Abu Dhabi Duty Free. A tale of transformation at. It s been an incredible few months at Abu

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1 A tale of transformation at Abu Dhabi Duty Free By Martin Moodie 2005 has been a stand-out year for Abu Dhabi Duty Free, played out against a backdrop of almost frenetic change at Abu Dhabi International Airport. Martin Moodie reports. It s been an incredible few months at Abu Dhabi International Airport, where change has become a constant and where both the physical and commercial landscapes are changing by the day. The changes are largely being driven by the Emirate s young and ambitious national airline, Etihad Airways, which only began services in November 2003 but is growing at an exponential rate. The carrier will have 34 aircraft including four A-380s by 2007, when it is expected to carry between 6 and 7 million international passengers. That will include a significant long-haul business incorporating routes such as China and North America. As a result, the airport s passenger numbers are showing unprecedented growth. Etihad s rise and rise was the direct precursor to September s announcement by Abu Dhabi s government that it was withdrawing from its shareholding in Gulf Air. The Bahrain-based carrier had been owned equally by the governments of Abu Dhabi, Oman and Bahrain. Abu Dhabi International is being transformed at an astonishing pace. Over the past few months two interim terminals (1A and 2) have been built from scratch. The AED130 million (US$30 million) investment is the initial component of a AED21 billion (US$6.8 billion) redevelopment, and provides an interim solution in the face of passenger overload. The new terminals are carefully segmented: T1A takes the low-cost airline Gulf Traveller, T2 will take all regional and subcontinent airlines and the existing T1, after modification, will help handle the everincreasing numbers from Etihad and (for now at least) Gulf Air. A third terminal (T3) is being opened in two phases; phase one will be ready by Mohamed Mounib: We are looking at what we should be doing in the next 20 years. September next year and phase two in April T3, likely to be known as the Etihad Terminal, will ultimately have 12 aircraft stands and be able to accommodate all new-generation aircraft. But there s more a whole new airport is to be built by There s also the possibility of airport privatisation partial or full. In September dramatic news broke that Civil Aviation Authority of Singapore subsidiary Changi Airport Managers and Partners Singapore (CHAMPS) was in talks with the Abu Dhabi government over possible investment and/or management involvement in the airport. Privatisation is far from a given, but the very fact that it has raised its head underlines the excitement that the airport s development is causing and the need to fund the expansion. Against this fast-changing backdrop Abu Dhabi Duty Free continues to turn in its typically outstanding retail performance. It recently posted fine figures for the first nine months of 2005 with sales rising by +8.5% over the same period last year (see panel, page 53). Abu Dhabi Duty Free Managing Director Mohamed Mounib is rightly pleased with that performance but right now his priority is the bigger picture. He is determined to ensure that retail and other commercial services benefit from the shortterm traffic increase driven by Etihad, but he is also determined that they remain an integral part of the airport s long-term expansion. The government is doing the interim solutions as well as looking towards the final one, and this is our focus too, he says. We are looking at what we should be doing in the next 20 years. 50 The Moodie Report

2 THURSDAY 20 OCTOBER 2005 FAST, FACTUAL, FREE PERSONALITIES OF THE WEEK Could avian flu be the next SARS? And is it really a drastic threat to our industry? John Moriarty: The Those are undoubtedly the questions being asked with increasing urgency around the Runway Duty Free travel retail world as a spate of headlines hit the press this week about the mounting General Manager this threat from the virulent H5N1 virus. week celebrated the ARI-led retailer s This week the World Health Organization confirmed that Chinese authorities had Runway Beauty store destroyed 91,100 birds around a farm in the country s north to stop a serious outbreak. being judged best The culling happened after 2,600 chickens and ducks were killed by the virus in a tenant by its landlord East Line Group. It s a breeding facility in Inner Mongolia. Similar reports out of Turkey, Romania and Indonesia (where three out of five humans infected with H5N1 have died) have sparked deserved recognition of Runway s a predictable media frenzy in countries such as the UK. achievement in taking unpromising and limited space and turning The World Tourism Organization (WTO) said it is deeply concerned about unnecessary scaremongering. It claimed such coverage can cause a sharp drop in tourism that it into a highly desirable consumer offer. in turn squeezes economies, especially those of developing nations. WTO Secretary- Pedro Castro: One General Francesco Frangialli commented: We must ensure that people are not of the quiet men of deterred from travelling without good reason. duty free, Aldeasa Jordan Chief Operating Officer Pedro Those remarks have to be judged in the context of the WTO s role as a trade association. All trade association statements have to be filtered as they are, after all, there to Castro is also one of represent their members interests. its nicest. And he will have been quietly celebrating this week at the news But Frangialli makes a key point international travel is the first economic sector to that the Spanish travel retailer suffer from people cancelling holidays because of fears of visiting countries with any has signed its new Kuwait International Airport duty free hint of an epidemic. While we do not agree that the SARS travel downturn had anything to do with a media frenzy as suggested it was just downright dangerous to visit contract. The critics have the countries worst affected we do agree that measured analysis of the threat is vital, slammed the bid but Aldeasa most critically regarding avian flu s ability to transmit from human to human. We, along insists it can and will make money with the rest of the industry, will be monitoring the situation closely and hoping against out of the business. hope that this terrible threat never becomes reality. Elsewhere in this issue the news is generally positive, with DFS Group taking up its fair share of the headlines fine results for the first nine months; a strong performance at QUOTE OF THE WEEK Los Angeles International Airport; and retention of the company s acclaimed wine concession at Singapore Changi Airport T2. These are good times for DFS Group We are delighted and relieved Chairman Ed Brennan, and he and his fellow management were deservedly singled out by the outcome of this long by LVMH in its results statement this week. investigation by the Gendarmerie. They obviously wanted to But perhaps the most interesting story of the week came from Roissy Airport in Paris, catch the big fish and that is where a police raid resulted in the arrest of a gang alleged to have been robbing the Air why it took some time, but it France duty free carts. Stock losses are one of the biggest yet least publicised problems was clearly worth it. in this business and the scourge of the inflight sector in particular. So full credit to Pierre Freyssinet, CEO of Pierre Freyssinet, CEO of Logair, the Aeroboutique subsidiary operating the Air France Logair, the Aeroboutique group contract, for his efforts in addressing it. He told The Moodie Report: We are delighted subsidiary operating the Air and relieved by the outcome of this long investigation by the French Gendarmerie. France contract, applauds a dramatic police raid on an alleged They obviously wanted to catch the big fish and that is why it took some time, but it was clearly worth it. gang of duty free thieves. It was indeed. This business is tough enough without having to tolerate avoidable losses. Fish will certainly be on the menu in the Freyssinet household tonight. Travel Retail Intelligence ISSUE TEN MARCH 2005 The Moodie Report PLUS is published by Moodie International. Please direct any comments to Martin Moodie by martin@moodie-international.com Back issues can be found at A poignant return for Robert Miller...1 Entering the world of DFS...3 Bringing brands alive the beauty area...4 A palatial experience luxury boutiques...5 Homing in on the range...6 Editor s introduction: On 13 March DFS Group opened the latest addition to its retail portfolio, the DFS Galleria Okinawa. Uniquely, this elegant downtown luxury environment allows Japanese domestic travellers to purchase goods duty free. The Moodie Report was on hand as DFS s senior management and owners gathered on the island of Okinawa for the Galleria s Grand Opening in the company of dignitaries and brand partners. We also walked the store with the most knowledgeable of guides, DFS Merchandising President Michael Schriver (for a fuller report on the store see The Moodie Report print edition, mailed worldwide later this month and also published online at Come with us on a brief tour of this extraordinary shopping experience. In March of this year, Bob Miller made an emotional return to the island. It was a very different era and very different circumstances. Still a 38.75% shareholder in DFS (the balance, including Feeney s holding, was acquired by LVMH in 1997) he was on hand this time for the Grand Opening of the DFS Galleria Okinawa, the ambitious new downtown shopping complex that enjoys legislatory dispensation to sell duty free items to Japanese domestic travellers. young American entrepreneur called Robert ( Bob ) Miller first visited the Japanese island of Okinawa, intent on developing a business supplying American troops based there. It was the early 1960s, and Miller along with his fellow ex-cornell University student Charles ( Chuck ) Feeney was by Chairman Ed Brennan, knew the DFS s senior management, headed in the throes of creating the retailing empire that was to dominate and Feeney weren t so much ahead significance of Miller s presence. He the travel retail industry for the of their times in our industry they next forty years Duty Free virtually defined them. What began Shoppers (now DFS Group). as an innovative business selling duty free goods to American OCT/NOV 05 TRAVEL RETAIL INTELLIGENCE FAST FACTUAL FREE WELCOME to The Moodie Report. The Moodie Report is published by Moodie International. All rights reserved. Please send any comments or stories to martin@moodie-international.com Page 1 Business commentary and analysis of key developments in the global duty free and travel retail industry for readers of The Moodie Report inside this issue ome 44 years ago a S Bringing the consumer out of the shadows The Trinity Forum Heather Cho pilots Korean Air to the top Sunrise over China: The Fred Kiang story Declan Collier vows belief in Aer Rianta International Lunch with a Legend Dr Brendan O Regan DFS Galleria Okinawa sets new travel retail benchmark The past, present and future of DFS: Robert Miller (right) and Ed Brennan at the Grand Opening A Sense of Place special supplement with this issue + The Moodie Report Business Extra COPENHAGEN TRANSFORMED VINCENT BOINAY RUNWAY S RUSSIAN STEPS The Moodie Report pdf - concise business intelligence every week, sent to over 6,500 readers, the biggest audience of any travel retail trade media The Moodie Report e-newsletter - links to the big web stories of the week; sent with the weekly pdf The Moodie Report PLUS - eight times a year in-depth features dedicated to individual retailers or locations plus the industry s great innovators. Sent to the full readership of The Moodie Report pdf The Moodie Report VIP News Alert - the biggest breaking news stories, ed to the entire readership. Sponsored by BPI The Moodie Report print - quarterly in-depth business analysis in a unique travel-friendly format. The most serious business magazine in the marketplace with the best retailer and airport distribution; also published online with all advertisements and articles - an industry first The Moodie Report.com - the home page of the travel retail industry, attracting over 75,000 page views per month DAILY, WEEKLY AND QUARTERLY TRAVEL RETAIL INTELLIGENCE For your free subscription, go to or contact Bob Wilby at Bob.Wilby@TheMoodieReport.com

3 Facing the future: Abu Dhabi International Airport s shops will undergo immense change over the next few years as traditional categories are sold alongside a fresh selection of local goods. And the new terminals opened this year (as pictured) underline the way in which the retailer plans to segment the offer according to passenger profile. Business and circumstances will change, and we need to design and work with products and suppliers and our own assets in different ways. All this is spreading us geographically from the territory we used to be happy with one terminal, one offer. It s certainly not the same operation it was a year ago. why we want it, advising them of what we think the end product should look like. The master plan of the new airport has been approved and the design phase has been tendered. We are looking at all commercial opportunities available to us. We are not only interested in the duty free but in the whole concept of non-aviation opportunities in the new airport. Everything is being driven by the profound changes happening in the airline sector. The issue is that we have had two national airlines here, and we were working out how to work with the competition that existed between them. But that issue is being addressed. On 29 September Gulf Air issued a strategic plan to ensure the smooth withdrawal of the Emirate of Abu Dhabi over the next six months. As we complete the smooth withdrawal of Abu Dhabi from its position as a shareholder we are going to focus far more on a two-hub strategy Bahrain and Muscat, says Gulf Air President and CEO James Hogan. So from the airport s perspective the recent bonus of having two national airlines will be short lived, though details remain sketchy as to the phasing of Gulf Air s scaling back from the airport. Mounib is sanguine about developments. The government pull-out will obviously bring with it a reduction of Gulf Air s network, he says. As an operator we obviously hoped that wouldn t happen, as we wanted to capitalise on having two national carriers. This is not to be the case; but as Gulf Air phases out, Etihad will be building its network very quickly. Last year the airport achieved 5.2 million passengers. We will double that figure by 2008 or For example we ll be looking at where the F&B outlets should be, and asking how they can assist the retail and how the retail can assist them. The whole commercial package is with us in the new terminals as it is in the existing terminals, even the car parking, which we re very happy to see. PROFOUND CHANGES TO THE PRODUCT OFFER But Mounib is determined that the retail offer of the future will be very different from that of the past. The range must change and so must attitudes, he insists. Should we be working with other products and manufacturers? Should we be looking at designing labels? he asks. Should we also invest in the destination products that I believe this region lacks to a great extent? We ve got the time to look at the trading in the airport as new ground and to find innovative ideas. Today we depend on the traditional duty free products, like liquor, tobacco or perfumes, but we have seen a huge change in this part of the world with big supermarkets opening and selling huge ranges of chocolates and food and gold. Beirut Duty Free for example has a huge cigar shop whereas cigars had never been seen in international duty free with that magnitude. Last year the airport achieved 5.2 million passengers. I think we will double that figure by 2008 or 2009, so ahead of us is a great period of growth. Mounib says he and his commercial team are closely involved in discussions over the new facilities. We meet with the committee every week and we tell them what we want and Mounib is looking unashamedly to the local market for inspiration. When they come to Abu Dhabi tourists are fascinated by the local markets and they spend money there. Yet here in the duty free we have not really acknowledged that fact. In the future we should. It will look very different from what we have today and 52 The Moodie Report

4 December 2005 MEDFA OFFICIAL GUIDE 2005 Abu Dhabi Duty Free Niveen Ibrahim: Developing a portfolio of new, owned products designed to broaden the attraction of the retail offer. hopefully you will see what can really be done in the space, rather than just selling products that you find everywhere. Already Business Development and Marketing Manager Niveen Ibrahim has been charged with developing a portfolio of new, owned products designed to broaden the attraction of the retail offer. Details remain under wraps but Mounib gives a few clear hints regarding the direction. It will be our own brand, and once we have finalised the principles we will start defining exactly what we will do and how we will do it from A to Z from the manufacture to when we put it on display. Mounib says the branded range will offer real value for money across a diverse portfolio, which is being developed based on intensive consumer feedback. While there s always a need for traditional products in duty free, the cash availability in someone s pocket in the future will be distributed equally between what he wants and what he is forced to buy and we will not force anything through duty free. We ll sell the experience, the ambience, and the new experience in the airport. We will not just sell products that you find in every shop, on the airline and when you land at another airport. We want to sell something that people will remember us for and will suit a whole family not just an individual. I am not going to repeat what others did. I am always hearing about so-called special products for duty free, but basically it s just special packaging. There are so many successful retailing stories in the local market near our back door. I think our benchmarking now in the UAE has become the excellent retailing downtown. It would be silly just to compare myself with the travel retailers in the region. The new owned range should be released within a year but Mounib is in no hurry. We want to get it right, he says. We want to be able to stand behind this product which we believe customers are looking for. It s all to do with products being able to sell at a reasonable price point but they must be of the best quality. It will be something that suits us and suits the whole family. When you walk into many duty frees and look for a gift, at the end of the day you have to buy a tie or a pen or a shirt there s nothing else. Mounib admits candidly: And it annoys me sometimes to walk into my own duty free and say No, I ll go downtown for what I want. It s a shame, but why is it the case? Because you get dragged into the profits and the figures and the numbers. So this is something very exciting. We are not in competition with anyone. We are filling the gap that has been missing for a long time. Does he think existing suppliers will be threatened? If I were A banner year in Abu Dhabi Abu Dhabi Duty Free recently posted strong figures for the first nine months of 2005, with sales rising by +8.5% over the same period last year. The star performers in growth terms were beauty and fragrances, whose sales rose % for the period; liquor and tobacco, up +11.6%, the Destination Shop (+65.6%); World of Cigars (+33.5%); gold (+6.8%) and Swarovski (+54%). Liquor and tobacco led the sales mix in the first nine months with 20.8% of the turnover, followed by confectionery with 18.5% and beauty and fragrances with 14.9%. The results reflect the change of passenger profile in terminal one as Etihad Airways, Abu Dhabi s national carrier, increases its destinations in Europe. Business has also been driven by the opening of two interim terminals to help ease pressure on capacity. Fast-growing Etihad now has flights to Munich, Frankfurt, Geneva and London, and this has seen Swiss, German and British passengers taking a greater share of business in duty free. New flights to Canada, Brussels and Johannesburg will boost passenger numbers and spending power further. August statistics show that GCC airlines generated 66.5% of sales, with an average spend of AED182 (US$49.55) per customer. Etihad passengers contributed 26.3% of sales, with their total spend rising by % over last year s figure. Sub-continent airlines contributed 11.8% with an average spend per customer of AED170 (US$46.28). Passengers from the various European carriers contributed 7.6% with an impressive average spend of AED198 (US$53.90) per customer. Managing Director Mohamed Mounib reels off a range of startling passenger numbers for the first eight months of For Bombay we ve risen from 105,000 to 158,000 passengers, a +50% increase [compared with the same period last year]; for Frankfurt we ve gone from 26,000 to 51,000, +94%. It s all being driven by Etihad. We never had non-stop to Frankfurt before. For Geneva we had nothing now all of a sudden we have 34,000. London is amazing, it s a very protected market but we carried 41,000 Gatwick passengers compared with nothing the year before and Heathrow increased by +18% from 175,000 to 207,000. With Munich we ve gone to 18,000 passengers from nothing, and so on, and so on. People may ask today why Etihad is flying to Brussels and Toronto, but when they see what happens with Toronto they will understand: it will be like a vacuum cleaner. We are going to take the whole market. At the moment no-one flies to Toronto non-stop you have to change flights in Europe. Etihad will stop in Brussels, but you won t change planes. The Arab community and others will come to Abu Dhabi as a hub and then pick up this flight. As a retailer, that s fantastic. The Moodie Report 53

5 Brand new terminals: Over the past few months interim terminals 1A and 2 have been opened, the initial stage of a US$6.8 billion redevelopment to serve soaring passenger numbers. attacking the liquor industry, for instance, yes it might be a threat; but I am not interfering with existing business. I am filling a gap. If you go into my tie shop we sell seven brands. They are all selling at a high price-point and they are mainly from one or two manufacturers in Italy. But I need something else; I need a tie to be sold in a different packaging at a different price point. It s early days and we are still gathering all the information. But I would love to see that we can do things in Abu Dhabi and in the Gulf in general as well as other neighbouring countries. Why should I always buy things from 1,000 miles away when I can buy it from 100 miles away? In every country around us there are many examples of good products, but they have not been made for distribution. If you go to Johannesburg in South Africa the largest shop in the departures area is a souvenir shop, much larger than the liquor and tobacco shop, Mounib points out. If you go anywhere in a country that attracts tourism you ll find they have many tourist-related products in the local market. You say I ll buy at the airport but when you go to the airport there s either nothing or it s very expensive. We need to change that. We will not just sell products that you find in every shop, on the airline and when you land at another airport. While there s no shortage of sand in Abu Dhabi, Mounib knows he can t go to such extremes in an airport setting. But he says that s no excuse for lack of ambition. People will tell you we have no time to work on the environment, that the customer is in a rush. But I think if you create the right ambience people will say: Be sure to get to the airport early. We will have to get to this stage otherwise we will sell only the products that fight over the pricing and it then becomes just a question of selling one Dollar cheaper than somewhere else. Is the day coming when an airline says No liquor onboard? I think it will. Most probably one day all airlines will forbid me from carrying liquor onboard. What does that do to my business? We can t just stick to what we do today. If you visit the Abu Dhabi local market you ll see small shops whirring with visitors waiting to be served, often standing outside. It s the same in Dubai; the local market is like a destination in itself. Yet still we do not replicate it at the airport we stick to selling all the usual brands. Now we have a new window opening, and we have to treat it differently to others. With Etihad we open Brussels very soon and Toronto and then China and that opens a window to all these new customers coming in and out. For a long time we were restricted to sub-continent countries, and that clientele did not help me to develop my range. Now we are riding a new wave. Mounib relates an anecdote from his recent holiday to underline the point. I went to a shop in France recently that sells beach accessories and swimming costumes, and when I walked in the shop I felt the ground was moving under me. When I looked down it was sand the whole shop was covered in white sand. The whole effect took me by surprise. What an idea! Someone thought of this, it looked absolutely super. Sometimes you just like to walk through a shop because of the way they display the product and the way they bring it to life. The retailer s latest promotion with Nestlé International Travel Retail is Pure Geni-us. It offers a Volkswagen Beetle as a prize. 54 The Moodie Report