CHINA REPORT Sunrise Duty Free October/November 2005 Sunrise breaks over Chinese airport duty free Look for Sunrise Duty Free or its Chinese hanyu pinyin name Rishang on the internet and you re likely to end up with no more than five brief references to the company. But make no mistake, here is a progressive and skilled retailer that is set to have a profound influence on the rapidly-evolving Chinese duty free market. In a rare interview, Chairman Fred Kiang told The Moodie Report s Asia Editor Hui Min Neo what the company s recent successful bid for the Beijing Capital International Airport duty free tender means for Sunrise s ambitions. By Hui Min Neo With a typical lack of fanfare, Shanghai Pudong International Airport retailer Sunrise Duty Free expanded its retail concession operations in July to a major presence at Beijing Capital International. The announcement of a new duty free retailer at the country s largest international gateway grabbed immediate global headlines in the industry press. But the company itself chose to celebrate quietly and behind the scenes. We ve been very low profile, Sunrise Duty Free Chairman Fred Kiang tells The Moodie Report. We prefer to stay out of the limelight. Why? We re just running a duty free business. There isn t a lot to talk about. That s a nicely modest response and reflective of the man, according to those who know him. But talk of the town Sunrise certainly is. Beijing Capital International Airport is one of the great prizes of China s travel retail industry. So after years of a self-run operation, when a ten-year duty free and general retail concession there came up for grabs earlier this year, the interest was both predictable and intense. Not surprisingly, some of China s biggest players, including the state-owned China Duty Free Group, lined up for the bid. But Sunrise Duty Free won the day, sweeping up the entire retail opportunity. It has been a long effort. We We were not a dark horse coming out of the blue to win this bid studied and reconsidered over and over again before putting together the bid, Kiang says. Sunrise s bid raised a few eyebrows, both in China and beyond. The company offered CNY190 million (US$23.5 million) as a minimum annual guarantee, beating CDF Group s CNY168 million and Orient King Power s CNY120 million. Putting those figures in context, last year s sales reached an estimated CNY250 million (US$30.9 million). This means that, to make any serious money, Sunrise will have to grow revenues tremendously. But it is confident of doing just that, and of boosting sales to as much as CNY400 million (US$50 million) in the near future. In terms of numbers, yes, the bid is high, Kiang admits. For the first few years it s going to be a lot of hard work. But with the Beijing Olympics taking place in 2008, we expect good progress to be made. Born in Kunming to parents originally from Shanghai, Fred Kiang was raised in the US and speaks English as well as any American. But he also speaks Shanghainese fluently and, as he puts it, gets by in Mandarin. His company s investment at Beijing may be a big one, but it will have been well calculated, for Kiang is not only a business consultant, but also an investment 96 The Moodie Report
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CHINA REPORT Sunrise Duty Free October/November 2005 From fragrances (left) to tobacco, Sunrise is set to have a profound impact on Chinese duty free banker. He also knows his core categories well his family ran a business dealing in alcohol and tobacco. This background stood Sunrise in good stead when it made its entrance to the travel retail industry. Despite having no prior experience in duty free it was awarded a ten-year contract to run tobacco and liquor retail at Shanghai Pudong Airport following a public tender. We have learnt a lot of lessons, good and bad, Kiang reflects. But we have managed to produce good-looking shops, with good prices, and good service. I think Beijing realised that, and our experience in Shanghai became an important component of our success in Beijing. So we were not a dark horse coming out of the blue to win this bid. In fact, Kiang reveals, the company has generated sales growth of between +25% and +30% annually at Pudong. Tobacco is still the strongest category, but perfume and cosmetics, he says, is producing the highest percentage growth. Shanghai Pudong became the first Chinese airport to put its retail operations up for bid after the municipality of Shanghai took over control from central government in 1998. Previously most airports were state run and supplied by CDF Group, which also ran many of the stores. Pudong started the ball rolling for changes in the way China s airports were managed, and travel retail operated. The outsourcing of retail operations there was conducted on an experimental basis and the first public tender was called for three categories: liquor and tobacco; perfume and cosmetics; and general merchandise and food. The airport authority wanted potential operators not only to run the retail businesses but also to have their own international product supply lines. Sunrise obtained control of the liquor and tobacco category, while BAA-owned World Duty Free won the concession for perfume and cosmetics, and general merchandise went to Orient King Power, a subsidiary of Hong Kong-based King Power Group. The stores were opened on 1 October 1999, in commemoration of China s 50th national day. When World Duty Free pulled out two years later Sunrise also wrested control of the perfumes and cosmetics offer. The experiment has gone well. We ve made major contributions in concession income to the airport, and they are pleased, Kiang says. Pudong plans to build a second terminal by 2007, and Sunrise s concession will also cover retail operations for the two categories there. At Beijing, likewise, a new terminal is to be built by 2007, in preparation for the 2008 Olympics, which are likely to draw millions of visitors. The time frame means that Sunrise s concession will stretch into the new terminal s operations as well. He says the company needs time to gain familiarity with the customer base at Beijing before making any bigger changes. Travellers using Beijing may have different shopping habits from those at Pudong. We will study that without being 100% familiar with the numbers and the passengers, we are not going to shift the retail mix one way or another, Kiang says. Kiang notes, however, that luxury products will remain important. The company will retain the cigar and wine stores; it also wants Hermès to stay, and perhaps even take on a larger space. Overall the range of products available at Beijing will be widened, he says. But despite the important role that Sunrise is playing in the travel retail scene in China, Kiang laughs off the description of the company as a major player in the industry. We are not that big, definitely not as big as CDF Group. But he concedes: Certainly we are growing, and hopefully we are growing healthily and doing a good job. 100 The Moodie Report