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On a high: The largest duty-free retailer in the subcontinent

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Delhi Duty Free Services is on a roll. India’s biggest retailer achieved its highest monthly sales in the month of June. There were other windfalls as well. The company also recorded its highest daily sales yet, at over US $600,000, besides registering over +50 per cent growth in Shop & Collect sales, and highest ever sales in the beauty and liquor categories.

On a high: The largest duty-free retailer in the subcontinent
Duty-free shops at airports sell products without duty, i.e, without the local government sales tax added in

Progressive Grocer spoke to , CEO, to get a sense of the company’s retailing strategy and what it does to make its cash register ring resoundingly month after month. He was joined by , Head – Marketing, who offered insights into DDFS’s marketing game plan and its digital push. The month of June went down with a bang for Delhi Duty Free Services Pvt. Ltd., which runs a cluster of duty-free stores at Delhi International Airport. The shops retail the best in categories spawning liquor, tobacco, confectionery, perfume and cosmetics, and luxury apparel and accessories. All the shops are located between arrival and departure junctions at Terminal 3 of Delhi International Airport.

Duty-free shops at airports sell products without duty, i.e, without the local government sales tax added in. At duty-free shops, the size of the duty-free exemption varies depending on the country, but prices are often competitive in relation to what you’d find in a normal store. (The types of products that duty-free shops sell – liquor, cigarettes, perfume, etc – would otherwise attract high excise taxes bumping up their prices.)

For Delhi Duty Free, June proved to be a month in clover with sales climbing to giddying heights, and bringing cheer to its three stakeholders. The three partners in the joint venture are Delhi International Airport Pvt. Ltd. (DIAL), Yalorvin Ltd. – a subsidiary of Dublin-based Aer Rianta International cpt (ARI), a world-wide pioneer in operating duty-free shops globally, and GMR Airports Ltd, which owns and operates Delhi International Airport and Hyderabad International Airport. As an enterprise, Delhi Duty Free is India’s largest duty-free retail space and the Terminal it is located in is the sixth-largest single terminal building by floor area in the world.

Highest sales in June

The company posted its highest monthly sales in the past seven years at a time when retailers across the country were by and large circumspect ahead of the GST roll-out and were trying to shake off a prolonged market chill brought about by the demonetization storm. In the travel retail industry as well, business sentiment had remained muted. The past 18 months had seen sure signs of a global slackening in dutyfree spend. Various reasons were attributed for the slowdown, ranging from slide in the value of pound sterling due to Brexit concerns and a concomitant strengthening of the rupee against the US dollar.

“In spite of such aggravations and the intensifying competition for wallet share of the Indian traveler, we continued to register growth in sales. Delhi Duty Free was able to build on gradual growth during the early part of the year. We moved to double digit growth in the past few months and sales hit a record high in June,” says CEO, Delhi Duty Free Services Pvt. Ltd., Luke Gorringe.

He has a particular and personal reason to celebrate the June revenue gusher, over US$ 15 million. The record sales – higher than in the corresponding month last year – comes after he took over his present assignment at Delhi Duty Free in May last year.

The June windfall also saw Delhi Duty Free record its highest daily sales until now, at over US $600,000, besides registering over +50 per cent growth in Shop & Collect sales, and highest ever sales in the beauty and liquor categories. In the latter, a record 53,000 bottles of duty-free Johnnie Walker Black Label were sold in June, which is the highest recorded sales figure for Johnnie Walker anywhere in world at any single location. In terms of sales split and best performing brands, liquor accounts for nearly half the overall business with Johnnie Walker, Pernod Ricard and William Grant among the best-selling brands. In fashion and cosmetics, the spotlight is shared by Chanel, Dior and Loreal while Kraft leads in confectionery.

“Cosmetics, single malts, fashion products are growing very fast at our stores with growth hitting above 20 per cent,” says Head – Marketing, Abhijit Das, adding that Delhi Duty Free stores stock products in the price range extending from US $25 to US $4,500.

Liquor is the key category with increasing number of young Indians moving towards single malts and premium white spirits. Deluxe Scotch remains the biggest category and contributes significantly to growth of liquor business. Similarly, the cosmetics category is witnessing high growth as more women are now travelling abroad for both work and leisure.

According to Luke, middle-class shoppers with high disposable income are increasingly becoming planned shoppers. “They do a lot of research before embarking on travel, they look for best value and key brands, and a premium range.”

Pioneering Strides in Travel Retail

Ever since it opened in 2010, Delhi Duty Free has been a runaway hit with international travelers. Until then, people had a very poor notion of duty-free shops in India. Most such shops were operated by the public sector ITDC, which lacked the special expertise that is required for efficient and profitable duty-free retailing. Indian duty-free shops were thought of as dingy places, cluttered and shabbily run. The launch of Delhi Duty Free marked a dramatic shift in the way duty-free stores were run until then. Spanning 55,000 sq.ft. of retail area, Delhi Duty Free offers the largest duty-free space in the country.

“We introduced stores that were a radical departure from the tired and shopworn concept that people had about duty-free shops in India. Suddenly, travelers using Delhi International Airport were able to see a duty-free shop that was 25 to 30 times bigger than the typical ITDC stores of yore and many duty-free shops run by other private operators today. People saw a store that was large and capacious, elegantly designed and stocked with an unbelievable range spanning the most internationally premium brands,” says Das.

In fact, Aer Rianta International, which is a partner in Delhi Duty Free, enjoys a sterling reputation for operating some of the best and most profi table duty-free stores across International airports around the world. It is credited for actually introducing and inventing the concept of dutyfree shops when it opened the first such store at Shannon Airport in Ireland, way back in 1947. Today, Aer Rianta operates duty-free stores at 13 International airports – Montreal, Halifax, Winnipeg, Barbados in the Americas; Dublin,
Cork, Larnaca and Paphos in Europe; Abu Dhabi, Beirut, Muscat, Bahrain in the Middle East; and Delhi and Auckland in Asia-Pacific. Aer Rianta International continues to expand and was recently awarded a number of contracts, including one at Abu Dhabi International Airport and Quebec City Jean Lesage International Airport.

“Thanks to our long years of expertise in this business, we have been successful in making Delhi Duty Free the most profitable duty-free retail outlet not only in India but in the subcontinent as well. Now that we have been in operation for the past seven years, our turnover is more than the combined turnover of other duty-free shops at key airports in India. That is the kind of business we do and that is the kind of growth we have witnessed over the years,” says Luke pointing to the fact that Delhi Duty Free is on way to becoming the fastest growing retail venture in the country.

“We probably have the highest retail sales per square feet anywhere in India and in the subcontinent. We have been able to achieve a fast break even that could be the envy of other retailers,” asserts Luke.

Compelling Customer Proposition

Over the years, travelers transiting through Delhi International Airport have come to realize that Delhi Duty Free offers a world class store and shopping experience with the best in wine and liquor to tobacco, confectionery, perfume, apparel and fashion accessories.

“Many travelers from the US, on landing at Delhi International Airport are flummoxed to see the incredible range and quality of products at our stores. Many cannot escape the tinge of buyer’s remorse. Just imagine coming out of a long haul 16-18 hour flight lugging your baggage with the goodies you have brought along only to come up against a store stocking all the right kinds of products on your wish list and available at much competitive prices. Many cannot believe their eyes!,” points out Das.

Until recently, Delhi Duty Free was concentrating on stabilizing and growing the liquor, tobacco, perfume and cosmetic categories, besides some destination products. However, in the past couple of years, it has added several new internationally acclaimed concepts, which have made Delhi Duty Free an extremely admired retail destination and comparable to the duty-free shops in Dubai, Bangkok and Singapore.

“Due to fast growth of the travel industry, change in the demographic profile of travelers, emergence of new tastes, preferences and shopping habits, we need to keep a tab on all these changes by constantly looking at the trends and through consumer research and keep evolving our off erings,” says Luke.

To keep in step with the trends, Delhi Duty Free made the inclusion of fashion – a much sought after category in travel retail – to its range of offerings.

“Our biggest selling point is that we stock a line of exclusive products and brands at a competitive price and we ensure that the most sought after brands that travelers typically go out looking for are available at our stores. In our experience of the business, ensuring that the right products and brands are always available makes a big difference to the business. If a traveler walks into our store and finds that his favourite brand of perfume, malt or cigarettes is missing on the shelves, there is certain likelihood that he will not saunter in your store the next time he is at the airport. At the same time, price difference as compared to other duty-free shops and markets is the key driver for purchase of products like tobacco and cigars,” explains Luke.

He adds that on the whole, duty-free shops at arrivals do more business than their peers at departure. In fact, arrivals account for a lion’s share of the business at duty-free shops. This is because inbound travelers like to pick up items on their way back to the city.

“The highest selling category in arrivals has been liquor. This is primarily because the prices offered on liquor at the duty-free shops are extremely competitive.”

Opportunities and Challenges

The sheer size of the rapidly expanding middle class guarantees that India’s travel retail story remains irresistible for many years to come. The numbers speak for themselves. India’s middleclass, at 350 million people and counting is bigger than the entire population of the US. Every year, more than 5.4 million Indians go abroad to conduct business, attend meetings, take study trips, go on holidays and vacations, shopping tours, celebrate honeymoon and for other myriad reasons. With more than 20 million Indian nationals now living throughout the world (3.4 million in the US alone), the volume of outbound travel has been climbing at the rate of about 25 per cent a year.

The Indian traveler is also known for his propensity to indulge and splurge on trips overseas. The average Indian traveler spends US $1,200 per visit abroad as compared with Americans who spend about US $700 and Brits who spend about US $500.

“Thus, our duty-free offerings have to be better than other duty-free shops in the region,” says Das.

The nature of the business enjoins that if there is a new perfume launched by Chanel, it should be available at Delhi Duty Free. Or if there is global launch of a big single malt brand, its stores at Delhi airport should be amongst the first in the region to stock it.
“While price is a key factor, so is the newness of products and merchandising innovation, the range and depth of assortment as well as staff knowledge in handling the products and interacting with customers. We train our staff for over 45 days every year with a few going for higher studies as well. All of these are important considerations in our line of business and how we perform on these parameters help to attract valuable spenders to shop at Delhi Duty Free,” says Luke.

Paying close attention to the details has helped Delhi Duty Free amplify and grow its customer base. “The international style and layouts of our stores, brand assortment, category depth and benchmarked pricing (compared to other duty-free shops in Bangkok/ Dubai/ Singapore, etc.) have helped us create the desirability in the minds of customers,” points out Das.

Explaining about the retailing strategy, he says that the stores follow a simple rule: display the merchandise as it is done in the best stores the world over. “We follow the brand guideline of each brand but with a rule: all brands must be within the sightline of the customer. And the merchandise must be available almost at the same time as its launch anywhere in the world and at a price that offers value to the customer.”

With the knowledge, experience and expertise of three leading partners, Delhi Duty Free has been able to ensure a wide range of products and an assortment of world-class brands at benchmarked prices, along with a keen focus on retail service and experiential retailing. As a result, its stores have garnered the notice and attention of the admiring shopper-traveler. People in large numbers have taken to checking out the stores when passing through Delhi International Airport.

“Delhi International Airport carries over 35 million pax per year and we have a huge and excellent catchment to cater to comprising the National Capital Region, Punjab, North UP, and Rajasthan among some other regions. All of it makes for a far more lucrative market from a business perspective. People from these cities are well traveled and their understanding of brands and markets is better than many other parts of the country,” feels Das.

He says that it is also a matter of pride for many Indian travelers to buy from Delhi Duty Free stores.

“Why should someone buy a bottle of Scotch from Europe when you can get the same brand at a more competitive price at our shop? Is it not a service to the country if you spend your dollars buying a product here rather than spend it on the same product abroad?”

“The success of our marketing is when a traveler decides to buy the products on his wish-list from the duty-free shop in Delhi instead of buying it from a duty-free shop in Singapore or Dubai – two of my bigger and direct competitors. The duty free at Singapore and Dubai are bigger than our storeseven though we stock the same range and quality of products,” says Das.

It is the nature of challenges faced by duty-free shops, which they need to solve with the help of the available promotional tools at their command. More than any other retailing format, duty-free marketing has to lean heavily on customer engagement through tools such as travel retail exclusives, new launches, raffles and innovative gifts with promotion (GWP).

“We do a lot of innovative marketing campaigns and HR training alongside maintaining an overwhelming relationship with our suppliers. To increase shop penetration and consumer spends, we focus significantly on our retail pricing and have been able to balance the fine line between average transaction value and shop penetration,” informs Luke.

As in many other industries, digitalization is changing the waybusiness is being done. The nature of customer interaction, too, is constantly evolving. “In order to reach customers at the start of their travel journey and induce them into making a purchase at their home or office when planning for their travel, we are focusing on increasing our digital touch points at the shop level to better communicate with shoppers in innovative and dynamic ways. We are the first duty-free retailer in the country to exclusively promote our own mobile app and put in place our online pre-booking service with a pre-payment option. At the same time, in keeping with the efforts to improve our customer service, Delhi Duty Free has one of the most customer friendly refund/ return policy with 24/ 7 customer support at our end,” says Luke.

To leverage its digital capabilities, Delhi Duty Free invests heavily in digital marketing, which comprises 30 per cent of its marketing budget.

“At our stores, you can pay by Paytm and other kinds of electronic wallets, through credit and debit cards as well as by credit card points,” discloses Das, adding that the company has also sewed up strategic alliances with key partners to drive business further. “We have entered into alliances with Jet Privilege, Paytm, Free charge , ICICI Bank, SBI, Ola, Yatra, Th omas Cook and many more players.”

Going forward, Delhi Duty Free, which is the biggest and mostnawarded travel retailer in the Indian subcontinent – it has been a winner of the prestigious travel-retail industry’s ‘The Frontier Awards’ and the Asia-Pacific HR award, among others – has plans to redo its shops and introduce many more new brands and exciting retailing concepts.

“The refurbishments have already started and we expect the shops to be ready in phases, beginning from the last quarter of 2017 onwards. Come January 2018, you will see new shops at arrival and by mid-year 2018, our departure shops will be revamped,” reveals Luke who is confident about Delhi Duty Free staying on its course of clocking double digit growth whilst it goes through a fresh round of development in the months ahead.

He reaffirms that the company is poised to continue its growth momentum with continued investments in staff training and skills upgrade alongside creating new product offers and marketing campaigns.

“I would like to thank our great team, our suppliers and shareholders and, of course, our loyal customers who are all key to the success of Delhi Duty Free. We have much to look forward to in the coming months with the opening of new shops featuring exclusive brands and concepts that are going to further elevate the customer experience at our stores,” concludes Luke.