Bidding Wars
The Indian travel retail sector is in upheaval. Until recently, airports were managed by the government and the duty free offering was a far cry from the standards international travellers have come to expect on their worldwide journeys. And like most other things run by governments, the red tape was so thick that it was almost impossible to get through. But times change and the Indian government has realised that it could not continue managing its airports the way it had.
It all started a few years ago when the government decided to privatise the airlines. The boom in travel was such that airports could not cope with the increased number of travellers, and the sheer weight of traffic generated convinced the government to accelerate privatisation.
Goa, Hyderabad and Bangalore have already gone through the process and are all new private airports. The opportunities this creates for travel retail operators are huge.
The Alpha Airports Group was one of the first to enter duty free in the country at Cochin, where they hold a 10-year management and product supply contract. And when the two giants – Delhi and Mumbai – were put up for tender, it became a veritable “dogfight, with all major consortiums in India looking at airports as the next big opportunity,” according to Paul Topping, managing director Asia for the Alpha
Airports Group.
The way the Indian government went about it is by requesting that Indian retailers partner with international operators to ensure that the stores will be managed professionally by well-established companies. “It was a fashion parade of Indian companies wanting to find international duty free operators,” Topping tells Frontier, “because the contracts would only be awarded to experienced, well-known companies.”
Alpha was awarded the Delhi contract, having entered into a partnership agreement with Pantaloon Retail, part of The Future Group, a leading retailer in India with a range of retail concepts from Pantaloon to food courts aswell as being Marks & Spencer’s local partners. Teaming up with Alpha Asia makes sense. The company is headquartered in Sri Lanka, and Topping is confident that “they understand India better than anybody”.
The bidding process itself was a hair-raising affair. Delhi issued the tender documents with a mere 18 days for interested parties to put in their bids. Moreover, the contract itself is limited to three years and three months, when the new terminal building is set to open. Also, some companies had already been awarded contracts at the airport – such as Flemingo Duty Free, one of the largest duty free shops chains in India – which will have to be honoured until they run out.
All in all, conditions seemed less than ideal for whoever would come in. And yet, several companies submitted bids, with the Alpha Group/Pantaloon Retail partnership winning the race without ever knowing who they were competing against, nor what the other bids were, as this information was never made public.
What the Alpha Group won is the right to develop a 2,200sqft arrivals shop and 5,000sqft of departures retail space in four different locations, which “gives Alpha the lion’s share of retail space,” says Topping.
“Product categories are open,” he adds, “but we will concentrate on tobacco, fashion and fashion accessories. By October 2007, we will be going into a new facility with 10,000sqft of retail space in a prime location.”
With a short preparatory period to bear in mind – the decision was taken in November and the airport wanted the operators in by January – Alpha had to have its priorities straight. “Our aim is to extend footage and offer destination merchandise,” says Topping. “We will use Italian shop-fitting and a UK design company. For the arrivals shop we are using a local design and shop fit company.”
In other words, Alpha is conscious of the need to make a strong impact on travellers and encourage them to shop as much as possible. But also, it is a matter of giving a good impression to international passengers coming from the rest of the world who are used to seeing highly developed duty free shops. With just over three years before a fresh bidding war is initiated for the concessions at the new terminal, Alpha will need to work very effectively to meet all of its objectives.
Of course, the group is familiar with the country and the region at large, having concessions in three other capital cities, which gives them a unique insight into the spending habits of regional travellers.
According to the terms of the agreement between the Alpha Group and the Future Group, Alpha was to appoint the management team while the Future Group appointed a board of directors. The point of it all is to “add value in buying and merchandising,” says Topping. “Alpha finds quality staff and does the training, and the day-to-day management will be Alpha’s responsibility.”
Many suppliers have already expressed an interest in signing with Alpha to present their wares in Delhi, such as Swarowski and Mont Blanc. These suppliers, according to Topping, “always wanted to be in India, but are only now willing to take the risk.” And that is one of the challenges lying ahead: to convince the trade and the public that India does have something to offer. “India is highly underrated by the industry because of its history,” says Topping. “But today, every major operator is lining up to enter the country.”
Another such operator is The Nuance Group, which won its own contract for Bangalore in partnershipwith Shopper’s Stop, a leading Indian retailer. Operations there will start in April 2008 and last for five years, over an area of almost 10,500sqft of retail space. Roberto Graziani, president and CEO of The Nuance Group, was quoted as saying: “The Nuance Group has defined India as key strategic market for future expansion. We are confident that, through our partnership with strong local retailer
Shoppers’ Stop, we are perfectly equipped to bring our know-how to the Indian market, and we are determined to expand our presence from this first fantastic foothold.”
The Alpha Group and The Nuance Group are only two of the operators who wanted a bite of the Indian pie. And opportunities are only going to become more plentiful as the government slowly releases its airports into private hands. With local retailers battling to find international operators, and suppliers attracted by the prospects of a developing nation with a population of 1.2bn people, there is no reason why Indian duty free should not grow and prosper.
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