RegStaer’s interview with Eugenio Andrades, Dufry
Eugenio Andrades, Dufry Divisional Chief Executive Officer UK, Northern, Central and Eastern Europe, talks about industry trends and partnership with RegStaer.
What are current worldwide trends in travel retail development and the duty free market in particular?
Firstly, it’s the ongoing growth of the industry driven by the secular increase of passenger numbers, which depending on the statistics used amounts to 5%-7% yearly on average. This is extremely interesting for us. Going forward we expect growing passenger numbers will remain the driving force of organic growth, despite some changes we have seen recently in passenger profiles.
Secondly – and I think this is more of a characteristic of the industry, than a trend – is the fact that travel retail is always exposed to external factors, which we cannot influence and which on a local or regional basis can impact the business temporarily; to name just a few, we saw currency fluctuations, terrorism, natural disasters, etc. But despite these environmental issues, the industry remains quite stable.
As a third and most important trend, I would mention globalization and speed of change. In the past, it took years for global changes to come into effect. More recently, it took months, but now it takes days. Things change day by day. Digitalization makes people react very quickly and you have to be flexible and agile. All of this leads to better, more professional operators in the industry.
A final point to highlight is that of consolidation. In recent years, the travel retail industry has seen several stages of consolidation, in which Dufry has been a driving force. I’ve been part of the industry for more than 20 years, and what you are seeing now is the result of this consolidation. And I don’t think we are somewhere near the end of it. We’re still in the process, as in certain regions like Asia, the industry is still highly fragmented. In the future there will be fewer operators in the industry, but they will be better, more professional and more global.
What is Russia’s place on the world’s duty-free market?
I think Russia has a dual role in the market, together with a few other nationalities such as China and Brazil in particular. First, they all have very important local markets, Brazil has a massive duty-free market within its own territory mainly driven by Brazilians returning from trips abroad, and China is very similar. I think the same is true in Russia. There are ups and downs because of changes in the economy, currency and oil price fluctuations, but these nationalities remain important to us. For the Dufry Group, the Russian share of sales is bigger than the Chinese but not as big as the Brazilian’s. Actually, last year’s highest growth in the industry came from these nationalities, as they again started to travel and to spend more than the previous years, when they had to face currency devaluations and travel bans, which ultimately impacted the whole industry.
These three nationalities have also been important growth drivers in other markets abroad and share similar shopping characteristics. For instance, Russians have a dual role – they have a strong local market, but at the same time their flux of passengers is also a driving force in other markets such as Barcelona, London and Geneva, as well as at Greek and Turkish airports to name but a few.
Can you give an overview of RegStaer and Dufry partnership?
Today, RegStaer is one of the key players in Russia. The future success of the industry lies in the global consolidation, with big players bringing expertise on key functions – purchasing power, category management, digital, logistics. But even if an operator has all these skills, there is still one important element missing: the knowhow on specific local habits, customer preferences or relationships with airports. That’s why the partnership between Dufry and RegStaer works perfectly. This joint venture brings the best of Dufry’s global size to the extremely knowledgeable team of RegStaer. Today, we’re present mainly in Moscow, but we’re working on extending our concessions, and that provides a solid base. The first time I visited Russia, about two years ago, I noticed airports investing in the future – Domodedovo and Sheremetyevo had built new terminals, which provided the right opportunities for us to work together. Other countries have been driven internationally, but once you get to know a map of Russia (it’s more of a continent than a country) you see a lot of people travel within Russia. That as well opens interesting opportunities in duty-paid by serving domestic passengers. We’ve tested these concepts – named Dufry Shopping – already in Brazil, another country with important domestic traffic. It worked there, and we hope to successfully implement it in Russia by offering domestic passengers an attractive assortment.
Future plans for joint development?
We plan to consolidate in our current airports. Vnukovo is in a good shape now, and a new terminal in Domodedovo should reinforce our position there. No need to mention Sheremetievo, our base. Another interesting area of development – arrivals. In some parts of the world arrivals are very important, and in some cases – as mentioned above in the case of Brazil – even more important then departures. I believe duty-paid should be properly tested in Russia because of the profile and the huge amount of domestic passengers. At Dufry, we’re a big player in convenience stores. We have a strong position in the US with the Hudson brand, and we’ve already exported this retail concept to 15 countries, including Brazil, China and several European countries. I think that’s another market trend. Our current share of duty-free and duty-paid sales is positive as we have the knowledge and expertise that enable us to target customers of different profiles with a specific and tailored product assortment and service offer.
What is the future of the travel retail business?
I can tell you with confidence that the future is growth. I don’t have any doubt about the further growth of the industry. People like traveling. Even younger generations will travel more. In the past, people used to buy things and accumulate wealth, but now they want to enjoy life, have experiences, see other things. The world is getting smaller because it’s getting cheaper to travel worldwide. Nothing will stop it. Only traveling to resorts will decrease. Airlines will have cheaper fares, and traffic will continue to grow. Spending will be smarter and customers will make more considered spending decisions,, but the future is up to us and what we can make of it. People want to have better experiences in retail and receive good value. If things are cheaper – ok, but in the end, they want to have additional value, whether it is innovation, exclusivity or special services.
As retailers, we need to better serve customers. You cannot serve everyone the same way anymore. We need to treat people differently and individually. I’m sure we behave differently if we get up at 5 a.m. and go to work or if we are going on a vacation with friends. We need to improve on a few things, for example – digitalization. In travel retail we have the advantage to have a captive audience and as in any retail operation the shop location is key. So, even if we don’t need to advertise for customers, we still have to become smarter and more attractive. I think digitalization will play an important role in creating pre-awareness. It will help us to connect with and talk to people before they travel. We can target customers in airports. In the past, advertising signs hung in terminals for months because they were expensive to produce. Now, with digitalization, you can change a message every 15 seconds if you want to. For example, changing a tasting bar 2-3 times a day according to the passenger nationality and the destination of airlines. That already happens. You can change promotions according to flights and profiles. In addition, digitalization will be a massive asset for sales people and our employees. They will have immediate access to information.
At the moment, you have to hire people of certain nationalities so they can address customers in their own language, but the speed of translation devices is increasing. I wouldn’t be surprised if in few years it will be very simple to talk to people in their own language. Digital devices will help to retain customers and provide them with excellent services and loyalty programs. We can remind them of exclusives and excellent offers that fit their profile whenever they travel.
The second development that’s clear to me is multichannel sales. This is more difficult to foresee, and I’m not implying that this will replace the sales we do now, but internet presence is critical. More and more people buy online. We provide services to reserve and collect (something already present on the market), but that’s very primitive, and we need to do much better. Paying and collecting on arrival will simplify people’s traveling. For all these things which will happen, it’s important to have a good partnership. A good relationship with the airport is not only reflected in a good contract, equally important are the ways of working together. We must understand how they move the flights, the future developments of terminals and passenger profiles.
Moreover, improving relationship with brands by encouraging innovative is also very important. We sell the best brands in the world, and it’s critical to have good relationships with them. And competing only on price is not the future. I see the sector moving toward exclusives and already today we cover about 30% of sales with promotions, novelties and travel retail exclusives. Another recent development – people travel more often now. In the past, Europeans traveled once or twice a year. We expect this figure will double, and you don’t want to see the same things every time you are at the airport. You want to see something new.
