RegStaer’s interview with Martin Moodie, The Moodie Davitt Report
Martin Moodie - founder of The Moodie Davitt Report, talks about the current state of affairs on travel retail and the duty free market.
What are the current trends in the duty free and travel retail business?
In travel retail markets we’re seeing more and more emphasis on local products. What we call “a sense of place” is becoming much more important to airports and retailers. Why? Because the airport is the first place you see when you arrive in country and the last place when you leave. I think it’s great that many airports and retailers are trying to reflect their city, region and country. So, that’s a very strong trend – a localization of products.
Another important one is differentiation. There’s more focus on exclusive products in airports, products only RegStaer sells or duty free exclusives. That’s becoming more important because it’s a massive market. For a typical beauty products company, it accounts for up to 10 to 12% of their global business. Greater product diversity is the next trend. Historically, the duty free market has been liquor, tobacco, perfume, cosmetics, and confectionaries. Now airports offer a fantastic array of toys, fashion, and accessories like we’ve seen in Vnukovo. Airports now are very big commercial enterprises in their own right. All around the world, pressures on traditional airport revenues have forced them to improve in other commercial activities, retailing, shopping, food and beverages. That’s the sector that is going to continue growing in the future.
What is Russia’s place in the duty-free market?
Russia has a very important place, historically, in two senses. First, Russian airports themselves are important duty free centers and have developed very rapidly in recent years. When I first came to Moscow in 1988, there was only one pretty good shop – Aerofirst, but duty free was in its infancy, and that was only 30 years ago. Now, you can see a qualitative revolution. The shops I see today are world class, as good as any you’ll see in any airport in terms of variety, offer, local products, and not only duty free but also duty paid. Second – it’s a very big market. Because of the Russian crisis, it’s under pressure, but in terms of revenues, it is very significant. It’s not just about what happens here, but also about Russians traveling worldwide. Russia is fundamentally an important nationality, traditionally amongst the highest spenders in the duty free world.
Do you think the travel retail market has recovered after currency fluctuation hit in recent years?
I think it’s still recovering, but it’s not yet fully recovered. I mean, no market can withstand such a hit. Currency is a key driver in the duty free market worldwide. The strength of the money in your pocket when you travel abroad or go to shop is important. If your spending power is devastated, as was the case with the Russian ruble, than that has an immediate blow. We see it worldwide – currency is the biggest dictator of national spending patterns around the world. In Britain, since Brexit, the pound has been very weak, but Heathrow sales were high because it’s a good value for everybody else.
How do you see the development of duty paid business in Russia?
I’m learning about things here. I didn’t realize that it was as developed as I saw it in Vnukovo. Duty paid is a huge opportunity. A traveler is a traveler, whether he travels internationally or domestically, he will spend in an airport. It’s about quality of offer, and what we see in countries like Russia, India, China is that duty paid offers become more and more significant, the quality continues to rise, and people are shopping. That’s both a big opportunity for retail and airports and also good for the consumer.
What are your impressions of Vnukovo facilities and terminal?
From what I saw, it’s a great airport. It’s clean and modern, very good shopping offer, and it’s diverse. I like the fact that it has a strong local emphasis. I loved the “Russian house” shop. One of my criticisms of airport shops is that if you are an alien dropped in from outer space into many airports around the world, you would look around and think – “where am I?” Here, you know you’re in Moscow. That impressed me. I thought the food and beverage section were also very good from what I saw. That’s important. Historically the airport food and beverage section has been very poor, especially in Russia. Today, my first impression was very favorable. It is considerably better than most US airports. Many US airports are effectively third world airports. They are not pleasant places to be, with few exceptions, like San Francisco. Vnukovo is a first-class airport. It’s very impressive in terms of design, spaciousness, cleanliness. It’s also efficient in getting people on and off planes. That’s why airports exist, and we mustn’t forget that, but I think the best airports in the world are trying to create positive consumer experiences.
What kind of impact will the internet have on travel retail in the future?
To me, that’s the single biggest question travel retail businesses are facing worldwide. I think the internet is partially a threat and partially an opportunity. For many years, airport retailers have put their heads in the sand with regard to e-commerce. They probably didn’t expect it to develop as fast and rapidly as it has. We’ve seen domestic retailers in many countries absolutely devastated by the impact of e-commerce. Now, we haven’t seen the market going down in airport retail, and maybe surprisingly the market is continuing to grow globally. I think the airport retail community must embrace e-commerce as an opportunity, not a threat, because you have this guaranteed market of passengers. You know they are going to come through your airport. You know it’s going to grow and grow for the next 12 years. Every projection tells us that. E-commerce, digital and social media give us the opportunity to reach consumers early, when they book a ticket, when they check a departure time. It gives them the opportunity to buy online, pre-order, or pre-order and pick on arrival. In certain countries in the world, South Korea is a good example, online opportunities are now worth about 20 percent of the business. That’s really significant. I think airports world offer the best opportunity to converge digital and physical shopping.
The sector is expected grow and traffic will be bigger. What lies in the future?
Broadly speaking, the future is very bright for the travel retail business. Most dynamics work in favor of the sector. The number of potential customers will grow very strongly worldwide for many years to come. We’ll also be seeing is much more professional approach to serving a passenger, to giving them a better experience. If you invest in retail, you’ll get a higher spending, and we see that worldwide. If you offer quality, you get a higher return. Airports are much more commercially minded than they were because they have had to be, but they also more concerned about consumer experiences. There’s a lot of research that shows that if the food offer at an airport is bad, than consumer perception of that airport is bad, and the same applies to shops. It matters to an airport’s revenue and reputation. Given the strong growth of particular travelling nationalities, like Chinese – that’s the tip of an iceberg of what we’ve seen so far. They are going to drive this industry for years.
How will the football World Cup influence development of airports in the country, and what kind of impact will it have on the travel retail business?
The World Cup will obviously be great for Russia and the tourism industry. Airports and the aviation sector are a part of the tourism industry, so the development of infrastructure is going to be good for the country. Great sporting events do play a big role in improving infrastructure and focus on tourism. This is an amazing country, and the eyes of the world will certainly be on it. Nationalities from all over the world will be pouring in, so that’s going to be good thing. Clearly, it’ll be good in retail terms, but I’m not sure it’ll be a bonanza. Football fans are not necessarily the world’s greatest spenders. There have been many examples where retail has benefited, but not always as much as one would expect because of the nature of visitors. Regardless, it’s a great opportunity to sell Russia and Russian products. To me, that’s the duty of the airport retail trade, to promote its own country’s goods.
