Bring it on BRIC
Economic dynamism. Cultural variety. The thrilling sense of a nation in full bloom, moving with
confidence and no little aplomb into a new chapter of its history that promises incredible things – locally and globally.
This exciting air has – to varying degrees – attached itself to all four of the BRIC nations during the last decade. After a strong early ‘00s, Russia experienced a severe recession in the latter part of the decade; in truth, however, none of the BRIC countries escaped the effects of the dramatic economic cycle that got
under way in late 2008. Brazil – in many ways the BRIC nation that has enjoyed the most rapid upward trajectory – experienced a sudden slowdown after years of phenomenal growth, although it is a testament to the fundamental soundness of that country’s economy that it has bounced back very quickly indeed.
With rising unemployment rates sparking fears about short-term job security, more people in the BRIC region opted to hold on to more of their income. Rates of long-term saving began to climb – rarely the kind of news that the retail sector wishes to hear.
In this context, it is interesting to note that, according to a recent report issued by Credit Suisse Research (Emerging Consumer Survey 2011), Brazilians on average save a mere 10% of their income – the lowest rate of the four BRIC nations and an obvious factor in seeking to explain the country’s extremely robust retail sector.
But if consumer spending took a bit of a hit, it was only temporary. As of mid-2011, the economies of all four BRIC nations look ever more robust: GDP is on the rise, unemployment is stable or falling, and the disruptive period several years back is now an increasingly distant memory. In particular, infrastructural projects – including significant airport developments – are very much on the agenda, with positive implications for a
variety of business sectors.
Whether or not there was a sense of interruption about this overwhelmingly positive trajectory a few years back, expectations of high consumer spending are now back in abundance. Retailers and suppliers across the board line up to attest to the remarkable potential of BRIC – among them fashion giant Hugo Boss, whose key TR locations in the region include Sao Paulo, Rio, Delhi, Shanghai, Beijing and Guangzhou. Further development in BRIC, says head of travel retail Georg Faisst, is a “major target... We expect to have double-digit growth throughout the next years in the BRIC countries.”
Brazil
Sporting events have been a catalyst for development in all four BRIC nations, but nowhere more so than Brazil. Construction is booming as the nation prepares for not one, but two of the world’s biggest sporting tournaments: the 2014 FIFA World Cup and the 2016 Summer Olympics.
Brazil is the subject of a separate, standalone feature in this issue of Frontier (see pages 9-10), but suffice to say that the upgrade work now going on at airports across the country promises to usher in a new era for travel – and travel-retail. Airport operator Infraero’s multi-billion dollar scheme entails extensive redevelopment of passenger facilities and the creation of multiple new runways. An indication of the scale of this project – and of Brazil’s ambition – is given by the plans for Guarulhos airport, which is to receive further taxiways and a brand new terminal that will yield a massively-increased passenger capacity. This alone might seem to be enough to be getting on with in one time-period; Infraero, however, is undertaking work at no fewer than 13 airports.
“The airports linked to the World Cup’s host cities will receive investment in the [region] of R$5.6 billion,” Infraero tells Frontier. “From this total, Infraero will invest R$5.2 billion for improvements to the 13 airports under its jurisdiction that were [earmarked as] strategic by the government. The remaining R$408 million will be private sector investment due to the concession process of São Gonçalo do Amarante Airport in Natal (RN).”
In advance of any world-status sporting or cultural event, there is endless discussion of its ‘legacy’ to a nation and its people; on the evidence of this project alone, Brazil is set to strengthen its national
infrastructure exponentially.
But even without this massive expansion programme, Brazil could not help but be an exciting growth opportunity for the world’s leading suppliers. Just ask Pernod Ricard. “For Pernod Ricard Americas Travel Retail 95% of our travel-retail business is in arrival stores; this is due to the low dollar, which has helped increase international travel. Over the next fiscal year we intend to increase our presence for Absolut and Chivas through more merchandising units, activations and transparencies,” says Enrique Girones, marketing vice-president, Pernod Ricard Americas Travel Retail.
Russia
Like Brazil, Russia has a raft of major sporting events to help catalyse further developments – the 2014 Winter Olympics, the 2016 World Ice Hockey Championship and the 2018 FIFA World Cup, to name just three. And, in truth, they will be a rather welcome prospect as the country is still overcoming the effects of the 2008/09 crash. Many of the key financial instruments are now pointing in the right direction – for example, real GDP growth for 2010 stood at 3.8%, compared to 7.9% in 2009 (source: CIA World Factbook) – but high inflation and a declining workforce are among several long-term challenges.
Travel-retail, however, appears to be in strong shape as visitor numbers look increasingly robust. Eamon Foley from Aer Rianta International – which has a long history of involvement with travel-retail at Russian
airports – pinpoints a recurrent pattern in the nation’s economic life, noting that any recessions have tended to be “deep, fairly dramatic and testing from a business point of view for about 6-12 months, but then the
recovery is very quick.”
Retailing in general, says Foley, is firmly on the incline, while its own business in the country is “comfortably ahead of 2008 levels. We see this as a very good market.”
India
The impact on India of the latest economic cycle was relatively muted in comparison to many other countries, and in the last 12 months the nation’s long-term prospects have looked as robust as ever; witness a GDP real growth rate of 8.3% – the 12th highest in the world – for 2010 (source: CIA World Factbook). The country continues to be the subject of a very pronounced rich/poor divide, but its increasing ability to compete on a level playing field with the world’s leading economies is beyond question.
With the Civil Aviation Ministry working on plans to double the number of major international and regional hubs within 12 years, India is also making its presence felt in the aviation stakes. This can only be good news for retailers, and it comes as no surprise to discover that many of the leading international names are now taking a close interest in the country.
These include Aer Rianta International, which recently took its first steps into the Indian market when it partnered Indian Duty Free Services (IDFS) in a successful tender for the main DF concession at Indira Gandhi International Airport’s new Terminal 3 in Delhi. The 15-year arrangement grants exclusive rights to sell liquor and tobacco, and near-exclusive rights for perfumes and cosmetics. Confectionery and delicatessen products are also part of the package.
“We had been focusing on the market for a while [before winning this tender] as we could see the potential and the opportunities,” says Foley. “The growth in air travel has been significant, and that’s allied to a greater spending power among customers.”
It is still pretty early days for ARI at Indira Gandhi, but early results are very encouraging. “We are beating our business plan and expectations of spending per passenger; it’s very dynamic,” says Foley. “We have been surprised by the amount of trading up, with premium brands in greater demand than anticipated. We are happy with our first venture [in India] and will hopefully be able to use that as a springboard [for other developments].”
It is a certainty that other retailers will be taking note.
China
And so to China – the very brightest shining star of this economic grouping whose double-digit growth rates have become the stuff of legend this past decade. While the country’s core export markets undoubtedly felt the pressure, China has emerged from the downturn with remarkable alacrity – and now looks to be stronger than ever.
This impression is confirmed by one of the region’s leading travel retailers. Alessandra Piovesana, regional managing director of Nuance-Watson Asia, says that mainland China’s economy over the past two years has been “comparatively stable, and this gives Hong Kong and HKIA a clear advantage.” The Chinese desire for travel has “not diminished” and spending by Chinese travellers has “already outpaced the Japanese and Taiwanese, who used to be top spenders at HKIA, by five times and four times respectively.”
There is, however, a minor caveat, which all companies wishing to develop further in the Chinese market might wish to observe. “While mainland Chinese air passengers and their spending continued to grow in spite of the economic downturn, we also see that they have become more price-sensitive and [focused on] value for money as they convert interest into purchase,” she says.
This increased price-sensitivity is surely complementary to a maturing market that reflects a country turning evermore outward to the wider world. “As they have more and more exposure to the world, their
aspirations have also become particular, not only in the choice of brands, but also the styles and uniqueness of the products which express their individuality and sophistication,” says Piovesana, adding that exclusive productions, promotions and value-added services are a constant priority.
Tellingly – and while highlighting the continued importance of Chinese travellers – Piovesana notes that “travellers from SE Asia, India and Russia are up and coming within the Asia-Pacific region. As the global economy recovers gradually, we are looking forward to a more balanced growth of nationalities in the
coming years.”
The BRIC nations are on the move – metaphorically and literally. As consumer spending power increases, and the ability/desire to travel continues to grow, travel-retail could hardly be better-placed to benefit from what is nothing less than a socio-economic paradigm shift.
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