MEADFA Ghana day 2: DDF cautions on pricing as Africa’s potential unboxed

By Luke Barras-hill |

Dubai Duty Free gave an impassioned address at this year's MEADFA Conference in Ghana.

Ramesh Cidambi (left) delivered an impassioned address on day two of the MEADFA Conference on the mechanics of passenger growth and spending at Dubai Duty Free.

Dubai Duty Free (DDF) Chief Operating Officer Ramesh Cidambi warned delegates attending the MEADFA Conference this week about consumer pushback at the tills amid pricing hikes in certain merchandise categories.

“The challenge for the brands is to react to that,” he stated during the ‘View from Dubai’ session on day two of the event in Accra, Ghana (19-21 November), managed by TFWA and hosted by Avolta.

“We definitely think there is a softening in the business. We think customers are resisting these price increases.”

Cidambi reiterated similar concerns in his keynote address at the TRBusiness and m1nd-set co-organised TR Consumer Forum in Vienna, Austria in June.

Taking the example of liquor, Cidambi updated MEADFA Conference delegates that the category has grown by 3% this year, yet is down 20% in volume terms, referencing a scenario in the second half of this year in which demand rather than supply became problematic for some liquor companies.

“The only three sub-categories where volume [sales] increased was Champagne, tequila and Armagnac,” he continued.

Lower transaction value challenge

In an address laced with typical candour, Cidambi said he anticipates 2024 to be more challenging than 2023 for the DDF business for several reasons, including pressure being exerted on certain categories such as L&T, cosmetics, food and confectionery, as the combination of inflation and higher air fares squeezes consumers’ spending power.

While gaining on the high-end numbers – $500-plus transactions – challenges exists at the sub-$140 purchase level, he explained.

“The penetration is dropping, spend in the lower value transactions is dropping and volume is dropping… as brands and retailers we should be worried.”

For much of 2023, Dubai Duty Free’s sales growth outpaced that of passengers. Penetration though did start to drop from 2022 following the high levels recorded in 2021. Penetration has been below 2019 levels during 2023, partly due to the frequency of travel, a softening in economies and inflation.

Addressing the brands, he cautioned on pricing increases within certain categories.

Internal analysis conducted by DDF comparing 2019 and 2023 prices shared with MEADFA Conference delegates demonstrated pricing uplifts across a number of categories.

Cidambi told the audience that DDF expects that the overall variance between forecast 2023/budget 2024 sales growth to be +1.38%, as travel retail contends with a rising costs base, swirling inflation and increased operating costs in Dubai.

He urged brands in the audience to be realistic on the growth potential of their respective businesses, outlining how the DDF team took the chance at TFWA Cannes recently to split out the forecast 2023/budget 2024 sales by category to offer additional perspective.

“What we did for the benefit of the brands is we broke the budget down by category and showed what we think the growth will be,” he explained.

Dubai Duty Free has been working hard to tweak its brand and product mix.

“For 2024, we really want brands to be realistic in terms of the growth potential. We will do 87.5 million passengers this, 88m passengers next year.

“If any of you expect 10%, 15%, 20% growth next year, you should have very good reasons for that, whether it is allocation, something special about your brand or business…. caution is advised for 2024 compared with 2023.”

During a lively exchange with moderator Dermot Davitt during the ‘View from Dubai’ session, Cidambi offered a progress update on the travel retailer, which is set to celebrate its milestone 40th anniversary in several weeks.

Cidambi succinctly elucidated on the levers of growth for DDF witnessed in the years leading up to the pandemic.

The business is expected to surpass US$2 billion in sales this year and outpace its 2019 haul in what would be a laudable achievement in clawing back ground following the devastation caused to airport commercial revenues worldwide in the wake of the Covid pandemic.

Across the terminals, Concourse B – accounting for 37% of the DDF business – is 20% up on 2019 sales figures; Concourse A is tracking a few percentage points lower than in 2019; while Terminal 2 is experiencing 30% growth versus 2019 due to an increase in passengers linked to the success of low-cost carrier FlyDubai.

He told MEADFA Conference delegates that the actual growth in pax in 2023 in Dubai was much higher than the 75-76m pax forecast that was first budgeted, which has created a challenge for DDF’s purchasing team.

After handling 86.3m pax in 2019, DDF is set to surpass that number this year with an expectation that Dubai Airports will handle around 88m pax this year – revised upward from the 85m forecast in August.

In 2023, the sales recovery outpaced pax with spending maintaining elevated levels, however, SPP and penetration is moderating.

“Watch this situation; there is moderation in spend and penetration,” he insisted. “We are a few dollars higher than 2019, but it is something to watch out for and this is what we are seeing at the moment.”

DDF has achieved success in recent years in tweaking its product mix, explained Cidambi.

Fashion is one example, a category that has witnessed marked improvement in recent years with SPP benefitting from investments into the shops. That is duly reflected in today’s 12.3% share of group sales (Jan-Oct 2023) versus 6.62% in 2019.

“The fashion category has grown significantly […]. The cosmetics category has suffered due to the drop in Chinese traffic, but in 2020, 2021, 2022 we consciously improved the fashion offer with the opening of Louis Vuitton, Cartier and Dior, the renovation of the gold shop… and that has what has changed the product mix in the last three to four years,” continued Cidambi.

India’s fierce competition

Addressing the regional distribution of passenger sales, Cidambi reiterated that India remains DDF’s most important sales generator. It is expected to take a 12.36% share of sales this year, within which, wines & spirits contributes about 30% of the India business.

“The Indian airports have been extremely aggressive with pricing on wines & spirits and the quality of retailing at Indian airports has improved significantly and when I compare this to 15-20 years ago, it’s an absolute transformationm,” he explained.

The growth in the passenger recovery in China is outstripping that of sales in the passenger segment, which is “bit worrying”, according to Cidambi, with a consistent gap of 10% between the metrics. 

“The better that Indian airports get, the harder it is in terms of competition.”

With the exception of Africa and the Far East, which remain down, all other regions are performing positively versus 2019, heard delegates.

Elsewhere, DDF is currently renovating its liquor shops in Concourse B. The arrivals duty free offer is also being refurbished at Terminals 1,2,3, together with the P&C category in Concourse A.

“We need to get better from a retailing and pricing point of view and use our relationships with the brands […] to try and differentiate the offer as much as possible,” pointed out Cidambi.

“We have to accept the fact that at least in 2024, in wines & spirits we need to be aggressive and in fashion, all the major brands are focusing on India and the domestic offer. The quality of domestic retailing in India is improving significantly.”

Elsewhere, the growth in the passenger recovery in China is outstripping that of sales, which is “bit worrying” due to a consistent gap of +10%, added Cidambi.

Above and below: Roberta Annan, African Leadership Hall of Fame inductee, fashion entrepreneur and founder of the Africa Fashion Foundation (AFF), delivered a memorable keynote.

A combination of intense domestic competition, including aggressive pricing in the cosmetics category in Hainan twinned with downward pressure on DDF’s own cosmetic business and economic headwinds in China has led to suppressed spending from the key travel spending group.

On Africa, Cidambi said: “Africa as a region… if you take the 20-35 destination served by Dubai Airport, it represents about 8.9% of our business. About a quarter of that is Egypt.

“Some of the sales figures are slightly clobbered by the fact that in 2019 and before Covid we had a lot of Chinese customers going to Africa and they contributed to spend. It still remains an important market for us. Perfumes leads the way, then technology. Africa, China and India cover about 30% of our total business.”

Africa: Knowing your market

Elsewhere, the Dubai government’s suspension of the 30% sales tax on alcohol at the beginning of this year has hit the on-trade as well as the off-trade, explained Cidambi.

For DDF, that has led to months of battling over pricing and promotions to match domestic market pricing while promoting the benefits of its arrivals shops business.

In an eye-opening keynote setting the scene for day two of the MEADFA Conference, African Leadership Hall of Fame inductee, fashion entrepreneur and founder of the Africa Fashion Foundation (AFF) Roberta Annan, shared her unique insights on building brands in Africa and tapping into the potential of the continent’s consumer market.

Born and based in Accra, Annan offered an important lens into the high growth potential of Africa.

Citing United Nations’ estimates, Annan said that by 2050 around one quarter of the globe’s entire population will be on the continent.

“That is a very significant number. That means the continent will shape up trends in terms of consumer mechanisms. Even if you’re in Asia, Europe, the Americas, you cannot neglect the potential, particularly when you look at the very young population of this continent.

“A lot of consumer trends will be set up here so it’s very important to connect to what is happening here culturally and adapt your marketing strategies to this market.”

With a population today of 1.4 billion people, Africa represents a substantial opportunity for businesses and investors, with Annan foreseeing a wave of luxury brands arriving to the continent in the coming years – the chance to build global brands is, of course, appealing to global travel retail stakeholders.

Tourvest Retail Services CEO Clive Jones, appearing alongside Lagardère Travel Retail West Africa CEO Sountou Bousso, said: “Africa is more connected than ever and in this post-Covid world, international travellers are looking for experiences that we can offer.”

“Africa is blessed with multiple cultures – in Ghana we have 16 regions, 46 dialects, nine official languages. To some people it can be a complex thing to deal with, but that also is an opportunity for us to experience different things and understand and respect someone’s culture.”

Annan did strike a note of caution on ‘going global’ without first understanding macro-economic variables such as production, sourcing and market access for brands and products.

Innovation and the demand curve

Following a presentation unboxing the latest traffic data, travel forecasts and trends from Martina Bednarikova, Economist and Policy Analyst at airline association IATA – in which delegates learned the Middle East & Africa region is leading the recovery in international air connectivity – attention turned to a panel discussion featuring Tourvest Retail Services CEO Clive Jones and Lagardère Travel Retail West Africa CEO Sountou Bousso.

Jones outlined how integrated tourism group Tourvest, which operates global inflight concessions, and ground shops on the continent, is catering to the needs of African travelling shoppers.

Jones touched on the diversity of Africa, explaining: “Africa is more connected than ever and in this post-Covid world, international travellers are looking for experiences that we can offer.”

Beam Suntory Global Travel Retail Marketing Director Manuel González delivered an absorbing address in the ‘Innovation in Action’ session on day two of this week’s MEADFA Conference in Accra, Ghana.

While representing the industry’s smallest region in terms of share of duty free sales, Africa’s boasts an increasing number of affluent travellers that remain among the highest-spending customers in some airports and on certain long-haul routes.

In the penultimate session of day two, MEADFA Conference delegates were updated on the steps being taken to create a more sustainable and equitable travel retail industry in the Middle East & Africa, with on-stage contributions from Munif Mohammed, Sustainability Lead for MEADFA and Saudi Arabia CEO for Lagardère Travel Retail. Joining him on stage was joined Bernard Creed, Senior Vice President, Finance at Dubai Duty Free.

Both offered perspectives on how their respective companies are working to reduce their carbon footprints and build their ESG standings.

Arriving at the final session of this year’s MEADFA Conference, delegates heard from Orange Africa Innovation Booster Nicolas Bry – who has a wealth of experience helping companies in Africa to harness the region’s potential – and Beam Suntory Global Travel Retail Marketing Director Manuel González.

González delivered an absorbing address on injecting innovation into the trade via technology and creative marketing applications, citing recent immersive pop-up activations from the likes of Sipsmith Gin and Maker’s Mark.

During his speech, he drew on data from m1nd-set and IWSR. One third of passengers visit the duty free store to browse; 22% of purchases are driven by brand loyalty (+16% vs pre-Covid); 73% of total 2027 growth will come from premium+ segments vs 2022; and 53% of buyers purchase unique/duty free exclusive products vs pre-Covid, delegates learned.

For a full report from day 1 of the MEADFA Conference and additional content, click below. 

READ MORE: MEADFA Ghana day 1: Debate centres on ‘fractures’ in airport retail model

READ MORE: More than 300 attendees to inaugural West Africa MEADFA Conference

READ MORE: Sherif Toulan, President, MEADFA on TRBusiness Ghana Shorts 

READ MORE: MEADFA Conference: 90 Second News Special

 

International

OUT NOW: June/July issue + Top 10 Airports

The TRBusiness June/July 2024 edition, featuring the Top 10 Airports report, is now available...

International

TR Consumer Forum 2024 photo gallery now live

The TR Consumer Forum 2024 was packed with memorable moments, from the very first networking...

International

TR Consumer Forum welcomes Gulf Beverages

TRBusiness is proud to announce Gulf Beverages and African + Eastern as Diamond Sponsors for the...

image description

In the Magazine

TRBusiness Magazine is free to access. Read the latest issue now.

E-mail this link to a friend