THE BIG PICTURE The Trinity Forum April 2007 46 The Moodie Report
April 2007 THE BIG PICTURE The Trinity Forum A perfect storm is brewing: we can ride it or be swamped Three of the leading brand owners in the Trinity Diageo, Nestlé and Luxottica voiced their visions for the trade in a special session on day two. Read on for the critical supplier viewpoint, including a powerful call to arms from Diageo Managing Director Global Travel and Middle East Worldwide Ron Anderson. Looking ahead requires vision, but we also need to sort out the present first otherwise, we could see the travel retail sector fatally damaged. So, before I get to the main thrust of my presentation, I d like to begin by saying something a bit unusual: Please don t sell my products! At least not to connecting passengers who are going to have it taken off them further down the line. In the long run, that sale doesn t do any members of Trinity any good at all. We are living in a fools paradise if we chalk up that sale and conclude that there s not a problem; because there s a very nasty sting in the tail of that sale. I have no doubt we are destroying the long-term value of these customers, as they will not make the same mistake twice. If we are going to go for a new vision then some of us are going to have to step out of the crowd and do something new and different. Diageo is willing to do things differently and to take the risks involved if that s what s required to build a sustainable and profitable future for this industry. We recognise our responsibility to play a part in the Trinity debate. I don t think there is any likelihood of changing the model in the near future. We will simply have to find other ways to create an irresistible retail environment for our customers. And there s been no real change in the way we do business either. We still don t share, or in many cases even gather, the kind of sales data and customer data that is shared in domestic markets and is at the heart of their retailing. Our marketing initiatives still revolve around offers in store OK, some of them can be on a very high-profile scale but effectively we re ignoring the full extent of the travel retail chain outside the stores. There s still too much of an obsession with price as the main proposition, despite all the evidence that demonstrates that motivations to purchase are much more subtle and discriminatory, and we have a disproportionate share of high-value consumers for longer. The other key factor that has always impacted on our We still talk about how we want to inspire passengers to shop, and how the industry business model restricts the investment necessary to do this. Some people might say that s due to unrealistic bids from over-ambitious retailers. I know that s not what an airport authority would say, and neither would I in their situation. I admired the initiative by BAA and World Duty Free with the Global Airport Services proposition, to reshape the business model. It didn t come off, but at least they can look us all in the eye and say We tried. What did the rest of us do? Dramatic demand: Anderson asks retailers not to sell liquor to connecting passengers who face having it confiscated, as the industry battles a credibility crisis The Moodie Report 47
LEADER IN LUXURY AND PREMIUM EYEWEAR
April 2007 THE BIG PICTURE The Trinity Forum business is security. It s never been great, but right now it s a huge nightmare. A united, global response has been too slow in coming; instead, solutions have been narrow and self interested. From the security issues of last August to now, we still don t have a solution in place. It s just not good enough. It s complex I know, but we are driving business away that may never return. Having said all that, there have been some definite signs of improvement within the travel retail sector not just in airports, and not just in liquor. I see these signs in a number of important areas. First, penetration liquor is delivering real growth, driven in particular by product innovation and consumer demand for premiumisation. Second is the genuine effort being made, by a number of retailers, to enhance the experience they offer their customers, by dramatically upgrading the quality of build and fittings and also by their willingness to invest in better informed and better trained staff. But for all that, the changes that are taking place around us in this industry are far greater and more significant than the changes we are making ourselves. Acquisition-hungry super groups are beginning to make their impact felt by our industry. The key travel retail concession operators continue to dominate and to acquire some of the smaller regional businesses. And most dramatic of all is the ability of hugely funded or leveraged businesses to acquire extensive airport holdings across the globe. The Ferrovial acquisition of an industry giant like BAA is obviously the single most high-profile example of this. These ambitious businesses are only too aware of the importance of retail to the success of their business plans. They will not achieve them simply by maintaining the status quo in the industry. And, importantly for us, they do not subscribe to any inherited wisdom about this industry s historical performance. The age of Arrivals shopping has already well and truly arrived. And what are we doing to respond? Do we understand the art of the 30-second sale? How can we encourage passenger to stay in an Arrivals store for five minutes? Or longer? Arrivals stores, in some cases, are competing head-on with the domestic market. Although it s not currently offering the airside departure lounge retail proposition, Looming threat: Recent liquids restrictions are at the eye of the storm facing the industry, says Anderson it s nevertheless an increasingly important competitive retail weapon for airports. Just ask the Norwegian airports how successful their recently introduced Arrivals shopping has been and you ll see what I mean. As an industry we are beginning to embrace the Internet, a tool almost tailor-made for us, as the airlines have long recognised. Passengers do use it to do their homework before they get to the airport. What are we doing to exploit this further with a tantalising taste of the airport experience? And lastly but by no means least, there is the environmental agenda. I have no doubt that its impact on our business can only increase. Do consumers consider the impact of duty free shopping in the context of green issues? From my perspective this is not a hypothetical debate. I think there s a perfect storm brewing. It is all starting to come together, and a perfect storm will create a wave that we can ride or be swamped by. The liquids restriction is, in my view, the one unforeseen catalyst that has caused this perfect storm to emerge and it is, in a way the eye of the storm. To deal with it we are having to force the whole idea of duty free shopping into the political and legislative limelight again; asking governments and legislators to protect it and sustain it. It s exactly what was done when the industry fought to prevent the abolition of intra-eu duty free in 1999. Back then there was a sympathetic response; but did we also find out that a lot of passengers didn t really care that much because they weren t convinced that we were worthwhile anyway? The Moodie Report 49
power. A business partner with immense American Express is more than an iconic financial services brand with a century of heritage. It is a brand with powerful resources and expertise behind it that can make a business partnership fly. Our huge marketing strength gives us greater visibility and impact, whilst our service support and established expertise in foreign currency exchange is second to none. But do the figures add up? Well, American Express is established in over 2,200 travel destinations and we can offer access to over 70,000,000 Cardmembers worldwide. We think the potential is there.
April 2007 THE BIG PICTURE The Trinity Forum The danger now is that we ll be driven out of existence, not by legislation but by the mere presence of security procedures that make the purchase just too much hassle. Consumer confusion and frustration will be our downfall. So, I think we re about to find out all over again just how much they really want us or not. If we want them to continue to care about airport shopping then now, more than ever before, we have to make them an irresistible environment that they absolutely will not want to lose. Maybe now it will force our hands, so we can start to have serious debates between airport retailers and airlines that might lead to all parties sharing the sales opportunity rather than competing. Can we link up the retail offer in one location and share the rewards? Instead of selling onboard, carrying only a limited selection, could not aircraft be a flying promotional platform with the product selected onboard from the widest range but actually purchased at an Arrivals shop that s still in an international airside location? And when will we finally accept that sharing knowledge is an absolute prerequisite for growth? Sales data and passenger and route information are a gold mine of market intelligence that could massively improve the accuracy of our customer targeting. In this new dawning of a new age I d look at travel retail stores themselves. Are they really selling liquor in the ideal way? Should prestige gifting liquor products be even sold in the same store as, say, a bottle of everyday Gordon s Gin? I spoke at the Raven Fox-organised conference in Macao last month on the subject of completing the travel chain. The thrust of my argument there was that we need to radically challenge the way we market ourselves to the customer. Essentially my observation was that we market to the customer separately, and in isolation. Most of our efforts take place in and around the airport store, which is too little and too late. Basically we re waiting for the traveller to come to us so we can start the job of convincing them to become customers just when they re at their most stressed and most distracted. Sink or swim: We re about to find out how much consumers really want us, says Anderson I suggested that if we as an industry could connect our marketing efforts then we might connect more effectively with our mutual target audience. Instead of waiting for them to come to where we are, in store, to hear our marketing message, why don t we collaborate and get our marketing messages to where they are? In their hire cars, in their taxis, in their hotels, onboard their flights and so on. If you were a retailer wouldn t you like to know your store is being promoted in all the best hotel lobbies in your city because we, Diageo, have a tasting bar there that says Try it here and you can buy it duty free when you travel home again through the airport? Completing the travel chain means doing things like that, and in the process hopefully we can force a re-evaluation of the relevance and excitement of what we can offer the customer in the airport. And what s my message for each member of the Trinity? I want to talk about the subjects we have never talked about before. I d like to talk to airports and retailers about how we can really transform the retail offer. I d like to talk to retailers who want to expand their offer beyond the confines of the traditional store. I d like to talk to the airlines about re-engineering their liquor offer. And what can I do to show how serious I am? I m ready to share data globally, regularly, and for free, so we can all learn to make the most effective use of our marketing activity. I want to kick-start an initiative with other Trinity members to prove that we re not just a talking shop. Achieving a vision is like achieving anything else that you want it s 10% inspiration and 90% perspiration. And you don t raise a sweat by talking. The Moodie Report 51