RETAILER PROFILE Alpha Future. Faith in the Future

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Faith in the Future Alpha Future and Indian duty free saw a momentous day on 27 March, when the partnership between Alpha Airports Group and Pantaloon Retail opened for business at New Delhi

World of difference: Paul Topping (above) says that the liquor offer, one of the mainstays of the Indian duty free business, will be transformed in Alpha Future s new shop (left) There s 5,000sq ft

1 Faith in the Future Alpha Future and Indian duty free saw a momentous day on 27 March, when the partnership between Alpha Airports Group and Pantaloon Retail opened for business at New Delhi International Airport. Alpha Asia Managing Director Paul Topping speaks to Dermot Davitt about travellers, teething problems and tantalising growth prospects. World of difference: Paul Topping (above) says that the liquor offer, one of the mainstays of the Indian duty free business, will be transformed in Alpha Future s new shop (left) There s 5,000sq ft of retail in Departures, which will triple in size by October and another 2,000sq ft in Arrivals, which will double later this year. There s a 900sq ft beauty section featuring the world s top brands, already outperforming its targets. Plus a 1,100sq ft fashion store, a destination shop and a 200-brand liquor and tobacco range, not to mention 1,000sq ft dedicated to confectionery. Welcome to the future the Alpha Future of Indian duty free. The joint venture between Alpha Airports Group and India s Pantaloon Retail opened for business at New Delhi Indira Gandhi International Airport on 27 March with a pledge to offer customers a new and exciting duty free experience. For the partnership it marked the culmination of a process that has seen them experience triumph, and a measure of despair too. There was the triumph last November of securing the three and one-quarter year contract, valued at INR5 billion (US$120 million), ahead of stiff international competition. It was a huge coup for the partnership, at an airport that handles around 25% of India s international passenger traffic 7.3 million people in But in recent months there s been more than a hint of despair too, as obstacle after obstacle hindered the successful launch of the stores, originally scheduled for January. Issues related to Customs and the airport, changes in space allocation (the company is even using one retail space as a feeder bond because of problems accessing its main bonded area) and licence approvals delayed the opening by two months. Early success Now, with phase one complete, the partners want to fast forward to the next stage and put recent difficulties behind them, as Alpha Asia Managing Director Paul Topping tells The Moodie Report. Some of the issues were easier to manage than others, but we spent valuable time and resources battling on a number of fronts, so that slowed us down. Now we re eager to get some stability into the business and that will happen as more space becomes available, as all of our stocks are in place, and as customers get used to the new stores, he says. It s too early to take any messages from the first few weeks performance, but even in this period we ve seen some surprises. The Moodie Report 125

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Lasting presence: Alpha Future hopes its Delhi operations will become a monument to high-class duty free retailing Fragrances & cosmetics is performing up to +10% better than expected in the early

3 Lasting presence: Alpha Future hopes its Delhi operations will become a monument to high-class duty free retailing Fragrances & cosmetics is performing up to +10% better than expected in the early weeks, boosted by brands such as Estée Lauder and Dior, and the added attraction of makeovers and sampling. It s the first time we ve really experienced the purchasing power of the Eastern European traveller at our operations in this region, says Topping. They have mobbed the perfumes and cosmetics department from day one. Asian women too are contributing, with gifting as their big purchasing driver that s something we don t see in Sri Lanka or anywhere else in this region. By contrast, liquor possibly due to uncertainty among passengers over liquids restrictions hasn t hit the sales levels budgeted for this key category. Tea, however, has proved a major surprise with huge unit sales in the opening weeks. Tobacco is weaker than we expected to date, says Topping, but that may be because we re short of some of the brands as yet. That will change. The clamour from brands to be part of the new facility has been extraordinary, he adds, and supply has generally been good to date. Many brands have worked exceptionally It s the first time we've experienced the purchasing power of the Eastern European consumer hard to get us stock, he says. We re pleasantly surprised by how many companies want to get involved. We don t have the space to accommodate them all in this phase, but when we open the 15,000sq ft Departures area in October we ll devote more space to additional brands. We re already heading for 7,000 skus in what is traditionally and predominantly a liquor, tobacco and confectionery business, but we re opening up new sectors such as watches, fashion and destination items. And even as trading settles down, travellers will see a world of difference between Alpha Future s stores and the old India Tourism Development Corp outlets, says Topping. Take a few examples: previously the confectionery offer was a handful of products; now it covers a substantial space and offers the big brands. Perfumes and cosmetics was housed in 250sq ft of space, now it s got four times that. In liquor we have included a strong Asian range, including Old Monk, which is supplemented by Indian wine, and we ve made a statement around malts, of which we have about 30 lines. We ve doubled the tobacco range. We ll have a great The Moodie Report 127

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5 fashion range built around sunglasses, belts and other accessories. And we ve got great fixtures which we source from Italy through our partners at Pantaloon. Beyond the products, though, we have two and a half times the number of staff that previously worked in this operation. Staffing brings its own challenges too, and finding salespeople who understand key duty free categories such as liquor is no easy task. We have a young, inexperienced workforce, says Topping. There s a well-developed market for perfumes and cosmetics on the high street in India, but there isn t a lot of organised retailing of liquor. We have around 170 staff and some of them have managed in retail, but very few in our type of retail. Partner power Although Delhi is a new location for Alpha it draws heavily on the experience and skills of Pantaloon Retail (India), part of the Future Group. Pantaloon is the largest retailer in India, generating over US$440 million in turnover in 2005, with a presence in sectors as diverse as food, fashion, footwear, consumer electronics, books, music, health, leisure and entertainment. Jostling for position in Indian duty free Alpha Future isn t the only partnership poised to tap into the potential of the Indian traveller. The privatisation of India s major airports has opened the doors to the world s leading duty free concessionaires and their Indian partners. Last month The Nuance Group and its Indian joint venture partner Shoppers Stop were awarded the concession to operate retail at the domestic and international terminals at Hyderabad International Airport; the contract begins next March, when the new airport is scheduled to open. The joint-venture partners are expecting to earn revenue of up to US$240 million over the period of seven years. In 2006 Hyderabad Airport handled 5.5 million passengers, out of which just over 1.1 million travelled internationally. The international retail will be managed by the joint-venture company, Nuance Group (India) Pte Ltd, while Shoppers Stop s Airport Division will handle retail in the domestic areas. The retail offer in the International Terminal will consist of three stores, covering 2,500sq m, one of which is a 1,277sq m Arrivals shop. Domestic retail will consist of three stores with a total of 310sq m. The victory marked the second coup for the Nuance/Shoppers Stop joint venture, which secured the pivotal Bangalore International Airport duty free contract four months earlier. The five-year contract is expected to be worth US$150 million, says Nuance. The retail offer in the International Terminal will comprise a total of five stores, covering 2,000sq m; one of them is a 450sq m Arrivals store. Domestic retail again operated by Shoppers Stop will consist of five stores and a total of 1,400sq m. Crucially, both Hyderabad and Bangalore offer the retailer an opportunity to develop brand new space, in contrast to Alpha Future s older but impressively refurbished outlets at Delhi. Change is also under way at India s biggest international gateway. In February Aldeasa and India Tourism Development Corp won the duty free tender for Mumbai Chatrapati Shivaji International Airport, a business expected to generate sales of US$300 million over the threeyear term (which carries an option for a one-year renewal). The contract begins on 1 June and includes three units a 1,355sq m Departures store, a 780sq m Arrivals store and a 145sq m storage department. There is huge upside potential in the business: Mumbai handles an estimated 37% of India s total air passenger traffic (domestic and international), with international passenger numbers currently showing solid double-digit growth and domestic traffic climbing faster still. Now that the major airport contracts have been allocated, attention turns to the planned privatisations of Goa, Chennai and Kolkata; but the opportunities at these locations are not as big or exciting as those at Delhi, Mumbai, Hyderabad and Bangalore. Will other international players seek entry through these lowerprofile destinations? With an estimated 80% of the Indian duty free market divided between Alpha, Nuance and Aldeasa plus their Indian partners their international rivals may find themselves already locked out. The Moodie Report 129

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Leading the modernisation of India s airports GMR is a very professional airport authority, and a great partner to work with at Delhi, says Alpha Asia Managing Director Paul Topping, who heads the

7 Leading the modernisation of India s airports GMR is a very professional airport authority, and a great partner to work with at Delhi, says Alpha Asia Managing Director Paul Topping, who heads the Alpha Future joint venture that manages the duty free concession at New Delhi International Airport. But just what is GMR Group, and what role is the company playing in the privatisation and modernisation drive in Indian aviation? GMR is one of the fastest-growing infrastructure companies in India, with businesses spanning airports, roads and power. Its airports business includes building the new Hyderabad International on a greenfield site, and modernising New Delhi Indira Gandhi International. The GMR projects are two of the four Indian airport contracts awarded under the government s Public-Private-Partnership Initiative the other two projects being at Bangalore (greenfield) and Mumbai (modernisation). Delhi International Airport Company is a consortium of GMR Group (50.1%), Airports Authority of India (26%), Fraport & Eraman Malaysia (10% each) and the India Development Fund (3.9%). GMR is the lead member of the consortium, Fraport the airport operator and IDF the financial investor. The initial term of the agreement, which began in April 2006, is 30 years. Besides upgrading the existing terminals (including the existing international terminal, T2) work has begun on constructing a new runway and an integrated passenger terminal (T3). The first phase of the airport is designed to handle 37 million passengers per year. This phase will be take about three years and should be operational before the Commonwealth Games are held in India in By then all international and fullservice domestic carriers will move to the new T3, and T1 will be developed as an exclusive terminal for low-cost carriers. But the company s most exciting airport project is probably that in Hyderabad, where it has the opportunity to design and build an airport on a brand new site. GMR Hyderabad International Airport Ltd (GHIAL) is a jointventure company comprising GMR Group (63%), Malaysia Airports Holding Bhd (11%), the government of the region of Andhra Pradesh (13%) and Airports Authority of India (13%). GMR has grand ambitions for Hyderabad, which it describes as an aviation hub in the making, and which opens in March From a duty free point of view interest has centred on the award, made just last month, of the main retail contract to a partnership between The Nuance Group of Switzerland and Shoppers Stop of India. Another major attraction of the 100,000sq m terminal there will be the Airport Village (pictured), described as a spacious covered area complete with shopping kiosks and stalls where visitors can interact with passengers. Recent GHIAL contracts awarded 11 September 2006: GHIAL enters into an inflight catering concession contract with LSG Sky Chef and Sky Gourmet for setting up inflight catering units in Hyderabad s new international airport. 30 November 2006: GHIAL ties up with Accor Hotels and Resorts, Singapore, to operate a business hotel at Hyderabad International. 4 April 2007: GHIAL awards the concession to operate retail at both international and domestic terminals to a partnership between The Nuance Group and Shoppers Stop. The Moodie Report 131

8 May 2007 And Alpha Future plans to make the most of this retailing powerhouse at the heart of its business, says Topping. Our partners provide the systems, IT and finance, and at the retail level they are very strong in design and fixturing. What Alpha will do is run the shops day to day, providing training, store layout and the product offer. Getting that offer and layout right will be critical in ensuring Alpha Future achieves the high expectations it has set for the contract. If we get everything right, then we re talking about an eventual spend of US$10 a head, says Topping. That is when we are fully up and running, with all the space in use, including the space to be vacated by Flemingo when they leave. That figure compares favourably with the US$6 per head spend at Alpha Kreol s business at Cochin International Airport, from a base of seven million passengers. It s difficult to compare India location by location because the profiles of the businesses are so different, adds Topping. In Cochin there are many Keralites travelling to Saudi Arabia; they can t buy liquor on departure, which has an impact. And here the Arrivals business will be about 35% of sales, while it s far higher the dominant share at Cochin. For Indian travellers, too, price-offs and discounts are among the key motivating factor in driving duty free purchases. For Indians it s all about the deal, says Topping, so we ll be carrying promotions right across those core ranges of liquor and confectionery in particular, whether it s three-for-two or gwps, which they love. Promotion-linked sales account for 36% of the business in Sri Lanka; it s going to be even higher here. Will that mean Alpha Future turns a profit at Delhi, or is this contract about securing a foothold in the market? A fitting memorial A year after the opening of Sri Lanka s Travel Retail Village, which was built by funds from the industry following the tragic December 2004 tsunami, further projects have just been completed. A community centre (pictured) has been added, named after the late Tax Free World Association (TFWA) Conference and Research Director Linda Hopkins, and predominantly funded by TFWA. In addition a medical centre and trust fund for health and education has been created, sponsored by Dubai Duty Free. The community centre consists of a library, for which Alpha Orient Lanka has collected more than 2,000 books from colleagues and well-wishers. Apart from books, the committee also hopes to make available daily newspapers, international magazines, computers with Internet access and a collection of games such as chess. The community centre will be available not only for the benefit of Travel Retail Village residents but also village folk from the surrounding area as well. Rakhita Jayawardena, President of Centaur Travel Retail and King Power Traveler Company Ltd, who co-founded the village, said: After over a year the new householders are settling down extremely well and continually expressing their gratitude and thanks to the travel retail trade for giving them a new beginning and a new life. The completion of the Linda Hopkins Community Centre is a further uplift to their daily lives. He added: I would like to take this opportunity to thank TFWA and Dubai Duty Free for making this dream a reality for them. Co-founder Paul Topping, Managing Director of Alpha Asia, said: It is so fitting that a community centre which will be used in multiple ways such as a meeting hall, a place for special celebrations, an education centre etc. was constructed in the memory of a person as special and vibrant as Linda, who touched the hearts of numerous people in our industry around the world. The community centre will aid in bringing much happiness in the lives of the villagers for many, many years. 132 The Moodie Report

Shining star: While Alpha s Delhi operation becomes established, the company s Sri Lankan business remains its Asian lynchpin; during 2006/07 sales

contract isn t going to make a serious profit, says Topping, but it extends our knowledge of the business, and we ll be far better prepared for the

The prospects of unleashing the pent-up demand for duty free among outbound Indian travellers clearly excite Topping.

2008 will be a momentous year for the industry here, he says.

What we predicted last year at the Cochin duty free conference has come to pass: privatisation has happened, tenders were issued, and international

With an international passenger base of around 20 million, growing at +20% a year, the potential for airport retailing is vast.

9 Shining star: While Alpha s Delhi operation becomes established, the company s Sri Lankan business remains its Asian lynchpin; during 2006/07 sales rose sharply at Colombo Airport, boosted by the launch of its Plantation Café and a new bar in Departures Anyone looking at a three and a quarter year contract isn t going to make a serious profit, says Topping, but it extends our knowledge of the business, and we ll be far better prepared for the follow-up tender in three years time because of it. The prospects of unleashing the pent-up demand for duty free among outbound Indian travellers clearly excite Topping. So is this really the bright new dawn for Indian duty free? Topping s response is emphatic will be a momentous year for the industry here, he says. We re here, and Aldeasa-ITDC and Nuance-Shoppers Stop will have opened (see panel, page 129). What we predicted last year at the Cochin duty free conference has come to pass: privatisation has happened, tenders were issued, and international duty free retailers have made their entry. The retailers that competed for those contracts and lost may just be too late. With an international passenger base of around 20 million, growing at +20% a year, the potential for airport retailing is vast. If you take a base of US$6 to US$8 per passenger at the privatised airports, plus the growth you d expect year on year, it s very exciting, says Topping. And that s just what might happen in duty free. There s a lot of development still to come in bookshops, electronics and destination merchandise stores at airports. We re also looking at duty paid bars and cafes, in which we ve got a lot of expertise through our other operations. In a few years time we could see that spend per head rise to US$13. What an opportunity that is. The Moodie Report 133

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