jordi Martin-Consuegra; Lagardère Travel Retail COO Americas Jean-Baptiste Morin and The Moodie Davitt Report President & Editorial Director Dermot Davitt

Andy Weddig gave an overview of travel retail’s journey in the last two years, from the early shutdown of 2020 to the slow and uneven recovery of 2021 and 2022 so far. He said: “ARRA has estimated that US airport concession sales, excluding duty free, dropped from around US$825 million in April 2019 to just US$40 million a year later. Since then we have seen recovery but it’s only in the past few weeks that members have seen daily sales levels reach those of 2019, although traffic is back at 90% of previous figures.” He highlighted the challenges of labour shortages, retailers seeking to rebuild their cash positions, contract terms and debt. On where the industry goes from here, Weddig said: “We are not recovered. Air travel has come back to about 90% in the US but that is not the same thing as recovery. If we are down 10-20% that represents the margin in many concessionaires’ businesses. The sales loss is still tough and many companies are at best in break-even situations. That means finding our way out of debt is much harder. “After laying off so many staff we are also struggling to get our workers back, and we face higher wage rates in turn, which impacts on margins. And high inflation puts further pressure on us. So we are not yet in financial balance.” He added: “We can’t go back to normal. The pre-pandemic model has fractures and the pandemic exposed them. We need to adapt to a new normal and become more sustainable, more agile and more resilient. “The ‘new normal’ can take the form of new rent structures, capital structures, contract structures and brand structures. We need to consider how we share risk in future, and what models lend themselves to doing this. Flexibility needs to be built into contracts so that concessionaires can adapt readily to the needs of new consumers. “We must ask what consumers are looking for? Travellers aren’t captive anymore – they need to be captured. We’re building a customer-centric concessions industry that can meet customer needs and is flexible, innovative and agile.”

“We need to adapt to a new normal and become more sustainable, more agile and more resilient”

ARRA Executive Director Andrew Weddig

Each of the speakers outlined where they are on the recovery chart. Representing Dallas Fort Worth, which was the world’s second biggest airport by total traffic in 2021, Ken Buchanan said: “We are on average at 90% and on some days we are exceeding FY19 levels. We will average over 200,000 customers a day now through the Summer.” On the wider outlook, he said the updated strategic plan for DFW was built around the four pillars of employees, customers, community and partners. “We are working to create a seamless, frictionless airport for our customers, which means working hard with all of our stakeholders. When a customer travels through an airport, there are typically over 100 decision points for them. We aim to make that seamless. “We also want to remove the emotion of anger which is powerful and can be negative for our customers. That means getting through TSA or Customs faster than at any other airport, and getting your goods and services more quickly than at any other airport. That also means mastering the basics, which is a fundamental expectation. “We also represent the fourth largest metropolitan area in the US, and serve a greater purpose – with 300,000 airport jobs and being an economic engine for our region. So what we do is far deeper than being a commercial entity.”

“We have around 90% of the network open in US and Canada but there is a question of whether those stores that are not yet open will open again”

Lagardère Travel Retail COO Americas Jean-Baptiste Morin

Hudson Non-Stop at Dallas Love Field Airport: Investment by Dufry Group in a new travel retail future

Jordi Martin-Consuegra said that the Dufry company is now operating 90% of its store portfolio in North America. By December, Hudson had reached 80% of its 2019 sales, which slipped to around 72% once Omicron hit. He said: “There is extraordinary recovery in travel retail, ahead of expectations. Convenience and food are recovering ahead of the market, around 5-10% ahead of the TSA traffic trend, with duty free set to follow. “Despite the hiccup of Omicron, we have seen business travel come back too. This time has allowed us to focus on growth, innovation and collaboration. We have an internal transformation programme that addresses the challenges we identified during the pandemic together with our partner airports and brands.” On adapting to the new consumer, he added: “We have seen the core convenience categories from food to confectionery to souvenirs gaining more weight, but as soon as traffic returns, the other categories will regain their share in the mix. We must be ready for that and be more agile and flexible than ever before.”

Aelia Duty Free at Lima Airport, where the retailer has entered a new profit-sharing partnership model

Jean-Baptiste Morin addressed the different shape of recovery across Lagardère Travel Retail. “The US has gone through a steep recovery, and is now back close to previous levels. We have around 90% of the network open in US and Canada but there is a question of whether those stores that are not yet open will open again. The demand is not there in some categories so we need to adjust concepts and brands and if these don’t generate the volume, ask whether they are sustainable? But more widely we are confident that business is trending in the right direction.” On changed consumer habits, Morin said: “Number one is ease of shopping and convenience. This is especially true for the food sector. Also, local is a dominant trend, and the need to have Sense of Place and sustainability at the core of how they purchase is important.” Labour and staffing are top-of-the-agenda items in any discussion of recovery, and Ken Buchanan addressed this in the airport context. “Labour is one of the challenges at our airport. There is a correlation between those that kept their stores open and retained their staff of course. Those that didn’t have found it more difficult. “But new businesses also sprang up in COVID, including the big Amazon warehouses. Now it’s not easy to attract people back to the airport, as we are competing for labour. If the US unemployment rate is 3.5%, in our market it’s even lower. We see it in my part of our organisation. I’m trying to hire bus drivers but demand is outstripping supply, as many have moved to other industries. We need to look at raising wages to get people. “But one thing is important: labour challenges can’t be the excuse as to why we can’t serve the experience we want for our customers. Higher wages, benefits and an exciting work environment – that’s all part of the new normal.”

Labour, debt and updated industry relationships were on the panel agenda at the Summit of the Americas

“Convenience and food are recovering ahead of the market, around 5-10% ahead of the TSA traffic trend, with duty free set to follow”

Hudson CEO Jordi Martin-Consuegra

Martin-Consuegra said: “We need to come back to our good old cultural values of training people well, and for me retention is the bigger challenge, not hiring. We must be very open about what our values are, what we stand for, communicating on diversity & inclusion, and implementing technology that allows people to understand what is happening across the company, to generate new ways of working.” Weddig added a key point about the future of labour in the industry. “Our industry across retail and food has been based pretty much on a low wage model traditionally. Those costs – which also helped us attract customers – were part of the operating model. We are now in a new environment where that assumption is probably no longer valid. So the underlying business model of companies in this industry has changed.”

Moving beyond MAG

One of the key themes of the discussion was how the Trinity can move beyond the traditional fixed rent and MAG model. Jean-Baptiste Morin shared his thoughts on the retailer’s innovative new profit-sharing partnership with Lima Airport Partners (LAP), which began in January. “We asked the question along with Fraport and LAP, ‘how do we collectively grow the pie, rather than share a shrinking pie?’ Potentially, the traditional revenue share model was making access to the airport business unsustainable for many brands given the fee structures. “So, we looked at how we could change that. We looked at how we could have more staff for specific items to intensify the relationship with the customer. That costs a bit more but then you can generate more revenue. This is not possible if you are focused on your minimum net margin before you pay your rent. “We had the opportunity to reset everything from space to products. Our idea was to work together and not be limited by the rent structure in our commercial offer. We have opened the door to new products. Plus we have a more transparent conversation with the airport. We share information on margins, on commercial performance and can have more detailed conversations about becoming more productive in terms of top line and therefore bottom line.” Martin-Consuegra noted: “Any new model has to achieve first flexibility and second, allow for innovation. Those are the opportunities. “As a travel experience company I am OK to be held accountable for performance. We are supposed to know the demographic, how to build an assortment, and therefore I’m OK with a MAG in normal times. Any new model must be a vehicle for innovation. That may mean investment for some additional term but everyone must win.”

“You can ask me to relieve you of financial obligations but you as a concessionaire have an obligation to exceed the customer expectations”

Dallas Fort Worth International Airport Executive Vice President of Customer Experience & Revenue Management Ken Buchanan

Of partnership evolution at DFW, Ken Buchanan said: “For a long time at DFW we have de-emphasised MAG. We were among the first airports in the US to do this and we also put a floor and a ceiling on percentages. What we don’t want is you as a concessionaire trading off MAG or rent versus the customer experience. “We do what we can to take on more risk as an airport and to minimise, though not eliminate, risk for our partners. Our budgets are set based on percentage, in an environment where you can bring your best to accelerate your sales and therefore accelerate my revenues. We are in the business of removing barriers to that. I want my partners to make money and reinvest in experiences for the customer. It will take a focus on innovation and technology. “The consumer has changed in the past two years. You can ask me to relieve you of financial obligations but you as a concessionaire have an obligation to exceed the customer expectations. So if the customer changes but you have not invested in tracking those changes or investing to adapt, I have to evaluate if you are the right partner for me. I am open to shared risk but not to shifting accountability.” On where brands sit in this new world of concessions, Martin-Consuegra said: “The industry is flowing back. The appetite of travellers to shop is still there. Retailers are innovating and that is also about partnership. We are ready to make that investment in tech, in other innovation, in new products. We need to find new answers and do things differently but there is a positive future ahead.” Morin added: “Travel retail is the ultimate brick & mortar retail sector. The business is there and will come back. If we go head to head with Amazon we will not succeed. So it’s how can we can be more clever by combining the best showcase for products in the terminal with online elements. There are unique product opportunities that cannot be replicated online.” Finally, on what recovery can and should look like for airport concessions, Weddig said: “It is a state of financial balance. It is when we have recouped the costs from the pandemic and we are at a point where cashflow in our operations is sustainable. That’s in the short term. “Longer term, financial balance is the metric but it’s a new type of balance. Sustainability has costs, the digital platform has costs, keeping the experience fresh with brands across shorter lifecycles has costs that perhaps didn’t all come into play pre-pandemic. So how do we reach that balance? It’s a big question and will be part of the longer journey.”

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The Moodie Davitt eZine Issue 309 | 29 April 2022

The Moodie Davitt eZine is published 14 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 and to subscribe, please e-mail

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