Developments in the borders duty free business in Uruguay and Brazil were placed under the microscope during last week’s ASUTIL Conference in Buenos Aires (7-8 June).

Carlos Loaiza, Secretary General of CEFSU, the Uruguayan border shops association introduced the following speakers: Neutral by Luryx CEO Marcelo Montico; BAH Free Shop CEO Paulo Pavin; Uruguayan Ministry of Economy Director of Trade Policy Juan Alfonso Labraga; and Superintendente Receita Federal Altemir Linhares de Melo from Rio Grande do Sul.

Loaiza highlighted that the Uruguayan border duty free business reached US$248 million in 2022. This was just ahead of the 2019 figure of $231 million, but still considerably short of the $363 million accrued in 2011 – the record year which brought a huge increase in international investment in the Uruguayan duty free business.

Harmonising systems

He underlined the importance of the travel retail business in local economies in border communities and its role in stimulating local employment, especially among women, who lived in the area.

The stability of the Brazilian real exchange rate was key to sales growth and Loaiza highlighted the help provided by the Uruguayan government to duty free operators during the long period when stores were forced to close due to the Covid-19 pandemic.

Linhares de Melo, from Receita Federal, the Brazilian customs authority, highlighted the history of Brazilian border shop legislation from the law that allowed border stores to be opened in 34 border towns in 2012 to the actual openings in 2019.

The pandemic had slowed down the rate of store openings, but sales were now increasing and customs statistics indicated that sales rose by more than 40% during the first five months of 2023, compared with the previous year.

The Brazilian government forecast that new stores would bring more tourism to the border areas and the immediate future looked bright.

Juan Labraga then underlined the Uruguayan government’s commitment over the 35 year history of the border business in Uruguay to attract investment and create jobs.

“We are continually working to improve the system to help our partners,” he outlined.

He also pointed to strong recovery in most frontier cities. “The pandemic is over for the sector. We have managed to overcome all the difficulties. We must work to harmonise the two systems,” he said. “Our system was devised 35 years ago; now we have to adapt to the current times. Each system has their own peculiar nuances, but we should be looking at bring them together where possible.”

Cooperation would benefit both countries, he added.

Neutral eyes growth

Marcelo Montico reported recent sales growth at Neutral, the biggest chain on the Uruguayan side of the border, confirming a 54% increase at the end of 2022 compared to 2019. The company is forecasting a 107% increase for the full year 2023, compared to 2019, the last full year prior to the pandemic.

Sales in 2019 were lower than budgeted but admittedly these were troubled times for the operator, which led to its sale to Panama-based operator Top Brands International.

The importance of alcoholic drinks had grown in recent years reaching 27% of total sales compared with 22% in 2018. During the same period, beauty’s relative importance declined from 35% to 31%.

Montico added: “We can see several opportunities for growth. But there are challenges too. We cannot control the exchange rate but we can and must protect the value proposition. It’s not only about savings but providing a great shopping experience.”

Paulo Pavin, CEO of Bah Duty Free, then gave delegates an in depth and emotional explanation of the social and commercial benefits of border shops inside Brazil.

“We need to drive this business. All of the cities near the borders are small, and apart from agriculture we don’t have many sources of income.

“This makes the new duty free shopping experience more interesting. In Uruguaiana, when we opened, 80% of sales were to local residents, now we have close to 80% of sales to non-locals so this brings visitors that are changing the face of these cities.

“This is a significant contribution to inland cities in Brazil. We hope with government support we can strengthen the system. It is not about competing with our neighbour, it is about creating jobs and value.”

For more coverage from the ASUTIL Conference, click here.