Dufry extends duty free contract at Melbourne Airport until 2022

Dufry extends duty free contract at Melbourne
Airport until 2022

                            AUSTRALIA. In big breaking news, Dufry has extended its duty free contract at

Melbourne Airport, held by The Nuance Group [see our comment at the foot of this story].

The partnership extends the existing contract held by Dufry-owned Nuance to 2022, representing what
Melbourne Airport described as “a significant milestone” as it continues to expand its retail offerings for local
and international travellers.

Under the terms of the agreement the airside duty free retail footprint will be increased by +30% as part of what
the parties described as “a total retail transformation” of the Victorian gateway.

The new store will incorporate key elements of the ‘next generation stores’ being developed by Dufry.

Philippe Boyer, General Manager Australia for Dufry,
celebrates the deal with Andrew Gardiner, Chief of
Retail, Melbourne Airport (right); [Image: SDP Media]

The current airside duty free retail operations located in Terminal 2, will undergo a “total metamorphosis” over
a 12-month period, with a +30% increase to the retail footprint and a new layout when completed by first
quarter 2017.
With 2,743msq m of retail space in the new Departures store and 1,074sq m of retail space in the new Arrivals
shop, the stores will serve nearly nine million annual Victorian and international visitors, “delivering a new duty
free retail experience which promises to be world-class”, Dufry pledged.

The partnership is a first for Dufry in Australia. The retailer said this demonstrates a clear intent to grow its
presence within the Australian market through the newly extended partnership .

This next phase of retail transformation at Melbourne Airport follows the successful opening of the new T4
domestic terminal and transport hub in late 2015. T4 is built on 20,000sq m over three levels and can
accommodate up to 10 million passengers a year.

It incorporates the latest self-service
technology, designed to provide passengers with a quick and easy start to their journey. A central
departure lounge with more than 30 specialty retail and food & beverage outlers provides passengers with
diverse opportunities to shop, eat and relax.

                                                                                                  Melbourne

Airport Chief of Retail Andrew Gardiner said: “The growth of our international duty free retail offering
underpins a critical component of Melbourne Airport’s retail transformation. When complete, local and
international visitors to the airport will benefit from a duty free retail experience that is in keeping with
Melbourne’s renowned reputation as the fashion and retail capital of Australia.

Walking the walk: Boyer and Gardiner take a tour of
the Dufry/Nuance store after announcing the extended
partnership; [Image: SDP Media]

“Melbourne Airport is fast becoming a preferred international gateway for many overseas visitors,
especially Chinese travellers, where we have seen a +24% year-on-year increase in 2015. It is our ambition to
make Victorians as proud of the airport as they are of our great city and to deliver a world-class experience to
our international visitors.

“Over the past eight months, Dufry senior executives have demonstrated a refreshing engagement with
Melbourne Airport and impressed with both their vision for the duty free retail precinct and commitment to
deliver an exciting, modern, attractive and diverse offering to our visitors.”

Dufry CEO Julián Díaz said: “As its transformation journey continues, Melbourne Airport offers one of the
most exciting expansion opportunities for Dufry’s duty free retail business in Asia – evolving well beyond our
prior presence through our Nuance subsidiary.

“We thank Melbourne Airport for the renewal of this longstanding partnership and the trust put in our company
and our local teams. In creating a new, world-class duty free retail concept for Melbourne Airport, we have
drawn on our expertise, which spans 63 countries and services more than 1.5 billion potential international and
domestic customers worldwide.

“As the only major airport in Australia that offers 24/7 operations and strong international passenger
growth, Melbourne Airport’s approach has been one of partnership and we look forward to getting started
on delivering our duty free retail vision and concept. Furthermore, this contract is an important step in
our strategy to further expand our footprint across Asia.

Comment: This extension, widely touted within Australian travel retail circles for months, answers a key
question about the market – and throws up a whole lot more, writes Martin Moodie.

When Dufry acquired The Nuance Group in 2014 it inherited a distinctly fading Australian operation. Whereas
in 2010 Nuance held a 96% share of the Australian on-airport duty free market (Source: The Mercurius Group),
by 2016 that grip had eased to just 21%, based on a single operation – Melbourne Airport.

That was then…. [Source: The Mercurius Group – covers on-airport duty free only]

In the intervening years Nuance had lost (or chose not to defend) airport contracts in Cairns (2011), Perth
(2012), Brisbane (2014) and the big daddy of them all, Sydney (2015). As the company sought to stop the
corporate haemorrhaging, which had seen it post a whopping A$22 million country-wide loss in 2010 (US$16.3
million at today’s exchange rates), its Yeti-like retail footprint eroded into a junior-size version, representing a
solitary concession at a location thousands of miles away from anything else operated by its new owner Dufry.
With the Melbourne contract set to expire in 2018, and a flurry of competitive activity in the Australasian
marketplace (debuts by Gebr Heinemann in Sydney; Aer Rianta International in Auckland; Lagardère Travel
Retail in Auckland and several Australian locations), it seemed a high possibility that Dufry might quit the
market, perhaps even selling the remaining duration of its Melbourne contract on to a competitor seeking greater
critical mass in the market. After all, there was no shortage.

But there was a difference between Melbourne and the rest of the former Nuance empire, particularly Sydney
where the worst bleeding occurred. Thanks to a sharp improvement in Chinese visitors in particular, the
Melbourne operation turned the corner. It was making money.

This is now…. [Source: The Mercurius Group – covers on-airport duty free only]

In the 12 months ending March 2016, international overnight expenditure in Melbourne’s State of Victoria grew
(+23.7%) to reach A$6.7 billion, exceeding the national average growth (+17.6%), according to Victoria State
Government statistics. Victoria’s international visitors, nights and expenditure were the highest on record.
Chinese arrivals soared by +28.1% and it is indeed the China market that continues to underpin Victoria’s
international growth. As Gardiner pointed out today, Chinese passenger numbers rose +24% at Melbourne
Airport in calendar 2015 and it is certain that their spending power increased disproportionately to other
nationalities.
Just look at their State-wide spending. In the period ended March 2016, Chinese expenditure shot up by +40.0%
to A$2.3 billion (exceeding the Government’s long term 2020 target of A$2.0 billion). Chinese visitor
expenditure accounted for a whopping one-third (33.6%) of total international visitor spending in Victoria. All
of that will have been reflected in Dufry’s results at Melbourne Airport. You need go no further to discover
the rationale behind this deal.

Melbourne Airport also wins – it secures heavy investment in vital commercial infrastructure from the
industry’s most solid and secure player, one eminently capable of delivering the retail vision the airport
company has promised its stakeholders and consumers.

So what does this extension spell in terms of sector consolidation in Australia and New Zealand?

Certainly a target has just been removed. Does the potential hunted quarry now turn hunter? Might Dufry CEO
Julián Díaz now seek consolidation himself, a phenomenon he and his company have proved so masterly at?

Certainly there is no shortage of potential plot lines here. Does Gebr Heinemann aspire to extend its single
(though vast) operation at Sydney? What about Aer Rianta International across the Tasman Sea in Auckland,
surely it covets greater volume and economies of scale? Lagardère Travel Retail has a steadily swelling
portfolio of duty free, news & books, specialist retail and food & beverage operations around the two countries
and is the probable front-runner for the Cairns Airport duty free contract (currently held by JR/Duty Free, which
has chosen not to extend). Is that pace of development sufficient?

What, perhaps most crucially, of the widely admired JR/Duty Free, the family-held retailer that has twice shown
its financial prudence in recent times through its bidding positions (walking away from the Auckland bid;
choosing not to extend on what it perceived as unfavourable terms in Cairns)? Could the Evelyn Danos-owned
company be the kingmaker in any consolidation? The company is profitable, has excellent regional
infrastructure and management, and recently defended a key (though small) concession at Wellington Airport.
Like all its rivals on an Antipodean duty free version of a Monopoly board, JR will be weighing up closely the
consequences of today’s announcement.

There will be speculation aplenty but one thing now seems sure. Dufry is in Australia to stay.

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