The GCC’s strategic location (at the intersection of three continents) and the operations of major airlines like Etihad, Emirates and Qatar Airways with a vast network, make for an overall efficacious airport retail business. In 2013, global duty free and travel retail sales reached a record USD 60 billion, representing a 7.5 percent increase over 2012. Airport duty free sales account for USD 34.67 bn of that business, with the remainder including ferries, border shops and airlines.
The ever increasing influx of tourists into the GCC is a major factor attributing to the success of the duty free industry. Major airlines’ network expansions have given rise to a substantial stream of transit passengers. Last year, over 32 million international tourists arrived in the GCC for various purposes and this year, the region is expected to witness 34.5 mn tourist arrivals, an increase by 5.4 percent, according to the World Travel & Tourism Council. The Doha International Airport handled 23.3 mn passengers in 2013. The new HIA (Hamad International Airport) is equipped to handle over 28 mn passengers per annum, according to data from CAPA Centre for Aviation. The second phase of the airport slated to open after 2015, will witness a capacity increase up to nearly 50 mn passengers.
Abu Dhabi Airports also witnessed a 19.4 percent escalation in passenger traffic at Abu Dhabi International Airport in the first half of this year as compared to the same period last year (2013). A total of 1,703,995 passengers passed through Abu Dhabi International Airport in July 2014, compared with 1,399,695 in the same month of 2013 according to data from ADAC. Eng. Ahmad Al Haddabi, chief operations officer at Abu Dhabi Airports says, “Our challenge is to manage this growth whilst at the same time ensuring that standards of service, safety and security remain consistently high. The Midfield Terminal Complex, which is being built to meet this increasing growth, continues to progress on schedule.”
Dominating duty frees
Dubai Duty Free’s (DDF) recent announcement of their record-breaking sales for 2013 of DHS 6.65 bn (USD1.8 bn) – representing an 11.4 percent increase over the previous year – comes as no surprise as they continue to lead the pack, representing 40 percent of the Middle East’s duty free and travel retail sales. Abu Dhabi and Qatar also witnessed robust expansion drives in the last few years.
Dubai Duty Free is currently operating over 26,000 square metres of retail space at Dubai International Airport (DIA); the retail footprint will expand by a further 7,000 sq. m with the opening of Concourse D in 2015. “In its entirety, the new concourse covers some 65,000 sq. m and will be the home of more than 100 airlines that currently operate from DIA’s Terminal 1, Concourse C. The new building will be linked to Terminal 1 via an elevated train,” reveals Colm McLoughlin, executive vice chairman of DDF, in an interview with bq.
Concourse D is designed around a central atrium, as opposed to the long linear structures of the nearby concourses. The overall design is bright and spacious with some interesting architectural features. There is ‘open gate’ boarding for passengers, so traditional holding areas will not exist and passengers can board their flights directly from the gate. “The Dubai Duty Free offer is within the central atrium, along with the food and beverage outlets, making it a very vibrant and dynamic environment, easily accessible for all passengers. The furthest gate is only a ten minute walk away,” says McLoughlin.
The DDF at Al Maktoum International Airport at Dubai World Central covers 2,500 sq m. Dubai Airports recently announced its investment plans in airport expansion programmes worth USD 7.8 bn with an aim to boost capacity to 90 mn passengers by 2018. “The long term plans for Al Maktoum International at Dubai World Central are very exciting and a recent announcement confirmed the project will be carried out in two phases, the first phase involves the construction of two satellite buildings with a collective capacity of 120 mn passengers annually, accommodating 100 A380 aircraft at any given time and will take between six to eight years to complete. The first phase will cost USD 32 bn,” McLoughlin discloses to bq.
Speaking of sales, he adds their average daily sales figures clocked a whopping DHS 16 mn. He further revealed to local media, “Our biggest day saw DHS 78 mn. In 29 years we’ve never had a year where sales haven’t increased. Even in 2009 — during the global recession — sales increased by three per cent.” Currently DDF accounts for 5 percent of global airport shop sales, according to Generation Research, an independent industry specialist. McLoughlin expects their retail business to touch DHS 10 bn by 2018, and expects to add 8,000 people to their payroll.
Abu Dhabi Duty Free also achieved record sales in the first half on 2014, reaching AED 487.9 mn, which represents a rise of 11.5 percent compared to the first six months of 2013 (AED 437.6 mn), according to Abu Dhabi Airports Company. Abu Dhabi Airports’ Chief Commercial Officer Mohammed Al Bulooki says, “The continuing improvements and additions of new retail outlets at Abu Dhabi International Airport are clearly making their mark on the company’s commercial revenues.” The total number of transactions was just over 2 million, 12.8 percent higher than the first half of 2013.
During the period, Abu Dhabi Airports formally commenced the tender process for retail and F&B concessions at the Midfield Terminal Building, which is making rapid progress and will have an annual capacity of 30 mn when it opens in 2017, according to ADAC. Most of the world’s leading brands are expected to submit bids.
Qatar Duty Free at the newly opened Hamad International Airport offers 40,000 sq. m of combined retail, food and beverage facilities, with over 70 retail outlets offering a vast selection of designer labels, fashion, electronics, gourmet foods and much more. In addition, more than 30 cafes and restaurants offer an assortment of global and local cuisine. “QDF has created a shopping experience that is not a traditional grab-and-go, with original concept stores developed exclusively for HIA. In each of the concept stores there is something to be discovered, whether it be the latest children’s toy, or new flavours of tea,” says Keith Hunter, executive vice president of QDF. He adds, “QDF has diversified its portfolio into Food and Beverage (F&B), with a combination of QDF-owned branded concepts, joint ventures and concession-based outlets. QDF looks to innovate, diversify and expand its business portfolio by pushing the boundaries of proprietary concepts.”
Keeping up with consumers
An important strategic move undertaken by GCC airports is extensive portfolio diversification. QDF is also diversifying its food and beverage offerings. “The menu content and the diversity of price-points are very important to us. We didn’t just want to create a window where everybody recognises every brand, but we wanted to tempt our guests and introduce them to new ideas, new concepts and new menus,” says Hunter. He further reveals that it’s essential to keep in mind the wide variety of passengers, although an increasing number of people are buying luxury goods at airport. “It is very important that we reach out to all sectors of our travelling public, because people have different purchasing power. We know who our customers are, and it is a very broad mix. For example, we service many Asian travellers, and a lot of them buy at the airport, but usually on multiple, low cost transactions.”
In keeping with this trend, the DDF had plans to add over 1,000 new staff to its payroll last year, of which, 600 were Chinese speaking. McLoughlin reveals that a small percentage of travellers may actually generate a larger percentage of sales: “Traffic from China was only four percent but generated 12 percent of sales, indicating that sales per head are higher. So, we will be targeting that customer segment.”
“Confectionary, perfume and cosmetics will continue to be dominating categories, but we also want to grow premium spend, says McLoughlin. “Therefore, having the luxury brands alongside regular products is a necessary requirement to boost average transactions. In 2012, DDF sold 73 million pieces of merchandise — including some 23,000 iPads, about two tonnes of gold and more than two million bottles of perfume — which averaged 64,300 sales transactions per day, arming it with a turnover of USD 1.6 billion, exhibiting an extensive range of customer preferences,” he adds.
Duty free business is an expansive and profitable sector, and forms a large part of several GCC countries’ overall retail earnings. QDF, for instance, is still on its way to expansion. “Although the QDF offer is already on a vast and impressive scale, it is far from complete. Several stores, including some major luxury names and restaurants are still to be unveiled in the existing south node and the vast north node will be open soon,” says Hunter.
“Since the opening of Terminal 3, Concourse B in 2008, our retail offer has doubled twice in that time and with Concourse D online next year our retail offer will cover 33,000 sq. m,” reveals DDF when speaking about their latest retail offerings and expansion plans to bq. “We have done a huge amount in extending our high-end fashion offer in Concourse A, which is dedicated to the Emirates A380 fleet and where we operate over 8,000 sq. m of retail. The recent opening of the Gucci area, was followed by Dior and more recently Chanel, all of which now complement the existing Ferragamo retail area. The ‘Fashion Boulevard’ is positioned in the centre of the concourse and we are very pleased with the incremental sales this area is generating,” says McLoughlin.
Other new developments have been DDF’s move into e-commerce and they had a soft launch earlier this year, and are now going to ramp that up as they have more than 3,000 products available for online ordering. “Ultimately, Dubai Duty Free will have around 40,000 sq. m when the final project is completed by mid-2020s.”
According to an Alpen Capital report, duty free and travel retail sales in the Middle East are expected to rise much faster than retail sales overall in the period from 2011 to 2016. Based on 2013 figures, Dubai Duty Free, as a single operator, accounts for 5.19 percent of global airport duty free business and almost 3 per cent of the wider duty free and travel retail global business, according to Generation Research. With this industry size, the sector shines a bright light on the overall retail earnings in the region.