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1 CRUZAN. RUM WITH NATURAL COCONUT FLAVORS. 27.5% ALC/VOL. ALL CRUZAN TRADEMARKS ARE OWNED BY V&S VIN & SPRIT AB V&S VIN & SPRIT AB. CRUZAN INTERNATIONAL, NY, NY.

2 April 2007 RETAILER PROFILE Duty Free Caribbean Duty Free Caribbean Duty Free Caribbean Holdings operates an unrivalled range of travel retail stores in the eastern Caribbean, and can boast iconic names such as Cave Shepherd and Colombian Emeralds International in its portfolio. Dermot Davitt speaks to CEO Peter Allan and Chief Operations Officer Alan Huxtable about its recent rapid expansion, and its ambitions for the next phase of growth. plots an ambitious course ahead Few companies anywhere in the world can boast the sheer variety of operations and trading channels that Duty Free Caribbean Holdings (DFCH) can. From downtown stores to seaport shops, from airport retail to cruise ship retail, DFCH has developed an empire spanning much of the eastern Caribbean. The retail brands it operates include some of the region s best known names: Cave Shepherd, Colombian Emeralds International, Harrison s (acquired from Alpha Airports Group), Young Caribbean Jewellery, Pages Bookstore and even the Caribbean s first television shopping network, Carib World. The company was formed in 2000 as a 50:50 joint venture between Dufry (formerly Weitnauer Holdings) and much-respected Caribbean travel retailer Cave Shepherd. Dufry increased its stake to 60% last year. Since 2001 DFCH has doubled the number of stores it manages to 64 on 11 islands (including 32 Colombian Emeralds International stores, operated under franchise), and the company has big ambitions to double that number of stores again. Chief Executive Officer Peter Allan says: Our aim is simple: to be the most respected and profitable duty free retailer in the region. With our Dufry alliance and an IPO planned in the years ahead, we see ourselves as the biggest duty free company in the Caribbean. We have a position of dominance in the east of the region, but can improve our presence to the west. Dufry has some exposure there, but not DFCH as yet, so that market will open up for us. And in existing markets there is opportunity too: for example we ve had huge growth in St Lucia a market where we never thought we d open 11 stores, but now it s a key location for us. Allan (left) and Huxtable: building on a proud travel retail track record at Duty Free Caribbean But before a glance at the future it s instrumental to look at DFCH s past an illustrious past. It s a landmark year for Cave Shepherd, which celebrates its 100th anniversary as a retailer this year. It s a hugely respected name in the wider Caribbean, says Allan, and was the mainstay of this company for many years. It began The Moodie Report 113

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4 April 2007 RETAILER PROFILE Duty Free Caribbean operating at Barbados Airport in the late 1950s and is still there nearly 50 years on, with the duty free Arrivals store. It also brought the Colombian Emeralds franchise to the airport in 1992 and has a long track record both there and in the downtown environment in this region. Track record Building on that track record is the central task for Allan, who joined the group in 2001 as Chief Operations Officer before taking overall responsibility in He knows the business inside out, having spent six years as Caribbean Regional Director for Colombian Emeralds International. That brand is one of the bastions of the business, one which DFCH operates as a franchise in the English-speaking Caribbean, as, separately, does Dufry to the west and onboard nine Norwegian Cruise Line ships. But specialist stores and iconic retail brand names are just part of the story. Dufry s global scale and its ambitions to grow its Latin America and Caribbean business will help define the future for DFCH. Allan is clear about the direction the company will take to drive the next phase of growth. The jewellery and watches offer at Colombian Emeralds International (above) is core to the retailer' sgrowth plans, but core duty free categories such as fragrances (below) will play a greater role in future The eventual idea is to seek an IPO, which would increase equity investment in the company and enable us to raise capital and fund our expansion, says Allan. Until then, the Dufry influence and its global strengths in procurement and logistics will play an increasing role in the DFCH story. DFCH Chief Operations Officer Alan Huxtable, a longtime Dufry (formerly Weitnauer) executive, explains: Dufry has global buying and expertise in the core categories of fragrances, cosmetics, liquor and tobacco; it has a powerful distribution hub in Miami and global knowledge of the industry. There are opportunities for us to tap into that expertise. Outside jewellery and watches there are no other regional duty free players of our size in the Caribbean, so that is something we can work on. A greater emphasis on the core categories would also have implications for group profitability, which is currently dominated by jewellery and watches, followed by liquor and tobacco, then fragrances and cosmetics. An IPO would allow us to raise capital to fund our expansion In gross margin terms alone, fragrances and cosmetics generate the best returns; so we want to build on the benefits those categories can bring us. Beyond the traditional strongholds of downtown duty free and seaports, DFCH has grown its airport presence too, although largely until now through the mainstays of its jewellery and watches business. Airports represent guaranteed traffic and an opportunity for sales, says Allan, and how big that opportunity is depends on the island. There is a lot of airport investment around the region: new airports in Curaçao and St Maarten, the renovation and expansion in Barbados. That s the case simply because of the volume of jewellery sales and the overall return from 32 stores, says Allan. At Grantley Adams International DFCH operates a 1,200sq ft boutique, considerably larger than the 200sq ft The Moodie Report 115

5 Global Power Masterfoods International Travel Retail

6 April 2007 RETAILER PROFILE Duty Free Caribbean Fresh look: Introducing new and updated retail concepts, such as this sunglasses wall at Harrison s, is firmly on the agenda outlet it previously managed, alongside a 500sq ft Bijoux Terner store and the main Cave Shepherd Arrivals store. We were happy to win the Arrivals store because there is a strong inbound market here. With all the security concerns surrounding outbound traffic, Arrivals looks like a big opportunity, says Allan. Another opportunity the company intends to seize is duty free business at hotels. With the right type of occupancy and clientele, the hotel retail business can be very significant, says Allan. We already work with the Sandals Group in Antigua, St Lucia and Jamaica. It s a niche market, but a very interesting one. At Sandy Lane in Barbados, for example, we ve introduced an upscale retail model that works very well. We also see the opportunity to introduce new types of concepts to the market and to add new brands to those we already offer. Our new South Sea Vista Cave Shepherd store in Barbados enhances our presence on the south coast of the island, with a concept that really updates what we ve done elsewhere with tiled floors, better lighting and more of a boutique style. It s the new generation of stores for us. We re also The new worldwide duty free regulations don t help the perception of duty free in general introducing more concepts within the stores such as our On the Beach concept with Cave Shepherd, through which we ve developed alliances with brands such as Quiksilver. Shop-in-shops with beachwear brands will be part of our future. Colombian Emeralds, one of the region s most tried and trusted brands, will also be central to that future, says DFCH. It s a brand that has a terrific reputation, says Allan. That s partly because it has the same pricing structure throughout the Caribbean, which isn t the case with the core duty free categories; but it s also because of the service culture, quality and value for money message it was built on. Colombian Emeralds has a service number for any customer who has a problem with merchandise, and difficulties are always resolved in a way that encourages trust from the customer. That s why the refund rate on Colombian Emeralds products stands at just 0.2%. DFCH has good reason then to look forward with optimism, but there are challenges for the business too. The new worldwide duty free regulations don t help The Moodie Report 117

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8 April 2007 RETAILER PROFILE Duty Free Caribbean the perception of duty free in general, says Allan. In practice we haven t seen our liquor business drop to date, although there have been some problems, particularly in Grenada, which imposed some stringent security restrictions on carry-on liquids. Banking on tourism growth But, set against that, we know that world tourism will grow; we know that the Caribbean handles 50% of the fast-growing cruise market; we know that long-stay traffic to the Caribbean will grow. Our challenge is to keep evolving and integrating new concepts into the business, whether they are regional or international, in a manner that can be easily understood by consumers. We need to source better brands for today s discerning customer. There is evidence that we are doing all this with a degree of success: our average sale is improving and of course there is more disposable income around in our core target markets. But we need to be flexible enough to tweak our pricing and our ranges to ensure we maximise our returns. DFCH is also upgrading its systems to better understand and interpret the data it receives about its customers and has invested heavily in making better use of its data. Size matters: DFCH plans to leverage Dufry s expertise and buying power in categories like liquor and tobacco operating across a region with so many governments and different rules can be logistically difficult, says Huxtable. Each island has its own laws, taxes and trading rules, so you need a good working knowledge of the region. We already adjust pretty well to the markets we re in, and the core customers there, says Huxtable. We know that in Barbados the key cruise ship passenger is from the US, and the key stayover passenger is from the UK. In Grand Cayman 80% of the duty free business comes from the cruise ships, in Barbados it s just 30%, with 70% from long-stay travellers, so the retail needs to reflect that. Long-stay passengers tend to spend the most, so we have to ask ourselves whether the offer is always pertinent to them. Plus there are differences even within the islands. In Barbados there are differences in the audience between the west coast and the east, so we need to adapt to that. It has worked quite well: we have a lot of repeat traffic to the island and they have grown used to the level of service, a key issue for the long-stay traveller. Expansion within the Caribbean, for a business as diverse as DFCH, presents other challenges too. It s something many people in the trade don t realise but We need to source better brands for today s discerning consumer That diversity has helped too, though, in tough times. Last year there was a severe dip in the cruise business in the eastern Caribbean, says Huxtable, but because we don t just benefit from cruise line traffic we are relatively well insulated against downturns in one sector. Against that drop in business we had strong stayover traffic in Barbados, where we operate 27 stores or corners, so the net result was positive. As the largest travel retailer in the eastern Caribbean, and with a proud history among its constituent retail brands, DFCH intends to aggressively fight its corner to retain its position. We expect to see more competition across all of our trading channels in the future, says Allan. We re operating in a part of the world that is vibrant and where the business is growing. But we re not afraid of that competition: it will keep us on our toes and ensure that we adapt better than anyone else to the changing needs of the consumer. The Moodie Report 119

9 Turning tears into smiles The Moodie Report and Hugo Boss are delighted to announce a major new charitable initiative to bene t the children of the world. The Moodie Report will wear Hugo Boss at all major industry conferences that we moderate. The sponsorship fee paid by Hugo Boss has in turn been matched by The Moodie Report and all proceeds donated to The Smile Train - the world s leading cleft palate charity. As a result of the 15,000 joint donation, 100 children like little Shiva pictured above will have cleft palate surgery and have their tears turned into smiles. You too can help by visiting