Flemingo Diplomatic - Tfwa Asia Pacific Conference

Atul Ahuja is the driving force behind the remarkable rise of Flemingo in recent years from a controversial, peripheral player to an increasingly mainstream, global and successful retail force. Martin Moodie met him recently for an update on the company’s planned IPO, its 2020 vision and its determination to become a diverse travel retailer with interests spanning duty free, food & beverage, convenience shopping and even foreign exchange - http://www.flemingodiplomatic.com
View more...
   EMBED

Share

  • Rating

  • Date

    December 1969
  • Size

    674.8KB
  • Views

    503
  • Categories

Preview only show first 6 pages with water mark for full document please download

Transcript

Inside The Moodie Report (Right) Atul Ahuja; (centre) The planned Haitang Bay complex (bottom) Ever Rich Duty Free in downtown Taipei 136 128 Power player: We visit Hong Kongbased King Power Group, and hear about a planned new era of regional expansion 136 Taking flight: Flemingo Duty Free’s rise from controversial peripheral retailer to mainstream global force 152 Grand vision: Spotlight on China Duty Free Group’s hugely ambitious Haitang Bay project 158 Mission to greatness: How Hainan Provincial Duty Free Co and DFS plan to create a high-quality visitor experience in Haikou 162 Putting people first: The remarkable story of Ever Rich Duty Free Shop’s rise, through the eyes of group Chairman Simon Chiang 170 A new landmark: Profiling the new Ever Rich Shopping Mall & Hotel in Kinmen, close to the Chinese Mainland 176 Pride in progress: Ever Rich Duty Free Plaza at Neihu, Taipei is one of Asia’s great travel retail stores; we pay a visit 182 Russian travellers in profile:  Exclusive consumer research on one of the world’s highest spending travelling nationalities 188 Tracking the global shopper:  L’Oréal Luxe on the challenge of China and the strategic role of travel retail 199 Nagoya’s new face: On location at Central Japan International Airport, where a commercial transformation is taking place 152 162 May 2013 | THE MOODIE REPORT | 13 Martin Moodie The Moodie View (Left) Caviar House & Prunier Chairman Peter Rebeiz; (Right) Flemingo CEO Atul Ahuja to survive in a world of corporate giants; and much, much more besides. In a proud and defiant clarion call for independent enterprises, Benny Fattedad says memorably: “How big you are is just about money. Our company is different. It’s not for sale. We have the creativity, we have the brains. We have the technology. We have the will and the dedicated staff. Mergers, conglomerates – so what? With these big conglomerates, the boss doesn’t know what is going on down in the shop. And the shop doesn’t know what the management’s intentions are.” Simon Chiang is, of course, another great entrepreneurial character, a self-made man whose rags-to-riches story (see page 162) is the stuff of legend. My interview with him is one of my favourites of recent times, a tale that I was privileged to hear as we prepared a special publication dedicated to Ever Rich’s history. “We’re very different from other companies,” he says. “We are always thinking about how to help the children and the poor. It’s not only about making money. One day you are going to die, so money is nothing.” Simon Chiang has made plenty of money. But the real story is what he has spent it on. If you want a role model for Corporate Social Responsibility, he’s your man. The independent spirit looms large in one of my other favourite articles in this magazine. Caviar House & Prunier Chairman Peter Rebeiz (page 227) is a man I have huge admiration for. A purist in every sense, he despises the concept of compromise when it comes to food or service quality. He’s also, like Benny Fattedad, a hands-on entrepreneur, someone who insists on putting his personal e-mail at the foot of every one of his restaurants’ menus, so that customers can tell him what they think – good, bad or ugly. Like all good entrepreneurs he’s also obsessed with innovation. Just as he pioneered one of the seminal breakthroughs of airport food & beverage back in 1984 with the opening of Heathrow Airport’s first Caviar House Seafood Bar, now he’s doing something equally radical with the hitherto humble (and often awful) airport sandwich. Move over ham and cheese: here come caviar, Balik salmon and even oyster sandwiches, each carefully handprepared for the travelling consumer. In both taste and price-point (€20–25) these won’t be for everybody, but in ambition and sheer fearlessness they represent a culinary Matterhorn compared to the great mediocrity plateau of so much airport ‘grab and go’ food. Atul Ahuja (page 136) is another successful entrepreneur – but of a very different type. Branded “habitual litigants”, his company (Flemingo) broke down the long-standing Indian duty free monopoly of state-owned ITDC and opened the gates through which a number of international rivals have since passed. It’s fair to say that as a result of its many legal actions, Flemingo is not the most popular retailer in the industry – but its accomplishments are testament to the powers of determination, and the ability to spot a niche. Here’s a company, remember, that started with little more than a retail kiosk in Trivandrum in 2003 and which has since expanded to 120-plus operations in more than 25 countries, which will generate around US$400 million in revenues in 2013, and which is poised to be listed on the New York Stock Exchange late next year. It’s one of the industry’s most unlikely success stories – and simultaneously one of its most real. There you have it, four very different tales of men who carried the courage of their convictions. Four men who, in Twain’s words, dreamed, explored, discovered. Four men who we get to know much more about than we did before as a result of their candid interviews in this issue. I hope you’ll enjoy reading their stories as much as I enjoyed writing them. May 2013 | THE MOODIE REPORT | 21 Flemingo gears for growth Atul Ahuja is the driving force behind the remarkable rise of Flemingo in recent years from a controversial, peripheral player to an increasingly mainstream, global and successful retail force. Martin Moodie met him recently for an update on the company’s planned IPO, its 2020 vision and its determination to become a diverse travel retailer with interests spanning duty free, food & beverage, convenience shopping and even foreign exchange. Publisher’s introduction: Back in August 2008 I took a trip to Flemingo CEO Atul Ahuja’s ranch, an hour or so from the sprawling metropolis of Mumbai. Back then Flemingo was an enterprise virtually synonymous with court action (“We are branded habitual litigants,” Ahuja told me) but as a fascinating interview took shape it was clear that there was more to this company than first met the eye. Flemingo was going places fast and little, it seemed, would hold it, or Ahuja, back. Back then it was a story of an entrepreneurial business that had begun with a single store in Trivandrum, Kerala in 2003 and within five years had become the operator of 45 airport shops, seven seaport stores and two land border outlets. By using the force of the law to challenge many of the impediments to private enterprise duty free retailing in India, Flemingo broke down the long-standing monopoly of state-owned ITDC and opened the gates through which a number of international rivals, including The Nuance Group, Alpha Retail (now World Duty Free Group) and Aer Rianta International, subsequently entered the country’s travel retail channel. In the process it became an unexpected bedfellow with industry giant DFS Group, a rival with whom it had previously locked horns. Now they are long-term partners in Mumbai and elsewhere. Nearly five years on, Flemingo remains no stranger to controversy – it is currently involved in legal action in a number of locations including India, South Africa and Poland – but it has been transformed in terms of scale, professionalism and ambition. Today it operates more than 120 operations in over 25 countries and will generate around US$400 million in revenues in 2013, with a well-documented vision of reaching US$2 billion by 2020. And next year it plans a long-awaited IPO, almost certainly on the New York Stock Exchange. Five years after that landmark interview, it was time to catch up with Atul Ahuja – not this time in India but in London, where the self-confessed workaholic was taking a rare holiday with his family. 136 | THE MOODIE REPORT | May 2013 May 2013 | THE MOODIE REPORT | 137 Interview Flemingo “F   or us, small is big,” says Atul Ahuja. The Flemingo CEO is referring to the company’s long-term strategy of picking off relatively small concessions in difficult markets in order to grow a large and thriving global enterprise specialising in emergent countries. At the TFWA World Exhibition in Cannes last year Ahuja announced that the company was targeting US$2 billion in revenues by 2020, driven mainly by organic growth, including the creation of several new business channels such as food & beverage, and a probable IPO. It will hit around US$400 million this year. So how is the game plan developing? “We crystallised the vision which we announced in Cannes last year, and then we set about identifying any gaps,” Ahuja replies. “We wanted to build a great team first, and we have made a lot of progress – in fact half of our top management have joined us in the past 18 months.” High-profile recent appointments include long-time Alpha Retail Asia boss Paul Topping and well-known Nuance executive Carlo Bernasconi. “And over the next two months we have another seven or eight additions joining that list – all great guys from the industry with a lot of experience,” says Ahuja. “We also went about some significant fundraising. We closed two deals: with Albright Capital Management for US$30 million last year, and with China Development International Bank (CDIB) in the first quarter of this year we raised US$20 million. This year we will raise another US$50 million with another fund. All this is coming into the company as growth capital.” But where – in a tough global market marked by white-hot competition, feverish competition for concessions and a scarcity of potential acquisitions – is the growth? “We are adept at finding niches,” says Ahuja. “We have just secured a very nice contract in Morocco. It’s a unique project – it was tendered by Tanger (Tangier) Med Port [a cargo and passenger port located about 40km east of the Moroccan city, one of Flemingo’s duty free operation at Colombo Bandaranaike International Airport is thriving May 2013 | THE MOODIE REPORT | 139 Interview Flemingo the largest ports in the Mediterranean and in Africa –Ed] to build, operate and transfer two terminal buildings on the seaport. It currently handles two million passengers annually, but is expected to grow to five million within three years. “They wanted a concessionaire to build and operate the terminal. It’s got duty free, convenience retail, souvenirs, a travel goods store, foreign exchange, and food & beverage including a bar and a fast food café. “We pick out such niche opportunities, which are not subject to the crazy bidding that you see elsewhere.” To spot and then land such opportunities, Flemingo has a business development team of 15 people. “It’s a pretty large team, with very good skills,” says Ahuja. “And it’s regional, rather than centrally controlled. We have separate teams in several places – for example even in Latin America, where we don’t have any business, we already have a team in place. So we have knowledge of everything happening in these emerging markets. Morocco is one such example.” Another recent contract success is Poznan Airport in Poland where, once again, Flemingo has been appointed master concessionaire. It’s the company’s Developing a masterly approach As part of its drive to become a master concessionaire with a full suite of products to offer airports, Flemingo has developed a number of new retail and food & beverage concepts. These include Starter (pictured), a convenience food to go offer; Coffee Express and Coffee Corner. “We are capable of bringing a complete master concession to airports that offers duty free, convenience retail and F&B, including full-service restaurants,” notes CEO Atul Ahuja. “We’ve identified over 300 airports where this kind of master concession can work. We’ve engaged quite a few of them, and many of them are keen on working with us.” third master concession in Poland and includes F&B, a channel into which Flemingo is pouring considerable investment. “There are synergies between retail and F&B, and it helps make economic sense when we bid on small airport duty free contracts,” Ahuja explains. Starter, one of Flemingo’s promising new concepts, designed as part of its master concessionaire approach May 2013 | THE MOODIE REPORT | 141 Travel Chef is proving a winning concept in Poland as Flemingo extends its food & beverage skills “There are many airports where the duty free is US$3–5 million, which normally don’t show on the radar of the big boys. But if you add the F&B and the convenience retail, it can make a package of US$10–15 million. So we have decided to pursue this avenue pretty aggressively. “Last year we won Gdansk Airport, which is a very successful contract. Then we got Modlin – the second Warsaw airport – where we didn’t win the duty free but we got the F&B. And it’s more lucrative than the duty free. “Morocco is our fourth success in taking the entire master concession, though there we have gone one step further and actually taken the ownership of the terminal building.” Passage from India Back in 2008 Flemingo was very focused geographically on India, but today Ahuja’s native country accounts for less than 15% of the business. The company’s net is now spread far and wide with what appears at first to be some odd pockets of isolated businesses, for example in Europe. But Ahuja insists there is sound rationale behind Flemingo’s business development. 142 | THE MOODIE REPORT | May 2013 Interview Flemingo Such a strategy would appear to put Flemingo on a converging course – potentially a collision course – with a rather larger emerging markets specialist, Dufry. “Yes, there would be competition. They are very strong in Latin America, very strong in Northern Africa; we are strong in the rest of Africa – East, West, South. We’re strong in South Asia, where they only have small pockets.” Putting the structures in place How is Flemingo managing the structural transition into becoming a global player, albeit one focused on emergent markets? “We have divided our geographies into regions,” Ahuja explains. “We have South Asia. We have Africa, which is not a country, it’s a continent. Since we have so many projects already there, we are splitting Africa into two. We have the East and the South as one region. And we have North and West, what we call French Africa, where we now have three projects. “We’re creating a new region, the Middle East, and putting in some projects like Georgia, Iraq and Yemen. We have the Latin American region on the drawing board, which we will be rolling out soon, when we announce a new project. We also have Central Eastern Europe which is headquartered in Warsaw, which is growing year-on-year.” That performance comes in spite of the company’s well-documented problems at Warsaw Frederic Chopin Airport, where Baltona (of which it acquired an 86% stake for US$9 million in 2010) was forced to vacate the stores after the termination of its contract in February 2012 – a decision Flemingo is contesting in the courts. “Despite losing I would say 30% of its revenue last year, we were still able to grow year-on-year in that region – and that’s because we added a lot of new projects there,” Ahuja says. “Our focus is emerging markets,” he says. “From Warsaw, for example, we expanded into Romania and Ukraine – where last year we got a big contract and are upgrading to a very large store in the new airport this month. We’re all over Africa – that’s our strong point. We’re very strong in South Asia, and have expanded from India into Sri Lanka; we are now going into other neighbouring countries. “We’ve also been looking at Latin America for the past year, and we’ve completed mapping out the opportunities and what we’re going to go for. Brazil is the next big step for us – we expect to win something there.” Does he still consider Flemingo a family company? “No, not at all now,” he replies candidly. “It’s completely professionalised. We have a big Board, including two independent directors, Paul and Carlo. Then we have two observers from our private equity funds, Albright Capital and CDIB. And we have one private equity member on the Board. So it’s very balanced. We have a very easy Board to work with, and they love what’s happening.” Both private equity partners are “completely aligned” with Flemingo strategy, he says – with both committed to at least six years of sustained investment. May 2013 | THE MOODIE REPORT | 143 Interview Flemingo Inflight and diplomatic opportunities Inflight is another prime focus for this increasingly broad-based group. In 2011 Flemingo concluded a joint-venture agreement with Turkish inflight specialist Iris Ekspres, taking a majority shareholding in a newly formed company. Since then plans to create a wider inflight division have been stalled by the bankruptcy of airline clients in Bahrain and Ukraine, but Ahuja says it’s a matter of when, not if, the operation really takes off. To that end the company is currently seeking a highly experienced duty free executive to head the division. Generally organic growth is Flemingo’s chosen route to market, though acquisitions will be considered if they accelerate the route to entry in a sensible way. “Acquisitions are not the driver for us, because they take a lot of capital, and we’d rather spread it across our operations where the return on capital is much higher. Baltona was one acquisition which got us into Eastern Europe. It was strategic and small ticket. Similarly Iris Ekspres in Turkey was our route into inflight.” Food & beverage, by contrast, is such a localised, contract-driven business that acquisitions don’t figure. “We don’t need them, and we’ve been pretty successful in bringing in contracts anyway.” Coffee Express: a new concept within the expanding food & beverage portfolio Flemingo Group factfile Flemingo Group has a diversified geographical presence with more than 120 duty free retail outlets across 25 countries in Asia, Africa and Europe. The group handles the duty free operations at 11 out of the 18 international airports in India, including Chennai, Ahmedabad, Calicut, Goa, Trivandrum, Amritsar, Kolkata, Mangalore, Trichy, Jaipur and Lucknow. It also runs seaport stores in Mumbai, Chennai, Goa, Paradip, Haldia and Mundra. Aside from the successful joint venture with DFS at Mumbai Chhatrapati Shivaji International Airport (in which it holds a 30% stake), Chennai, Kolkata and Calicut are the major revenue-generating Indian airports for Flemingo. In April 2010 Flemingo Group acquired an 86% stake in Polish travel retailer Baltona. Flemingo also holds 95% of the Turkey based inflight duty free company Iris Ekspres. Source: ICRA Credit Perspective May 2013 | THE MOODIE REPORT | 145 Ahuja laughs as he recalls how he and fellow directors started off the F&B business “on the back of a cigarette pack” when Flemingo was planning to bid in Poland. But things got serious very quickly. “We developed a great team in Poland, and now we are adding a central team,” he says, adding that the company is also seeking a high-profile head for its global F&B business. Yet another string to the Flemingo bow comes with the diplomatic business, a key area of focus. In Africa it has a 10,000sq ft, five-storey outlet in Pretoria, South Africa as well as Nairobi, Kenya. It has also opened a diplomatic store in Accra, Ghana and another in Bujumbura, the capital of Burundi. Two more are under construction, one in Abidjan, Ivory Coast and another in Dakar, Senegal. “The beauty of these stores is that they are perpetual duty free businesses,” says Ahuja. “So we don’t really get into concession wars, and the market is pretty immune to any economic ups and downs. We are also experimenting with the online diplomatic business, and will go full-fledged with this model during this quarter.” Was he disappointed that Flemingo failed to secure any of the spoils in the recent Mumbai tenders in India, the company’s original heartland? “Not really, because at the costs which they went for it just doesn’t make economic sense to us,” he says. “India’s now less than 15% of our global business. And for the last contract in Mumbai, I’m still amazed as to how somebody could bid those kinds of numbers. “Currently we (and DFS) are doing US$44 million in revenue, and it’s difficult to grow that by more than about +10% year-on-year. The competition [Aer Rianta International and Buddy Retail –Ed] bid +60% higher than us. Our NPV [net present value] was US$230 million; ARI’s was US$390 million. We think they will need a US$115 million turnover in year one, and I just don’t know how they’re going to do it. “Similarly in the case of fashion [The Nuance Group], they bid at three times what we did, and we were very hesitant to bid at all.” But Flemingo hasn’t given up on India. It has duty free operations in around a dozen of India’s 18 international airports with 22 shops, and its partnership with DFS is continuing steady and profitable progress at Delhi Indira Gandhi International – where the alliance has opened three luxury boutiques and is soon to open a fourth with Ferragamo. 146 | THE MOODIE REPORT | May 2013 Interview Flemingo Brewing up a new approach: Coffee Corner blends in well with Flemingo’s multi-channel philosophy May 2013 | THE MOODIE REPORT | 147 Interview Flemingo Ahuja describes Flemingo’s relationship with DFS as “amazing”, noting that the two companies work on a complementary basis rather than competing. “For example, although we qualified in Bali we withdrew from bidding as DFS was there,” he says. “It’s a great relationship. And we’re not getting in each other’s way. It gives us a lot of opportunity to do things which I really would not do under normal conditions. The beauty is that there are no set guidelines in these markets.” Ahuja’s view of a fast-changing global travel retail landscape is an interesting one. He claims that retailer desperation to retain airport concessions – or compensate for lost ones – is driving a series of increasingly unrealistic bids by some players. “That means certain operators will be under huge pressure, and you will see complete margin erosion in the contracts… which works to the benefit of the airport. And by now most of the larger airports have an idea about what the concession fees and MAGs being paid elsewhere are, so they are no longer willing to compromise. So the days of 20% and 25% concession fees are over. It’s all about 30% and more. This in turn puts pressure on the brands. “The brands always found the airport business to be the most interesting part of the duty free business, but now they are getting squeezed more and more. They’re going to look at alternative duty free channels, and we’re already seeing that happening now. A company like Philip Morris is very keen on looking at non-airport business as much as airport business. “The days of double-digit EBITDA for a contract are gone. If you can make a high single-digit EBITDA it would be great in an airport business. So we are carving out a niche. For us small is big. We don’t want to go in for very large projects, because we don’t want to do anything where we’re going to make no money, or take risks. We’re looking at master concessions, which is a niche which we have created.” Preparing to go public Flemingo is getting ready for its long-touted IPO, possibly as soon as the third quarter of 2014, though that will depend on many external factors – including the state of the markets, Ahuja admits. The timing isn’t certain, but the venue is – New York. “The reason why we have selected New York is that our company is now a multinational rather than an Indian company, and it’s not wise for us to list in India,” Ahuja explains. “In the US market we’ve seen a scarcity of growth stories and a hunger for emerging markets, and we represent both. The pockets are also May 2013 | THE MOODIE REPORT | 149 Interview Flemingo really deep in the USA, so that’s the right choice for us. It’s the most difficult market to get listed in, but we’re prepared to go through the pain.” The company is now in the right shape to take the public plunge, he says. It has the appropriate IT, financial and warehousing platforms, and has taken a quantum leap in management terms. “Having so many top people onboard is big for us. We’ve also taken a quantum leap in terms of our professionalism. “Getting the right funding in place was also key. We had multiple funding options, but we selected strategic partners. There’s a huge value-add from both companies – Albright is focused on the emerging markets and CDIB is focused on the East. “The first quarter of 2013 was very positive and encouraging, and this quarter is also looking very good. Hopefully there will be a major contract this week, which I can’t speak about yet as it’s not closed, but it would be another hundred million dollarsplus revenue.” All these years on from that single store start-up in Kerala, Ahuja says he still loves every minute of what is now a very different role. “Do you still sleep well at night?” I ask, noting his apparent permanent air of calm in the face of what must be constant stress. “Well, I sleep little,” he replies. “I start my day at 4.30 in the morning.” Finishing when? “When I fall asleep. When your work becomes your recreation, it doesn’t tire you.” Where does he want Flemingo to be in five years time? He points to a copy of an article in The Moodie Report headlined ‘Flemingo’s US$2 billion’. “There,” he says with a chuckle. “We are looking at growth of about 25% year-onyear to achieve our vision. And to get there, the next one or two quarters are very important. They can completely jump start us.” The jump start, in fact, happened long ago. This Flemingo is now set to take full flight. Flemingo is also developing a news and books proposition for selected airports May 2013 | THE MOODIE REPORT | 151