Gebr. Heinemann has revealed key supply contract renewals with gateretail and Ryanair as the Hamburg-based firm reached controlled turnover of €4.1bn (+6.6%) in 2017.

Gateretail’s agreement extends for another five years, with Gebr. Heinemann acting as the exclusive perfumes & cosmetics supplier for all 18 of the onboard service provider’s carriers and has sealed a non-exclusive agreement for all other products.

Last week, Heinemann renewed with low-cost giant Ryanair for another five years, covering its entire product offering in exclusivity.

Peter Irion, Executive Director, Distribution told TRBusiness: “The airline business trends towards low-cost carriers; they are growing market share and and have far bigger duty free sales than the national carriers.

“If you want to grow and sustain, you have to be with them. Ryanair is the biggest and fastest growing, with a plan to double their size in the next five years.

“Gate is today the leading retail concessionaire onboard 18 airlines and they want to grow further. With those two, we have secured a big chunk of our business in the airline industry for the next five years.”

MAX TO JOIN BOARD

In a comprehensive press briefing in Hamburg attended by TRBusiness, Co-owner Claus commented on the firm’s ‘healthy’ and ‘robust’ year, as it extended its reach into Malaysia, Hong Kong and Israel.

“In 2017 we were able to build on our strong position in Europe, particularly Eastern Europe, Russian, Ukraine but also Scandinavia and Turkey plus all the airports we run with Unifree,” said Claus Heinemann.

In related news, Heinemann also announced that current Asia Pacific Chief Executive Officer and family member Max Heinemann will return to Hamburg in August to assume a position on the executive board.

“He is sure to benefit from his experience of Asian culture and will bring new value to the company and strengthen our firm in this area,” added Claus Heinemann. “There can be no better message for our employees.”

EUROPE STILL LEADS

During Claus Heinemann’s press briefing delivered alongside Executive Directors Raoul Spanger (Retail, HR), Kay Spanger (Purchasing, Logistics) and Peter Irion (Distribution), invited members of the press heard that countries such as Russia, Ukraine, Georgia and Romania also performed well in 2017.

Raoul Spanger revealed that Heinemann retail sales alone generated €3.2bn ($3.9bn).

Drawing attention to the ‘tough couple of years’ faced in the Russian and Ukraine markets, sales are now following an upward curve.

At Istanbul Atatürk Airport, where Heinemann operates with Unifree Duty Free as a 50% joint venture partner of Turkish travel retailer ATÜ Duty Free, passenger numbers are slowly returning.

“We can say Turkey is back on track, which is important for us as we had to replan our forecast for the new airport,” commented Spanger.

“There’s an incredible amount of work to do – we are preparing everything we can to follow this opening date [October].”

Asked by TRBusiness whether the firm is satisfied with retail developments made to date and is confident of honouring the vision envisaged when it secured the 25-year contract in 2015 [the momentous concession spans 53,000sq m of retail space including 15,000sq m for duty free – Ed], Claus Heinemann said:

“Turkish passenger figures, Turkish Airlines and Russians are coming back strongly. There is Dubai and Istanbul, the two major hubs between west and east. If we look at Berlin [Brandenburg], its efficiency under time pressure, what they have established now in terms of construction is really incredible.

“The luxury brands are all positive for the long-term project,” he added, commenting directly on the reassurance of having the 25-year contract term.

“Who knows how political developments will be, but we still believe very much in the strength of Turkey in general.”

Kay Spanger added: “It will be a success, mid to long term. In the past, we’ve had to react to developments and this will not change”

Interestingly, the full-year sales target for Istanbul New Airport is €800m ($987m) in its first year of operation – an almost doubling of the current €472m ($582m) turnover figure it records at Istanbul Atatürk Airport.

Perhaps more importantly, the board revealed that the forecast had been revised down from its initial target. Despite speculation, Heinemann would not be drawn on the original budget level for Istanbul New Airport’s first year of operation.

L&T TOPS SALES

Liquor and tobacco remains Heinemann’s strongest category by share of total sales (57%), followed by perfumes and cosmetics (32%), fashion and accessories (9%) and other categories/services (2%).

Retail operations account for the majority of the current business (78%), followed by distribution (21%) and rendered services (1%).

Europe (including Germany) accounts for the largest share of sales (84%) followed by Asia and Asia Pacific (11%) and Rest of the World (5%).

Airports take the lion’s share of revenue (77%), followed by border shops (14%), cruise and ferries (4%), airlines and catering (2%) and other (3%).

STRATEGIC CONCESSION WINS

Last year was characterised by concession success at a number of pivotal airport hubs.

Heinemann captured the confectionery lot at Hong Kong International Airport where it now runs seven shops – with a further outlet to follow in May – over 1,000sq m of space.

In January this year, Heinemann began its 10-year joint venture with James Richardson Duty Free (JR Duty Free) at Israel’s Tel Aviv Ben Gurion International Airport where it operates seven shops over 4,000sq m of space.

Annual sales are predicted at $400m this year, with the JV ranking as Heinemann’s third strongest sales location next to Istanbul Atatürk and Oslo Gardermoen Airport.

“We were very proud and honoured to establish our JV in Israel, especially with our historical background,” commented Claus Heinemann.

“The partnership with JR is special and we feel very welcome in Israel.”

More promisingly reported sales have increased by 20% in the first quarter.

“[The JV] is ahead of target in year one, with 71% of sales made to local pax,” said Spanger.

“The highest spend per pax is in Tel Aviv. We are proud and respect this partnership. For us, it is a fantastic feeling as a German company to work there.”

Coinciding well with the return of Russian passenger traffic, the firm is set to open 7,000sq m of retail space at Moscow’s Domodedovo Airport’s new terminal in June.

Once fully opened, it expects to realise annual turnover of approximately €100m ($123m).

Meanwhile, Heinemann will double its total retail footprint at Moscow Sheremetyevo Airport (operated by Imperial Duty Free) and convert all its existing units into walkthrough concepts.

One particularly notable coup has been a six-year extension of its Vilnius International Airport contract in Lithuania (operating as subsidiary Travel Retail Vilnius).

Regionally, the overall business is set to benefit immensely once arrivals duty free in the Eurasian Economic Union becomes a reality.

Heinemann says it ‘expects an uplift’ as a result of the new business, but could not put an figure on its value when pressed by members of the press.

In turn, the border shop business will be sure to benefit from the expected boom in traffic.

A considerable €100m ($123m) investment is being channeled into Istanbul New Airport, which is on track to open in October.

This will accompany a focus on the field of ‘connected travel retail’.

At Frankfurt Airport, where Heinemann operates as Frankfurt Airport Retail (FRA), turnover hit €250m (+1), with traffic ‘representing some challenges’.

At Amsterdam Airport Schiphol, pax development has been ‘unsatisfying’ over the past year according to Raoul Spanger, however, he noted the demanding and pressurised DF&TR operating environment as a major factor.

In Asia, which Co-owner Claus Heinemann referred to as ‘the future’ of the business, Heinemann has made important inroads in expanding through subsidiary Heinemann Asia Pacific.

The company increased its stake in joint venture DFZ in Malaysia to 15%.

At Kuala Lumpur International Airport, sales hit $50m in 2017 and are up by 40% in Q1 this year.

“We’ve identified Malaysia as one of the important areas for the group,” commented Spanger.

DESTINATION MARKETPLACES

In the Pacific, Heinemann also won a new location at Gold Coast Airport, strengthening its presence in Australia where it has an important presence already at Sydney Airport.

At Sydney, Heinemann’s marketplace concept grew by approximately 10% in its first full year of operation.

Indeed, a new generation of marketplace-style destination outlets are beginning to make their mark across the Heinemann Duty Free retail portfolio, including in Norway, where sales grew by 6.5% last year.

Travel Retail Norway (a joint venture between Gebr. Heinemann and Norse Trade) successfully undertook a refit and expansion of its shops at Oslo, Bergen, Kristiansand, Stavanger and Trondheim airports across a total of 16,740sq m of retail space.

In 2017, the Oslo venture recorded turnover of €410m (+6%), with Spanger describing the learning curve of moving into an extended terminal environment.

“What we saw was lower development but now, a double-digit increase, showing the learning curve is working,” Spanger commented.

Meanwhile at Copenhagen Airport, Heinemann sealed an early contract extension to 2023.

Sales at the operation reached €140m (+2.5%), with a modern tax free shop opening taking place just before Easter.

Spanger made clear that Heinemann’s marketplaces are designed to respond to consumer-driven demand for goods and services.

In a frank admission, he said that the company will distant themselves from businesses that do not embrace this approach.

“In 2025, we want 5m customers,” he clarified. “We believe in marketplaces and not little airport boxes; if the customer is not willing to go to the shops, the shops need to come to the customer.”

CRUISE TENDERS 

On the distribution side, Heinemann’s pattern of growth follows a similar trajectory to its retail division, with the strongest developments recorded in Eastern Europe and Central Asia (due to its activities at Moscow’s airports) as well as in Benelux and Africa.

Irion confirmed a turnover rise of +7.5% in 2017, with the biggest growth stemming from the Middle East and Central Asia.

As mentioned above, Heinemann have taken significant steps in the inflight and catering division in recent weeks in securing the two five-year extensions with Ryanair and gateretail.

However, further success has also come at sea in recent months for subsidiaries Heinemann Americas – operated out of Miami – and Heinemann Asia Pacific.

Together, they secured a contract to operate 1,220sq m of retail space on four Carnival Cruise Line ships – Carnival Liberty, Carnival Fantasy, Carnival Ecstasy and Carnival Spirit.

“We are going where the market is growing,” commented Irion.

Heinemann regards the combination of retail and wholesale onboard cruise ships as ‘important, strategic growth markets’ and ones in which the company will continue to invest in moving forward.

“It’s now trying to bring retail to the next level,” added Irion. “We will look to participate in bigger tenders – Royal Caribbean and Norwegian Cruise Lines.”

Another important achievement in 2017 was the launch of a new distribution brand, ‘Supplying Success’, which according to Heinemann represents its commitment to continued, ‘outstanding’ quality measures as a means of establishing a more competitive position in the international markets.

On the purchasing side, two major challenges facing the company are global pricing policies and establishing long-term financial commitments from global suppliers.

DOUBLE-DIGIT AIM

Looking ahead this financial year, Heinemann expects double-digit sales growth as it continues to pour investment into process, IT infrastructure and travel retail.

‘We want to achieve even stronger growth in Asia and America, the potential to grow is even stronger,” commented Claus Heinemann.

On a more ethical note, Heinemann teamed up with marine conservation organisation OceanCare last year to combat against the rise in plastic waste – a hugely important issue that is causing systematic destruction to the world’s sea and ocean ecosystem.

In a commitment to a worthy cause, single-use plastic bags are provided at a cost of 30 cents at 14 Heinemann locations in Germany and Austria in addition to Bratislava and Ljubljana.

Proceeds go directly to OceanCare and as a result the consumption of plastic bags has been reduced by around 70% from 8.8m to 2.5m within one year. Monetary proceeds totalled €142,000 ($175,000).

Watch out for the June print edition of TRBusiness for a more detailed analysis of the press conference and further category-specific developments and trends.