Gebr. Heinemann recorded a resilient financial performance in 2018 with Group turnover up 11.4% to €4.6bn ($5.4bn) as the family-owned company passes the leadership baton to its fifth generation.

Group-wide retail sales grew by an even more impressive 14.5% to total €3.6bn ($4.2bn) with wholesale activities up 0.2% to €900m.

Addressing trade media partners in his first press conference in Hamburg, newly appointed CEO Max Heinemann delivered a candid and measured appraisal of his development within the company and assessed its current and future growth trajectory.

As reported, Max Heinemann has transferred to the Hamburg headquarters to take up the position of CEO and Speaker of the Executive Board as part of a structural reorganisation that ushers in a fifth generation of leadership for the family-run company.

DARING TO PIONEER

Gunnar Heinemann and Claus Heinemann form the Advisory Board of the business, supported by Chief Operations Officer Raoul Spanger, Chief Commercial Officer Kay Spanger and Chief Financial Officer Stephan Ernst.

The move is designed to yield further growth, synergies and sustainability, while shaping a new generation ‘fit for the future’, according to the company.

“This fifth generation represents a huge opportunity for our company, its values and close relationship with its customers,” said Claus Heinemann. “This principle is now being passed on from the fourth to the fifth generation of the Heinemann family.

“I think it is a privilege that the fourth and fifth generation are leading the company, working hand in hand together with the executive management team.”

“Heinemann will stand for proximity to its customers and we will continue to be defined by our personal relationships with our partners. This will continue to distinguish us in the future.”

Adding his comments, Max Heinemann pointed out that ‘change is something we aren’t afraid of and is something travel retail is used to; we have the guts to continue being pioneers’.

“We are moving in the right direction and you will see the results in the coming months,” he pledged. “The good news is we don’t have pressure. The figures speak for themselves, we are growing steadily but we have the ambition to grow faster in the right direction.”

STRUCTURING THE FUTURE

Conviviality and hospitality among management and members of the trade press has become a discernible hallmark of these annual media briefings and this atmosphere permeated proceedings once again.

In a forthright and honest discussion of the business and its future prospects, the management team shared what the restructure meant to them personally, with the general consensus being one of adaptation and learning.

Aside the obvious leadership reconfigurations, the engine room of Heinemann’s retail activities now manifests itself in a new, centralised, regionally structured sales area (merging its  former activities of distribution and retail under one umbrella) led by Raoul Spanger.

Vice Presidents will also embed into this structure, which represents a step change in the Group’s reporting structure.

Another objective is to sharpen the corporate identity, business development and political profile of the Group throughout the world, evidenced by the shrewd recruitment of former Imperial Brands’ executive Dr. Jennifer Cords.

This was achieved during a challenging business year in which the Group has faced global macroeconomic and political pressures in its core markets.

“In a fast consolidating travel retail market, a highly competitive business environment new political developments continue to demand our full attention; the change in global politics and how certain nations are changing the trading environment is making our business less predictable, for instance with Brexit,” said Claus Heinemann.

“In addition, currency fluctuations remain a challenge for our regional business and changes in tax regulations have a direct effect on our business.”

Raoul Spanger then summarised a few concession highlights included the opening of Copenhagen Airport’s newly refurbished and expanded (more than 200sq m) main shop in July 2018 [Heinemann sealed an early contract extension with the airport to operate its Tax Free Heinemann Shops until at least 2023 last year].

In Israel, the company’s tie-up with JR/Duty Free at Tel Aviv Ben Gurion International Airport notched robust returns in its first full year of operation and is now the third strongest retail location in the portfolio by sales volume ($492m in the first year of operations), sitting behind Oslo and Istanbul only

The new Istanbul Airport contract – one Heinemann is keen to make a statement with as the largest duty free contract in the world – has opened all its duty free shops in co-operation with Unifree Duty Free across a sprawling 53,000sq m commercial footprint, as TRBusiness reported earlier this month.

That began with the main duty free shop in Zone 6 (departures), which opened its doors in January, with core merchandise sitting alongside regional products and fashion & accessories occupying a space of approximately 4,170sq m.

Rental agreements have been struck with more than 70 operators and brands such as Louis Vuitton, Dior, Hugo Boss and Prada and Heinemann intends to cement its standing at the $11.7bn mega-hub through further partnerships with the likes of Kering Group and Gucci and Richemont and Swatch Group.

However, the remainder of commercial operations, including luxury boutiques and an additional 20 shops operated by ATÜ Duty Free, are yet to open. This is expected to take place by the summer.

Claus Heinemann voiced his content in pursuing the 25-year agreement with operator IGA at the airport, where Heinemann is understood to have invested around €100m.

“The first figures are promising; technically, the airport works,” added Spanger. “It is a big first step.”

Reflecting more generally on the business landscape, he added: “Markets are changing even more, whether its online or offline. Consolidation of knowledge is a clear target to be more effective, whether it’s retail or distribution.”

INVESTMENTS IN KIEV AND MOSCOW

Heinemann’s operations in Eastern Europe & Central Asia through its joint venture activities at Moscow’s Domodedovo and Sheremetyevo Airports have enjoyed tailwinds.

At the latter, Heinemann opened ten new shops in Terminal B with partner Imperial Duty Free (IDF) and transformed four existing outlets at Terminal E including the introduction of a customised multi-brand format for fashion & accessories and watches & jewellery.

This is in addition to seven shop openings at Terminal F, which collectively produced growth at the airport totalling +25.4%.

“It is very good development, which means the investments we took in difficult years are now paying off,” commented Raoul Spanger.

The nascent arrivals duty free shop opportunity is another that beckons for Heinemann in Russia.

As reported exclusively by TRBusiness a customs code for the Eurasian Economic Union (EEU) entered into force in January permitting trade at the borders.

Heinemann locations include at Ekaterinberg Koltsovo International, where it will open a 150sq m shop, plus other counters at the major Russian airports.

Elsewhere, Heinemann converted its shop at Vilnius International Airport following a six-year contract extension agreed at the beginning of last year, with further airport unveilings at Kiev Boryspil Intenational Airport, Ankara Esenboğa Airport and at Copenhagen Airport.

At Kiev, where it operates in a joint venture with local partners’ BF + GH, sales increased by +20.5%.

“We are investing further in Kiev and Moscow and that will be an important part of our growth in Europe,” confirms Raoul Spanger.

A tranche of new shops have also sprung up at Amsterdam Airport Schiphol, including at the converted Lounge 3 and at Pier’s G and F.

In Norway, where Heinemann operates as Travel Retail Norway in partnership with Norse Trade at Oslo Gardermoen Airport, growth stood at +4.5%.

On the other hand, business at Frankfurt Airport dwindled by 5.5% due to traffic, security and space issues.

Meanwhile, Heinemann’s Asia Pacific business has been buoyed by its eight single-category confectionery shops at Hong Kong International Airport and its second Australia location at Gold Coast Airport.

“After a difficult start in Hong Kong for confectionery, it is now up to expectations and our Sweet Dreams concept is developing very well and we are quite happy with it,” said Raoul Spanger.

In Australia, its operations have benefitted from rising Asian passenger volumes, with Sydney Airport achieving 10.2% growth year on year to reach AUS428m ($316m).

“This is a real success as it is like-for-like and impressive growth,” continued Raoul Spanger.

Despite a challenging economic picture in Malaysia, the company’s joint venture with DFZ Capital returned ‘satisfactory growth’ at its border shop and airport business, with Plaza Bali – Heinemann Asia Pacific’s second largest distribution customer – opening its first arrivals shop at Jakarta in January.

CRUISE & AIRLINES ‘MOVING TARGETS’

During the year, the travel retailer collected a spate of new supply contracts at 14 airports, predominantly in Africa and Europe, plus renewed and extended these contracts, again mostly in Europe.

However, it is within the cruise channel that Heinemann is making arguably one of its most profound impacts at Group level.

This is no surprise, with demand for global cruising rising by almost 7% globally in 2018 to total 28.5m passengers, according to figures released this month by Cruise Lines International Association.

Heinemann secured the rights to operate retail on four Carnival Cruise Line vessels last year – Carnival Liberty, Carnival Fantasy, Carnival Ecstasy (Heinemann Americas) and Carnival Spirit (Heinemann Asia Pacific/Heinemann Australia), while Heinemann Americas and Heinemann Asia Pacific also won a tender for three ships with Royal Caribbean Cruises (RCL).

This RCL venture, which covers points of sale onboard its 5^th Oasis Class Ship, 5^th Quantum Class ship and 1^st Icon Class ship, are due to begin from next year, with Heinemann confirming it is keen to bolster its on-sea retail presence in Europe this year.

“The Board and our owners have clearly decided to invest substantial money into cruise lines in the coming years,” said Raoul Spanger. “Cruise lines is a long-term market; like airlines these are moving targets and two channels that we see as the basis for our market (growth).”

On inflight specifically, Raoul Spanger confirms Heinemann is investing in the channel, but concedes that some carriers require that investment more than others.

Sharing his thoughts on the BARTA tie-up with Budapest Airport and Wizz Air, he said: “Overall, grouping together does not create more margin. Only if it creates more volume can you share the profit, whichever way. If you share the same margin, it will be a difficult model.

“If you share much more turnover it is the right way for the future. I can report on this prototype that we do more turnover, but not substantially more turnover.

“We are now going to have a new trial in Vienna with Wizz Air, same model, new airport and I think we will have more prototypes in the future at different places.

“We have to do these exercises of these types in the future to serve the consumer in the right way.”

Elsewhere, the Group announced in March it had purchased the remaining shareholding in subsidiary Scorpio Worldwide.

Strategically, the bulk of Group sales is accounted for by retail (80%), followed by wholesale (19%) and rendered services (1%).

Within the retail division, Heinemann’s airport business heads sales by channel (80%), followed by border shops (12%), cruise lines and ferries (3%), other (3%) and airlines.

On a category level, liquor, tobacco, confectionery and fine food continues to take the lion’s share of the Group’s business (56%), followed by perfumes & cosmetics (34%), fashion & accessories (8%) and other categories and rendered services (2%).

STRIKING THE RIGHT BALANCE

Providing an update in his new position as Chief Commercial Officer, Kay Spanger outlined the importance of being nimble and agile in developing new product ranges that cater to customers in a market of perpetual change.

Spanger said purchasing functions must strike the right balance between global negotiations and local markets to deliver an appropriate assortment.

Perfumes & cosmetics remains a growth driver despite the persistence of ‘price aggressive online and domestic consumption’, said Heinemann.

The complexities of the market, which continues to attract an increasingly knowledgeable customer that may be price sensitive, luxury-orientated or sustainably aware, represents a challenge.

Spanger touched on the rise in niche fragrances and how the travel retailer is seeking to expand and adapt its ranges.

Revenue leader liquor, tobacco and confectionery is tilted towards unique products, craftsmanship and tailor-made exclusives and promotions, said Heinemann.

Appeal for rum, gin and Japanese whisky continues in abundance, while fine food provision is emerging into a core activity for Heinemann, with sales growing by 15% in retail and by more than 20% in distribution in 2018.

Fashion & accessories and jewellery & watches also remains high on the Group’s agenda.

Kay Spanger shared some food for thought on the evolution of the purchasing function: “Our market is a dynamic showroom; the best in the world for any product.

“It’s all about the balancing act: you want to be the most efficient retailer and player in the market but you also want the best offers for your consumers. Do you need all products? How many do you need in your daily basis? There becomes an important part of the future structure between the COO and CCO and teams.

“You will see in the next 12 months much more with our retail and B2B customers. Support comes with support. Whoever supports us will be much more visible in our doors that they are before.

“Those who either do not support us or have the feeling that they don’t take travel retail as seriously will see a reaction from our side as there is enough room and products available in the market.

“Pricing is also not the main part of our business, but it is important. We need to increase service and have more interest in surprising offers. But we need more than just brands in this market.”

Looking forward, Heinemann said it expects another year of strong sales growth in 2019 – its 140^th year of existence – supported by its ‘robust’ wholesale business and stability in the long-term contracts and partnerships it has forged.

It added that it will continue to pursue the right business opportunities in line with its defined strategy.

“We change with a growth mindset and, based on our history, with a strong foundation for rethinking and changing – and we act out of strength,” said Max Heinemann.

A SUSTAINABLE FUTURE

Proceedings drew to a close with discussion surrounding the Group’s enduring commitment to corporate social responsibility.

As a self-admitted ‘private’ company with no public reporting obligations, it is heartening to see Heinemann continue to be a major retailing force in the industry, as evidenced by the TRBusiness Top 10 Operators 2018.

In 1998 [the first year TRBusiness compiled this market-leading report], Gebr. Heinemann occupied sixth position with sales of $500m and although it has only jumped one place into fifth in the 20 years since, it has actually grown its business more than seven-fold.

An important facet of this development is the moves it has made to nose its business model more acutely towards duty free and travel retail.

Of course, its position in the rankings could change again when the latest Top 10 Operators report is published in October and that makes things all the more interesting.

All this is important in the context of Heinemann’s footprint; while some may question its ‘global’ influence purely in terms of the Group’s geographical travel retailing concession spread, with the business heavily weighted towards Europe, it is important to point out that through its distribution and supply arms, it touches virtually every corner of the globe.

Indeed, Heinemann points out that as a family-owned company always it has and continues to remain global in its outlook.

As a result, it continues to be actively involved in a number of environmental sustainability projects that echoe its strong commitment towards environmental sustainability and desire to concentrate more closely on the economic, social and ecological impacts of its business.

It is a member of the UN Global Compact and has been officially certified as an ‘Ecoprofit Company’ by the Environment Authority of Hamburg in recognition of its efforts.

For more insight and analysis on Gebr. Heinemann’s strategic trajectory, including views from new CEO Max Heinemann, watch out for the May issue, available to subscribers.

Delegates to next month’s TFWA Asia Pacific Exhibition & Conference can also pick up a copy from the press racks.