Forum Keynote 2: ‘Spend is moderating, penetration is moderating’, says DDF

By Kristiane Sherry |

Dubai Duty Free’s Ramesh Cidambi has questioned price increases in the channel. IMAGE: Grant Pritchard Photography.

Ramesh Cidambi, Dubai Duty Free Chief Operating Officer, has told TR Consumer Forum delegates that spend and penetration is now moderating following pandemic-related rebounds, and challenged how sales uplifts are reported in the era of inflationary product pricing.

Cidami opened his keynote presentation with an overview of Dubai Duty Free sales since 2020, a year he described as a “disaster”.

Passenger numbers plummeted by over 70% to 26.3 million, with sales sinking 66% to US$697m.

Improvements came in 2021 when sales lifted to $976m and passenger numbers climbed slightly to 29 million.

Dubai Duty Free sales are forecast to exceed $2 billion in 2023, 1% up on 2019 levels. Passenger numbers will close out the year just 3.1% lower than 2019 at 85.3 million.

When it came, recovery was “very quick”, he stressed. Echoing other speakers, he said he felt the time had come to stop drawing comparisons to pre-pandemic data. “We shouldn’t keep going back.”

The industry is normalising, with spend and penetration levels both moderating as consumers revenge spend patterns fall away, he said.

Retained ties with Russia

Cidambi then shared regional analysis for the retail business. Many markets, with the exception of the Far East and Africa, have returned to or exceeded 2019 sales levels.

Spend from passengers from the Far East is still down 43.5%, while Africa, which he said was affected by the lack of Chinese passengers, is 12.3% behind pre-pandemic levels. 

Russia, however, is “very good business”, he said, with sales soaring 104.6% over 2019 figures.

The United Arab Emirates is one of a handful of markets that has maintained ties with Russia following its devastating invasion of Ukraine and subsequent war.

An uplift in spend is also coming from low-cost Terminal 2 at Dubai International. Sales are up 33% at the location, which tracks almost perfectly to the 37% increase in FlyDubai airline customers. 

The impact of the lack of Chinese passengers can be seen in category developments, Cidambi explained. Cosmetics as a share of Chinese spend has sunk to just 4.85% from just over a third of all purchases in 2021.

Categories that have increased their share of Chinese spend include fragrances, tech and gold.

Delegates at the TR Consumer Forum on 22 June. IMAGE: Grant Pritchard Photography

In total, Chinese passengers now account for 6% of the total spend with Dubai Duty Free, down from 15% before the pandemic.

“When we did the budget last year, we budgeted about $1.8 billion in revenue for this year. And we budgeted zero revenue from China,” Cidambi said. 

“All the revenue that came in this year from China is all in addition to the budget. In general what we’re seeing is that they are continuing to spend money.”

Price inflation

Cidambi also issued a note of caution around excited reporting around increased spend in travel retail. 

“A lot of the increase in spend in the last few years, the last couple of years, has been generated by increases in retail prices,” he stated.

Dubai Duty Free has analysed retail prices in 2019 and compared them where products are still available.

“We can tell you confidently that for that subset of items retail prices increased by 15%,” he said, while acknowledging that these hikes weren’t seen across all categories.

“These are all significant price increases and at some point in time, the customer will push back. 

“He’s already starting to push back and we’re already starting to see the softening in demand in some of these categories.” He cited premium spirits products as an example.

Looking forward

AI is a relatively new tool available to travel retailers, and Cidambi confirmed Dubai Duty Free is exploring how it can be used to make employees more efficient.

“I think the role of AI is very, very significant,” he said.

Cidambi is challenging brands on their pricing, asking how much spend uplift is simply inflationary increases. IMAGE: Grant Pritchard Photography

“I think we are at an inflection point in terms of how it can help us in terms of our business, but I definitely consider it to be a friend. And I definitely think that our employees can do better because it can automate more.”

He also looked to COP28, the climate conference set to be held in Dubai in November 2023.

“I think the first thing to say is that you have to accept that the travel retail business, as someone said in another conference, is selling a whole bunch of stuff to people who don’t need it. So we are absolutely in the wrong business in that sense from a sustainability perspective. 

“But within that, there are things that we can do better.” He cited Dubai Duty Free’s efforts with regards to tree planting and recycling.

“I think all of these things are little steps that we can do in the lead up to COP28 in order to be a better citizen in an industry that is not a great industry from the point of view of sustainability.”

Back in February 2023, Dubai Duty Free’s Executive Vice Chairman & CEO Colm McLoughlin said that although there had been a “patchy” start to the year, he was feeling “positive for travel retail”.

The TR Consumer Forum continues until Friday 23 June.

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