The Hong Kong Mass Transit Railway (MTR) Corporation has awarded its two Lo Wu/Hung Hom and Lok Ma Chau railway station duty free shop contracts worth +USD1.2bn to the experienced incumbent operator, Anway Ltd/Sky Connection after a long evaluation process that began last August.

 

Commenting on the award, Anway Ltd/Sky CEO Baker Salleh told TRBusiness: “We thank the MTR CORP. for selecting Anway Ltd from a field of very strong local and international competitors to operate all the duty free shops at MTRC’s busy cross border stations.

 

“Over the next five years we will use all our experience and expertise to handle and creatively market to over 400,000 people who are expected to use the two stations every day on average.”

 

INTENSE BID PROCESS EVALUATION

As was expected, this tender process follows a very intense period of evaluation by MTR Corp management, amidst keen interest related to TRBusiness from a handful of other interested retailers, with both of these contracts awarded well ahead of their commencement dates in 2017 and 2018.

 

As exclusively reported last May [http://www.trbusiness.com/regional-news/asia-pacific/multi-million-operator-focus-on-hong-kong/105525] the largest of these station businesses is located at Lo Wu and Hung Hom, where the new contract is set to begin on January 1, 2018.

 

The minimum guarantee acceptable under MTR’s new contract for the Lo Wu and Hung Hom business was set at HK$87m ($11,204,289) per month, or 42% of sales (whichever proves higher) although it is likely that Anyway has offered more than this amount.

CONTRACTS WORTH +USD1.2bn OVER 5 YEARS

As reported, Lo Wu remains Hong Kong’s most heavily used immigration control point for passengers travelling to and from Mainland China. Duty free sales at Lo Wu last year were HK$2bn ($257m).

 

By contrast, Lok Ma Chau falls under a separate contract, which is set to begin on August 15, 2017. This tender was released in the first week of May 2016 with the minimum acceptable monthly bid set at HK$77m ($9,916,591) or 42% of sales – whichever is higher.

 

MTR’s decision to retain Anway/Sky will doubtless have been heavily influenced by the incumbent’s financial offer, although the operator’s experience of operating these border stores is also likely to have been a major factor.

 

TOUGHER TRADING ENVIRONMENT

Especially given the tougher duty free environment in the border business in recent years and the damaging reduction in business following the dramatic reduction in the duty free tobacco allowance on the Hong Kong side.

 

To some extent, some of the pressure that these contracts could have come under due to the entirely separate express Hong Kong-China rail link opening has also been alleviated – at least in the short term until around 2018.

 

This relates to the separate duty free offer that the express train service and the anticipated new duty free store at the Kowloon Terminus will represent when these services finally commence.

 

A large duty free store and several specialist stores are expected to operate over an area of around 10,000sq m at this Terminus and several DF&TR operators have confirmed that they are very interested in becoming involved with this development.