China aims for a slice of duty free pie

03 July, 2017

For the best part of two decades the western duty free business has looked east, pandering to the whims of the emerging mainland Chinese traveller.

Fancily-packaged XO cognacs, ultra-premium blends, rare vintage single malts and premier cru Bordeaux wines have sat on any airport travel retail shelf where Chinese travellers pass by in any number.

Similarly, I have lost count of the number of press releases I’ve seen breathlessly detailing yet another Chinese New Year gift pack or limited edition, suitably decorated in lucky red and gold and proudly displaying that year’s Chinese zodiac sign. Endless industry conferences, workshops and consumer research surveys have sought to explain the preferences of mainland Chinese shoppers in minute detail.

This laser-like focus on one nationality is perfectly understandable given China’s entrenched, gift-giving culture and its huge, growing middle class with its love of shopping and overseas travel. Even today, when the Chinese economy is slowing and passenger demographics are changing, outbound travel and tourism spend by the Chinese is set to grow 12% this year, accounting for more than 21% of the global total, according to the World Travel & Tourism Council. And by 2024, China will have ousted the US as the world’s most important aviation market.

So it’s still very much China’s century, but what is changing is that the Chinese are no longer content to be passively wooed by international brands and overseas travel retailers. As in just about every other major business sector you might care to mention, the Chinese are looking to take a slice of the action. For instance, in April China Duty Free Group, the country’s largest travel retail operator with nearly 250 stores nationwide, teamed up with French operator Lagardère Travel Retail to win the coveted liquor and tobacco concession at Hong Kong international airport.

Serving 190 destinations worldwide (including 40 cities in China) and handling a record 70.5m passengers in 2016, HKIA is still one of the most important duty free locations in Asia despite a dip in spending levels in recent years. CDFG’s joint-venture win at HKIA was a real signal of its intent to expand overseas and it will undoubtedly have made other travel retailers sit up and take notice.

The new joint venture, CDF-Lagardère Co, will take over the eight shops at HKIA at the end of year. CDFG chief executive Lee Charn Cheng has said the retailer wants the new stores to establish a “new benchmark in duty free”. Among the highlights of the HKIA liquor and tobacco offer will be tasting bars, virtual-reality shopping, a Chinese liquor and tobacco corner, a single-malt whisky store and an outlet dedicated solely to Asian liquor.

Meanwhile, in the same month that CDFG won the HKIA concession, Chinese conglomerate HNA Group announced it was planning to acquire a 16.79% stake in publicly listed Swiss travel retailer Dufry, which has a 20% share of the global airport retail market. Financial analysts believe HNA ultimately plans to acquire 100% of Dufry with the aim of greatly expanding its currently modest presence in China.

Any company wanting to embark on a full takeover of Dufry will need deep pockets, of course, but HNA Group is no stranger to this type of blockbuster acquisition. In December last year, for instance, it snapped up Swiss inflight services provider Gategroup for CHF1.4bn (£1.13bn) and closed a deal to acquire Carlson Hotels. All that happened in just one month. And with CDFG parent company China International Travel Service voting last October to create a joint venture with HNA Group, it’s clear the powerbase of the industry is shifting inexorably towards the land of the Red Dragon.

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