The Hindu Business Line : Buy while you fly!

A huge pile of goods at metro airports has suddenly become a common sight. This time, however, it's not passengers' luggage waiting to get into various flights but the goods awaiting entry into the new retail outlets inside airports.

With retailing kicking off at international airports, running the business is not going to be easy for the new MNCs who will give the India Tourism Development Corporation company in the still nascent stage.

Stringent security and laws governing the movement of goods inside airports and attracting shoppers will be some of the challenges facing these new players.

The two big MNCs of the duty-free world are already here partnering two Indian retailers. Nuance from Switzerland and UK's Alpha Retail have partnered Shoppers' Stop and the Future Group, respectively, and have already bagged the duty-free contracts at the international airports of Bangalore, Delhi and Hyderabad. With time-bound contracts to run the business, retailers may face several hurdles before they reap profits.

Says B.S. Nagesh, Customer Care Associate and Managing Director, Shoppers' Stop, "Airport retailing is considerably different from general retailing, particularly since the traveller is not visiting the airport with the purpose of shopping. Hence, the pressures on time and the traveller's mindset are very critical. This has implications on all aspects of retail — from where the store is located, the assortment and merchandising to appeal to the customer instantaneously, to the very high levels of service required to enable high passenger turnaround even during peak hours. The additional challenge is to understand customer behaviour and how they respond to the offer, since this is a completely new environment."

Says Paul Topping, Managing Director, Alpha Airport Group, "Airport retailing is an unknown territory and the passenger profile varies from airport to airport. While it provides a window of opportunity, there are time constraints in trying to capture passengers who are mainly impulse buyers."

Besides, it is not necessary that footfalls will automatically ensure sales at the duty-free shops. Rakesh Chopra, Business Development Director, Alpha Future Airport Retail says, "Passengers are usually in a hurry and footfalls do not guarantee sales. There is no direct correlation between the number of passengers and the sales for airport retailers."

Operating in a `controlled environment', airport retailing takes place in a high security area mandated by statutory laws; thereby movement of goods is restricted to a certain extent. "At times, customs approval is needed to even move goods from one shop to the other," says Chopra.

Anil Rajpal, Head of Retail Practice, Technopak Advisors, lists other impediments to the business. These include issues such as segregation of passengers into premium and economy class, high concentration of traffic limited to some of the major airports, lack of focus on the part of the airport developers primarily due to the perception that airports are primarily for travel and not related to retail and giving individual airport retail environments a distinction compared to general retail and other airports.

Besides, airport retailing is restricted to a few basic categories such as liquor, tobacco, perfumes/cosmetics and confectionery. These categories account for almost 70 per cent of the duty-free sales at most airports. At the same time, certain services are required for passengers in areas such as food and leisure.

Says Rajpal: "The growth in the number of air travellers has meant that our airports operate for longer hours. This 24-hour cycle means that airports need to provide services such as food (breakfast, lunch and dinner), travel related goods and services, health products and services, grooming services and leisure activity at all times."

Big plans

Kishore Biyani's Alpha Future is planning to enter the restaurant and catering business with its joint venture partner. It is planning to rope in Future Group's other partner - Blue Foods — to enter the business at airports. According to Topping, "Alpha Future is expected to run the operations at the airports with Blue Foods which would bring in its restaurant brands and technical inputs."

Shoppers' Stop too has ventured into the foods business at airports with its `Desi Cafes' and `Brio on the Go' café. There are plans to bring in its joint venture partner Nuance's Italian restaurant brand `Brek' into the airports in the country. Brek currently operates at Singapore's Changi airport and would soon make its appearance at the international airports in the country.

While the Indian retailers would be new to the concept of airport retailing, their experienced partners are expected to bring in their expertise in this arena. Emphasising the credentials of Shoppers' Stop partner, Nagesh says, "The Nuance Group AG is the largest player in the global airport retailing space with decades of experience. With operations at airports around the world, their understanding of travellers across nationalities is probably unmatched. This drives their ability to tailor the retail mix and assortments based on the passenger profile at a specific airport, which is extremely crucial for this business. Of course, as the largest travel retailer, their competence in global product sourcing and running airport stores efficiently is also a big value addition to the business."

On the other hand, Alpha Airports Group Plc, is one of the world's leading independent airport retailers and flight caterers, operates duty-free outlets throughout South Asia - in the Maldives, Colombo, Kochi, Nepal, as well as at Orlando and Stanford in the US, and at Birmingham and Manchester in the UK. Says Topping, "The largest portion of our business comes from the duty-free shops. In India, apart from retailing, we would be exploring other opportunities such as restaurants."

This March, Alpha Future opened its duty-free shop at the Indira Gandhi International Airport in New Delhi. The new Alpha Future shops will offer customers a collection of 7,000 duty-free items displayed across 8,000 sq. ft., including two outlets at arrivals and four in departure. The products availableare across key categories such as liquor and tobacco, perfume and cosmetics, fashion and accessories and confectionery. The contract for the New Delhi airport is for a period of 39 months with expected revenues amounting to $60 million during this period.

Meanwhile, the consortium of Nuance and Shoppers' Stop has been awarded the concession to operate retail at the Hyderabad International Airport, both at the international and domestic terminals. It expects to earn revenue of $240 million over a period of seven years. The contract will come into force in March 2008, when the new airport is scheduled to open.

Besides, the contract for the Bangalore International Airport Ltd (BIAL) to operate retail at both the international and domestic terminals at the new Bangalore International airport has also gone to the consortium comprising the two companies. While a joint venture company of Nuance and Shoppers' Stop will manage international retail, the latter will handle domestic retail. The two contracts together cover a retail space of 35,000 sq. ft. and are valid for five years; and the overall revenues expected amounts to $150 million.

As the India market gets ready for airport retailing, the aviation industry will give it a helping hand. Says Nagesh of Shoppers' Stop: "The aviation and airport industry in India is on an upswing and we are satisfied with the current scenario of the industry. Airport retailing is a growing industry and has a huge potential in a growing economy such as India."

With total duty-free sales predicted to be Rs 500 crore, MNCs entering the business hope to ensure Indian airports are on par with their international counterparts across the world.