Dubai Duty Free views demand to supply risk shift

By Luke Barras-hill |

Cidambi (left) called on brands to make a concerted effort to tighten the supply chain and ensure products hit shelves. 

Dubai Duty Free (DDF) Chief Operating Officer Ramesh Cidambi has urged brands to act swiftly in addressing bottlenecks affecting stocking to prevent customer disappointment.

Offering a typically candid appraisal of the current state of the Dubai Duty Free business on day one (22 November) of the Middle East & Africa Duty Free Association (MEADFA) Conference, Cidambi pointed to the element of risk moving from the demand side to the supply side.

Delegates heard that DDF’s purchasing function is spending a great deal of time negotiating with brands to ensure inventory is available on the shop floor.

“Not to name and shame the brands, but an iconic sku has been out of stock for three weeks,” asserted Cidambi. “In my entire history of working with DDF I don’t think I’ve experienced a situation like this.

‘EXPECTED TO MODERATE’

“Those issues have to be dealt with but my feeling is it will moderate. What we have to do as an organisation is keep the pressure on merchandising, availability of stock, training and continue to work with the brands to keep the offer as attractive as possible.”

In comments shared exclusively with TRBusiness, Cidambi said the result of inaction could be a detrimental knock-on effect to shopper satisfaction and their view of the single airport retail operation.

“I’m worried about it from the point of view of customer perception – how do they feel when the shelves are light and not full or the particular brand they are looking for is not available? We just want brands to work harder in coping with that situation.

A dynamic retailer panel session featured (left-right): François Bourienne, Chief Commercial Officer, Abu Dhabi Airports; Anthony Kenny, Chief Commercial Officer and Deputy CEO, Aer Rianta International; Ramesh Cidambi, Chief Operating Officer, Dubai Duty Free; Dermot Davitt, The Moodie Davitt Report (moderator); Isabel Zarza, Chief Operating Officer – Central and North Europe, Russia and Africa, Dufry; and Frédéric Chevalier, Chief Operating Officer – Europe, Middle East and Africa, Lagardère Travel Retail.

“It is also related to shipping and freight costs… there are a multiplicity of factors,” added Cidambi, in doing so acknowledging broader inflationary pressures being felt across the globe, which as a consequence is edging up prices.

High volume spirits, perfumes & cosmetics were identified as the types of categories that are more affected versus the likes of watches or precious jewellery.

However, it is important to point out – and it comes as no surprise – that heavily reduced or in some cases zero stockholding for brands/product lines means scaling back up represents a huge challenge, a feeling that has been relayed to TRBusiness by supplier sources.

“Suppliers use partners for logistics and supply goods to retailers,” said Cidambi. “We are seeing some cases where there are genuine problems and nothing could have been done, but in some cases better management of the chain – as you have multiple players in the chain – could have better outcomes. That is what I would want the suppliers to focus on. I do feel there is more work to be done.”

While Cidambi views this as a short- to medium-term problem that could extend into the middle or third quarter of 2022 for certain brands, he was careful to note that this is by no means a ‘catastrophic’ problem hitting the wider industry.

In the same breath, he downplayed its significance in the face of other sizeable challenges such as travel restrictions linked to Covid-19.

MEADFA President Sherif Toulan sounded an upbeat note on the recovery fortunes of the region’s DF&TR industry.

Indeed, in certain cases the impact has been softened by the ‘substitution effect’ of having alternative brands on shelf, TRBusiness heard.

The situation is of course different dependent on the category, particularly in cases where some are disproportionately affected by overburdening regulations, tobacco being one obvious example.

“Travel retail is still a small part of the global business for many of these brands,” added Cidambi. “If you take the domestic and travel retail business, travel retail tends to be low single-digit to high single-digit of the total brand perception.

“If you look at it in a more nuanced way, it is going to be a problem for the smaller operators and smaller locations. Because of our size and the share we have of the travel retail business of a particular brand, when there is limited stock we are more likely to get it than a smaller operator somewhere else.”

RESILIENCE IN THE REGION

Delegates to the MEADFA Conference, hosted by Dubai Duty Free and managed by TFWA, were treated to a series of insightful and thought-provoking addresses on the opening day.

[Attendees can access the special edition TRBusiness November e-zine, containing region-specific interviews and analysis, by clicking here].

Presentations and panel sessions from leading travel retailers, air transport associations and data providers poured light on the mechanics shaping the Middle East and Africa region’s recovery as the industry works hard to reignite business with new approaches for a post-pandemic world.

Dissecting these was at times, not always immediately obvious, though the usual accomplished moderation offered by TFWA’s Managing Director John Rimmer and The Moodie Davitt Report’s Dermot Davitt helped to sharpen discussion at an event that has attracted a very healthy 460 delegate registrations.

In his opening address, MEADFA President Sherif Toulan sounded a welcome tone of encouragement for the region’s DF&TR recovery prospects.

IATA Regional Vice President for Africa and the Middle East (AME) Kamil Al-Awadhi.

“If we look around the region, there is plenty of scope for optimism, although it is cautious optimism,” he told delegates in the room. “The fact we are here is a clear testament of our resilience.”

“This is necessary when we look at the low vaccination rates in many parts of the world – in Africa, Ethiopia, Kenya etc. the rates are as low as 4%. The pandemic has not changed the underlying dynamics that have changed our region until now.”

The strength of tourism economies in countries such as the UAE, Saudia Arabia and Africa are playing their part, heard attendees.

“Wherever travel restrictions have been lifted in the world, the surge in bookings has been enough to crash websites,” exclaimed Toulan. “Together, we must seize the opportunities that international travel is providing.”

Toulan, who took the helm at the association earlier this year having succeeded Jordanian Duty Free Shops CEO Haitham Al Majali, confirmed MEADFA’s advocacy efforts are ‘bearing fruit’ and there have been a number of success stories.

Paying increased attention to diversity and inclusion, widening its membership remit and introducing new functions such as the Advocacy Working Committee [more to follow – Ed] are among several recent achievements.

Dubai Duty Free has steadily regained commercial ground in recent months as part of its re-opening strategy. It now operates 22,700sq m and that will lift when Concourse A returns to operation, with an anticipated date of 24 November.

“It is my fervent wish that the event this year will provide the DF&TR in the region with a common platform to build the industry together,” he commented.

Dubai Duty Free’s Cidambi offered a shrewd appraisal of DDF’s current re-opening plan and shared his thoughts on investments for the future.

He began by extending a warm welcome to delegates attending the event – the first in Dubai since 2018 – on behalf of Executive Chairman and CEO Colm McLoughlin, who very sadly was unable to attend due to the passing of a family member [TRBusiness would like to offer its sincere condolences to Colm, Breeda and the McLoughlin family and our thoughts are with them at this difficult time – Ed].

The MEADFA Conference has attracted more than 450 delegate registrations.

Cidambi praised the leadership of the UAE and Dubai governments in implementing pandemic measures to protect citizens – 97% of the population in Dubai have received two vaccinations and 98% have received single doses.

“In terms of the pandemic itself, the city and country itself has done a fantastic job and we’ve been able to put events together including Expo, The Dubai Airshow, DP World Tour Golf Championship, MEADFA Conference, DDF Golf World Cup and events that will follow for the rest of the winter,” he said.

“Life in the city is the best it has been since the pandemic. We are seeing the resumption of business travel – people travelling from Europe, Africa, Middle East and other parts. That is a really good sign of the recovery.”

Cidambi confirmed DDF’s revenue target of $959 million in full-year 2021, before moving to describe the current re-opening phase of its airport operations.

The MEADFA Conference, hosted by Dubai Duty Free and managed by TFWA, returns to the Jumeirah Creekside Hotel near the Irish Village.

Dubai International Airport reopened in June 2020 and at present is operating about 22,000sq m.

Concourse A hopes to reopen on 24 November. On the basis this goes ahead, DDF will have reopened all retail areas apart from its operations at neighbouring Al Maktoum International. There is the possibility it could open next year.

Echoing a familiar discourse for many, Cidambi said the travel retailer is witnessing higher penetration and spend levels.

“If we take the pre-pandemic rate, from June last year to this year, the rate has remained elevated. But the rate is starting to drop.”

MIDFIELD TERMINAL BUILDING QUESTION MARK

He continued: “I’ve been expecting the penetration rate to go down and it is starting to moderate. SPP has also been up, but is starting to come down – the natural consequence of more frequent travel as it becomes to normalise.

“In 2022, SPP and penetration will regress and you are likely to see what you saw in 2018 and 2019. I don’t see any reason why these will remain for a significant period of time.

While the passenger mix in the past 18 months has been volatile – travellers from the important Indian subcontinent market for example dropped by a sizeable amount at certain points last year – month-to-date comparisons in 2021 are looking ‘extremely well’ with a recovery across most regions aside Australasia and the Far East.

Addressing the current dearth in key Chinese passengers, Cidambi stressed the pointlessness of ‘wringing our hands’ about the situation.

(Above and below): IATA’s snapshot of air traffic data shows where the aviation markets were in the depths of the crisis in 2020, and expected to head in the immediate future.

Turning to retail developments, he confirmed Louis Vuitton is set to open in Concourse B around 24 December.

“We think we have a very strong offer; it is testament to the team and the brands,” he said. “We didn’t take the foot off the accelerator last year. We had honest conversations with brands last year when things were looking dire.”

He finished by calling on brand partners to be introspective and reflect on whether they had done enough for DDF, adding that DDF ‘has met every promise to its partners’.

Cidambi then joined a panel session of leading travel retailers, paving the way for discussion around themes such as digitalisation and the future of the business model – areas that have accelerated in the face of the crisis.

The panel comprised Cidambi; Anthony Kenny, Deputy CEO, Aer Rianta International;  Frédéric Chevalier, Chief Operating Officer – Europe, Middle East and Africa, Lagardère Travel Retail; Isabel Zarza, Chief Operating Officer – Central and North Europe, Russia and Africa, Dufry; and François Bourienne, Chief Commercial Officer at Abu Dhabi Airports.

ARI’s Kenny said despite store openings, the picture similar to DDF remains mixed. Its business in Auckland is effectively still shut but operations at Riyadh Terminal 5 and Cyprus are performing well.

“Through the region of Middle East, business is coming back pretty good,” said Kenny. “We are optimistic but at the same time cautious as there will be a good few bumps in the road yet.”

Despite the pandemic, ARI has pressed ahead with key refits – Bahrain International Airport and Cyprus’s Larnaca and Paphos Airports being the obvious examples.

Sadly, the retailer said goodbye to around 20-25% of its colleagues, but it has invested in staff training, redefined the customer value proposition and launched a new ESG strategy.

Dufry’s Zarza confirmed that 80% of the company’s stores are open, representing around 85% of sales capacity. In the Middle East and Africa, the percentage of stores open jumps to more than 90%.

Zarza said: “The spend per passenger is higher. It is true when passengers come back and when we have the same levels as 2019, SPP will go back to normal but the passengers going through the airports are keen to buy.”

In Africa, there is not a direct correlation between vaccination rates, the recovery of passengers and sales, Zarza outlined.

She said Dufry hasn’t witnessed any huge structural changes in customer behaviour; where there are differences observed it tends to be more to do with the split of travel to regions.

Lagardère’s Chevalier pointed out that the current significant instability makes it incredibly challenging from an inventory and management perspective.

The product mix has changed deriving from changes to the sales composition, he voiced, but he hopes it will return in a few quarters.

The spike in spend per passenger globally is interesting, he noted, going on to state that a more richer, fulfilling customer experience including the interaction with digital instore is important for Lagardere.

“The meaningful and conscious purchase will become stronger and stronger in our industry,” he added.

ADAC’s Bourienne said traffic has ramped up significantly in the past two months to reach 40% of 2019 levels.

Gordon Clark, Vice President Business Development Travel Retail, ForwardKeys furnished delegates with the latest indicators on air travel and booking trends.

This has been boosted by new carriers arriving such as Aeroflot. Sixty-percent of its shops are open but the biggest issue remains staffing, he continued.

Traffic is expected to move from 50% of pre-pandemic levels to 90%, but the airport requires two to three years to fully recover volumes.

Inevitably, Bourienne was asked about the perpetually delayed Midfield Terminal Building opening.

This, according to Bourienne, remains a ‘big question’ as he conceded the project was ‘more complex than originally anticipated’. He stated it is a ‘sensitive subject’ but hopes to share information with partners ‘sooner rather than later’.

PREPARE FOR LOWER MARGINS

Conversation then turned to the concession model.

Zarza spoke about discussions around minimum annual guarantee (MAG) per passenger and even MAG per destination as a tool to adapt to different passenger profiles and nationalities.

Chevalier concurred that airports should adjust the value share of MAG by looking at PAX. Bourienne made clear that a degree of re-education is needed around the role of MAGS.

The opening cocktail, which was sponsored by Dufry and held in the Secret Garden of the Jumeirah Creekside Hotel, offered ample opportunity for delegates to re-connect and network in a relaxed setting.

He said as an airport manager, the job of MAG is not to protect operators from the lack of pax.

As a result, flexible solutions are required and he mentioned profit share set-ups as one example.

In view of the monumental change to the travel retail ecosystem, Moderator Dermot Davitt questioned whether retailers should expect smaller returns in the short- and medium-term.

At least for the next few years, the margin generated by the industry is likely to be lower given the volumes, Chevalier told delegates.

Chevalier said: “It is extremely difficult to assess the future. I think there are some chances to have a rebound and some adjustments in the way business is done. I would not be too pessimistic in the mid-term.”

In conclusion, Chevalier flagged that staff recruitment and acquiring merchandise to sell is extremely challenging in the restart phase. As such, he called on the industry to prepare for different recovery scenarios.

Appearing virtually in a pre-recorded session, Ali Tounsi, Director General, ACI Africa outlined NEXTT, a joint vision from ACI and IATA centred on creating a more seamless passenger experience that includes biometrics infrastructure.

Zarza highlighted flexibility and managing expectations in retailers’ dealings with airports, brands and employees while emphasising the need for investments in brands and projects.

Bourienne observed that the development of low-cost carriers in Abu Dhabi is interesting, driven by WizzAir and AirArabia and the associated influence that could have on spend per pax and diversifying income sources.

For Cidambi, there are several priorities for 2022: a continued focus on digital – a recent marketing campaign for 55 Year Old Yamazaki whisky drew 44 responses in 24 hours.

He said there remains a degree of ‘wasted fat’ in certain operational areas due to Covid and those need to be improved moving forward.

Following a networking coffee break sponsored by KitKat, ACI Africa Secretary General Ali Tounsi offered an update on Africa’s airports landscape.

Tounsi was unable to attend the event in person, so delegates were instead shown a recorded virtual conversation with moderator John Rimmer.

AFRICA’S VACCINATION CHALLENGE

The World Health Organization’s goal was to vaccinate at least 10% of every country by September of 2021 and 70% globally by the middle of next year.

The sharpness of Africa’s vaccine disparity was referenced, with the continent accounting for a tiny proportion of the seven billion doses administrated across the globe.

“It has the consequence of marginalising Africa for air travel,” exclaimed Tounsi.

The well-documented challenge facing Africa remains the liberalisation of its skies, with work continuing to create an Open Skies treaty under the Single African Air Transport Market (SAATM).

However, only a small number of countries have subscribed to date, presenting a challenge when it comes to accelerating meaningful change.

Live entertainment and exquisite dining made the MEADFA Gala Dinner sponsored by Dubai Duty Free one of the standout fixtures of the week as industry executives enjoyed the association’s first physical event since 2019.

“It is clear that the benefit of Open Skies means the ability to catalyse access to new markets,” added Tounsi.

In an unorthodox, yet information-rich address, Kamil Al-Awadhi, Regional Vice President Africa and Middle East at IATA questioned what the ‘new normal’ for travel retail and transport looks like.

“We can’t operate as we did in 2019,” he declared. “We need to adapt… the whole [aviation] ecosystem needs to adapt. Having a crisis is unfortunate, but not learning from a crisis is unforgivable.”

While previous crises such as SARS helped prepare contingencies for economies to protect themselves, Al-Awadhi reminded that the default position is usually to move on, without documenting the situation and the result means a revert back to the start.

At the peak of the Covid-19 crisis international traffic was down by 98%, according to IATA data.

Al-Awadhi said the industry is looking at a roughly 40% recovery in 2021.

Real concerns over passenger processing times at airports continue to exist, delegates heard.

In a presentation touching on the development of the IATA Travel Pass, Al-Awadhi said that processing times are up to eight hours at pre-Covid volumes. He also flagged challenges around digitising documentation for travellers referencing the introduction of the aforementioned IATA Travel Pass.

Al-Awadhi said: “If we return back to 2019 numbers, we’ll end up with roughly 6.5 hours of pax involvement. Does it mean they will spend more time in the wrong place? Definitely.”

BAHRAIN DUTY FREE: A NEW ERA

Delegates were then treated to up-to-date snapshots on tourism trends and passenger forward booking levels courtesy of ForwardKeys’ Vice president Business Development Travel Retail Gordon Clark, who also shared insights on the short-term future of travel in Middle East and Africa.

In a fitting finale to the day, Bahrain Duty Free Chief Executive Officer Bassam Al Wardi invited delegates on a virtual tour of the new airport terminal, which opened in January.

Bassam Al Wardi excited MEADFA Conference delegates with a digital fly-by tour of the new duty free and travel retail facilities at Bahrain International Airport’s impressive new terminal, which opened in January. The terminal feature more than 4,500sq m of duty free space including a substantial footprint devoted to luxury.

To prepare for the opening, Bahrain Duty Free listened to key stakeholders, including suppliers and customers.

The travel retailer assessed what customers are searching for from a duty free store. During the lockdown, at home business processes such as digital ordering helped the travel retailer’s teams.

Since the fanfare of the new terminal opening earlier this year, Bahrain Duty Free has scored some impressive metrics compared to 2019. These include a 175% increase in space; +28% overall penetration, +92% increase in spend and +50% ATV.

Speaking about the importance of digital, Al Wardi said self-service has been an important development.

He spoke about the convenience of integrated locker pickup solutions including instore to buoy incremental spending. Since the opening, this mechanism has proven popular. All paperwork is also processed automatically.

Stay close to TRBusiness for a Day 2 report from the MEADFA Conference.

Main image source: MEADFA.

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