Flemingo Diplomatic - TFWA Asia Pacific conference


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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

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Flemingo Diplomatic - TFWA Asia Pacific conference

  1. 1. May 2013 | THE MOODIE REPORT | 13Inside The Moodie Report128 Power player: We visit Hong Kong-based King Power Group, and hear about aplanned new era of regional expansion136 Taking flight: Flemingo Duty Free’srise from controversial peripheral retailer tomainstream global force152 Grand vision: Spotlight onChina Duty Free Group’s hugely ambitiousHaitang Bay project158 Mission to greatness: HowHainan Provincial Duty Free Co and DFSplan to create a high-quality visitorexperience in Haikou162 Putting people first: Theremarkable story of Ever Rich Duty FreeShop’s rise, through the eyes of groupChairman Simon Chiang170 A new landmark: Profiling thenew Ever Rich Shopping Mall & Hotel inKinmen, close to the Chinese Mainland176 Pride in progress: Ever RichDuty Free Plaza at Neihu, Taipei is one ofAsia’s great travel retail stores; we pay a visit182 Russian travellers in profile: Exclusive consumer research on one of theworld’s highest spending travelling nationalities188 Tracking the global shopper: L’Oréal Luxe on the challenge of China andthe strategic role of travel retail199 Nagoya’s new face: On locationat Central Japan International Airport, wherea commercial transformation is taking place152136162(Right) Atul Ahuja; (centre) Theplanned Haitang Bay complex(bottom) Ever Rich Duty Free indowntown Taipei
  2. 2. May 2013 | THE MOODIE REPORT | 21Martin Moodie The Moodie Viewto survive in a world of corporate giants; andmuch, much more besides.In a proud and defiant clarion call forindependent enterprises, Benny Fattedad saysmemorably: “How big you are is just aboutmoney. Our company is different. It’s not forsale. We have the creativity, we have the brains.We have the technology. We have the will andthe dedicated staff. Mergers, conglomerates– so what? With these big conglomerates, theboss doesn’t know what is going on down inthe shop. And the shop doesn’t know what themanagement’s intentions are.”Simon Chiang is, of course, another greatentrepreneurial character, a self-made manwhose rags-to-riches story (see page 162) isthe stuff of legend. My interview with him isone of my favourites of recent times, a talethat I was privileged to hear as we prepared aspecial publication dedicated to Ever Rich’shistory. “We’re very different from othercompanies,” he says.“We are always thinking about how to helpthe children and the poor. It’s not only aboutmaking money. One day you are going to die,so money is nothing.”Simon Chiang has made plenty of money. Butthe real story is what he has spent it on. If youwant a role model for Corporate SocialResponsibility, he’s your man.The independent spirit looms large in one ofmy other favourite articles in this magazine.Caviar House & Prunier Chairman PeterRebeiz (page 227) is a man I have hugeadmiration for. A purist in every sense, hedespises the concept of compromise when itcomes to food or service quality.He’s also, like Benny Fattedad, a hands-onentrepreneur, someone who insists onputting his personal e-mail at the foot ofevery one of his restaurants’ menus, so thatcustomers can tell him what they think –good, bad or ugly.Like all good entrepreneurs he’s also obsessedwith innovation. Just as he pioneered one ofthe seminal breakthroughs of airport food &beverage back in 1984 with the opening ofHeathrow Airport’s first Caviar House SeafoodBar, now he’s doing something equally radicalwith the hitherto humble (and often awful)airport sandwich. Move over ham and cheese:here come caviar, Balik salmon and evenoyster sandwiches, each carefully hand-prepared for the travelling consumer. In bothtaste and price-point (€20–25) these won’t befor everybody, but in ambition and sheerfearlessness they represent a culinaryMatterhorn compared to the great mediocrityplateau of so much airport ‘grab and go’ food.Atul Ahuja (page 136) is another successfulentrepreneur – but of a very different type.Branded “habitual litigants”, his company(Flemingo) broke down the long-standingIndian duty free monopoly of state-ownedITDC and opened the gates through whicha number of international rivals have sincepassed. It’s fair to say that as a result of itsmany legal actions, Flemingo is not the mostpopular retailer in the industry – but itsaccomplishments are testament to thepowers of determination, and the ability tospot a niche.Here’s a company, remember, that startedwith little more than a retail kiosk inTrivandrum in 2003 and which has sinceexpanded to 120-plus operations in morethan 25 countries, which will generatearound US$400 million in revenues in 2013,and which is poised to be listed on the NewYork Stock Exchange late next year. It’s oneof the industry’s most unlikely successstories – and simultaneously one of itsmost real.There you have it, four very different talesof men who carried the courage of theirconvictions. Four men who, in Twain’s words,dreamed, explored, discovered. Four menwho we get to know much more about thanwe did before as a result of their candidinterviews in this issue.I hope you’ll enjoy reading their stories asmuch as I enjoyed writing them.(Left) Caviar House & PrunierChairman Peter Rebeiz; (Right)Flemingo CEO Atul Ahuja
  3. 3. 136 | THE MOODIE REPORT | May 2013Atul Ahuja is the driving force behind the remarkable riseof Flemingo in recent years from a controversial, peripheralplayer to an increasingly mainstream, global and successfulretail force. Martin Moodie met him recently for an updateon the company’s planned IPO, its 2020 vision and itsdetermination to become a diverse travel retailer withinterests spanning duty free, food & beverage, convenienceshopping and even foreign exchange.Flemingogears for growthPublisher’s introduction: Back in August 2008 I took a trip to Flemingo CEO Atul Ahuja’s ranch, an hour orso from the sprawling metropolis of Mumbai. Back then Flemingo was an enterprise virtually synonymouswith court action (“We are branded habitual litigants,” Ahuja told me) but as a fascinating interview tookshape it was clear that there was more to this company than first met the eye. Flemingo was going places fastand 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 andtwo land border outlets. By using the force of the law to challenge many of the impediments to privateenterprise duty free retailing in India, Flemingo broke down the long-standing monopoly of state-ownedITDC 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’stravel retail channel. In the process it became an unexpected bedfellow with industry giant DFS Group, a rivalwith 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 anumber 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 willgenerate around US$400 million in revenues in 2013, with a well-documented vision of reaching US$2 billionby 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 butin London, where the self-confessed workaholic was taking a rare holiday with his family.
  4. 4. May 2013 | THE MOODIE REPORT | 137
  5. 5. May 2013 | THE MOODIE REPORT | 139Interview Flemingo “For us, small is big,” says Atul Ahuja. TheFlemingo CEO is referring to the company’slong-term strategy of picking off relativelysmall concessions in difficult markets inorder to grow a large and thriving globalenterprise specialising in emergent countries.At the TFWA World Exhibition in Cannes last yearAhuja announced that the company was targeting US$2billion in revenues by 2020, driven mainly by organicgrowth, including the creation of several new businesschannels such as food & beverage, and a probableIPO. It will hit around US$400 million this year.So how is the game plan developing? “Wecrystallised the vision which we announced inCannes last year, and then we set about identifyingany gaps,” Ahuja replies. “We wanted to build a greatteam first, and we have made a lot of progress – infact half of our top management have joined us inthe past 18 months.”High-profile recent appointments include long-timeAlpha Retail Asia boss Paul Topping and well-knownNuance executive Carlo Bernasconi. “And over thenext two months we have another seven or eightadditions joining that list – all great guys from theindustry with a lot of experience,” says Ahuja.“We also went about some significant fundraising.We closed two deals: with Albright CapitalManagement for US$30 million last year, and withChina Development International Bank (CDIB) inthe first quarter of this year we raised US$20 million.This year we will raise another US$50 million withanother fund. All this is coming into the company asgrowth capital.”But where – in a tough global market marked bywhite-hot competition, feverish competition forconcessions and a scarcity of potential acquisitions– is the growth?“We are adept at finding niches,” says Ahuja. “Wehave 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 portlocated about 40km east of the Moroccan city, one ofFlemingo’s duty freeoperation at ColomboBandaranaikeInternational Airportis thriving
  6. 6. May 2013 | THE MOODIE REPORT | 141Interview Flemingothe largest ports in the Mediterranean and in Africa–Ed] to build, operate and transfer two terminalbuildings on the seaport. It currently handles twomillion passengers annually, but is expected to growto five million within three years.“They wanted a concessionaire to build and operatethe terminal. It’s got duty free, convenience retail,souvenirs, a travel goods store, foreign exchange, andfood & beverage including a bar and a fast food café.“We pick out such niche opportunities, which are notsubject to the crazy bidding that you see elsewhere.”To spot and then land such opportunities, Flemingohas a business development team of 15 people. “It’sa pretty large team, with very good skills,” saysAhuja. “And it’s regional, rather than centrallycontrolled. We have separate teams in several places– for example even in Latin America, where wedon’t have any business, we already have a teamin place. So we have knowledge of everythinghappening in these emerging markets. Moroccois one such example.”Another recent contract success is Poznan Airport inPoland where, once again, Flemingo has beenappointed master concessionaire. It’s the company’sthird master concession in Poland and includes F&B,a channel into which Flemingo is pouringconsiderable investment.“There are synergies between retail and F&B, and ithelps make economic sense when we bid on smallairport duty free contracts,” Ahuja explains.Developing a masterlyapproachAs part of its drive to become a master concessionaire with a full suite ofproducts to offer airports, Flemingo has developed a number of newretail and food & beverage concepts.These include Starter (pictured), a convenience food to go offer; CoffeeExpress and Coffee Corner.“We are capable of bringing a complete master concession to airportsthat offers duty free, convenience retail and F&B, including full-servicerestaurants,” notes CEO Atul Ahuja.“We’ve identified over 300 airports where this kind of master concessioncan work. We’ve engaged quite a few of them, and many of them arekeen on working with us.”Starter, one ofFlemingo’s promisingnew concepts, designedas part of its masterconcessionaire approach
  7. 7. 142 | THE MOODIE REPORT | May 2013“There are many airports where the duty free isUS$3–5 million, which normally don’t show on theradar of the big boys. But if you add the F&B andthe convenience retail, it can make a package ofUS$10–15 million. So we have decided to pursuethis avenue pretty aggressively.“Last year we won Gdansk Airport, which is a verysuccessful contract. Then we got Modlin – thesecond Warsaw airport – where we didn’t win theduty free but we got the F&B. And it’s more lucrativethan the duty free.“Morocco is our fourth success in taking the entiremaster concession, though there we have gone onestep further and actually taken the ownership of theterminal building.”Passage from IndiaBack in 2008 Flemingo was very focusedgeographically on India, but today Ahuja’s nativecountry accounts for less than 15% of the business.The company’s net is now spread far and wide withwhat appears at first to be some odd pockets ofisolated businesses, for example in Europe.But Ahuja insists there is sound rationale behindFlemingo’s business development.Travel Chef is proving awinning concept in Polandas Flemingo extends itsfood & beverage skills
  8. 8. May 2013 | THE MOODIE REPORT | 143Interview Flemingo“Our focus is emerging markets,” he says. “FromWarsaw, for example, we expanded into Romaniaand Ukraine – where last year we got a big contractand are upgrading to a very large store in the newairport this month. We’re all over Africa – that’s ourstrong point. We’re very strong in South Asia, andhave expanded from India into Sri Lanka; we arenow going into other neighbouring countries.“We’ve also been looking at Latin America for thepast year, and we’ve completed mapping out theopportunities and what we’re going to go for. Brazilis the next big step for us – we expect to winsomething there.”Such a strategy would appear to put Flemingo on aconverging course – potentially a collision course– with a rather larger emerging markets specialist,Dufry.“Yes, there would be competition. They are verystrong in Latin America, very strong in NorthernAfrica; we are strong in the rest of Africa – East,West, South. We’re strong in South Asia, where theyonly have small pockets.”Putting the structures in placeHow is Flemingo managing the structural transitioninto becoming a global player, albeit one focused onemergent markets? “We have divided ourgeographies into regions,” Ahuja explains. “We haveSouth Asia. We have Africa, which is not a country,it’s a continent. Since we have so many projectsalready there, we are splitting Africa into two. Wehave the East and the South as one region. And wehave North and West, what we call French Africa,where we now have three projects.“We’re creating a new region, the Middle East, andputting in some projects like Georgia, Iraq andYemen. We have the Latin American region on thedrawing board, which we will be rolling out soon,when we announce a new project. We also haveCentral Eastern Europe which is headquartered inWarsaw, which is growing year-on-year.”That performance comes in spite of the company’swell-documented problems at Warsaw FredericChopin Airport, where Baltona (of which it acquiredan 86% stake for US$9 million in 2010) was forced tovacate the stores after the termination of its contractin February 2012 – a decision Flemingo is contestingin the courts.“Despite losing I would say 30% of its revenue lastyear, we were still able to grow year-on-year in thatregion – and that’s because we added a lot of newprojects there,” Ahuja says.Does he still consider Flemingo a family company?“No, not at all now,” he replies candidly. “It’scompletely professionalised. We have a big Board,including two independent directors, Paul and Carlo.Then we have two observers from our private equityfunds, Albright Capital and CDIB. And we have oneprivate equity member on the Board. So it’s verybalanced. 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 bothcommitted to at least six years of sustainedinvestment.
  9. 9. May 2013 | THE MOODIE REPORT | 145Interview FlemingoFlemingo Group factfileFlemingo Group has a diversified geographical presence with more than120 duty free retail outlets across 25 countries in Asia, Africa and Europe.The group handles the duty free operations at 11 out of the 18international airports in India, including Chennai, Ahmedabad, Calicut,Goa, Trivandrum, Amritsar, Kolkata, Mangalore, Trichy, Jaipur andLucknow. It also runs seaport stores in Mumbai, Chennai, Goa, Paradip,Haldia and Mundra.Aside from the successful joint venture with DFS at Mumbai ChhatrapatiShivaji International Airport (in which it holds a 30% stake), Chennai,Kolkata and Calicut are the major revenue-generating Indian airports forFlemingo.In April 2010 Flemingo Group acquired an 86% stake in Polish travelretailer Baltona. Flemingo also holds 95% of the Turkey based inflightduty free company Iris Ekspres.Source: ICRA Credit PerspectiveInflight and diplomatic opportunitiesInflight is another prime focus for this increasinglybroad-based group. In 2011 Flemingo concluded ajoint-venture agreement with Turkish inflightspecialist Iris Ekspres, taking a majority shareholdingin a newly formed company. Since then plans tocreate a wider inflight division have been stalled bythe bankruptcy of airline clients in Bahrain andUkraine, but Ahuja says it’s a matter of when, not if,the operation really takes off. To that end thecompany is currently seeking a highly experiencedduty free executive to head the division.Generally organic growth is Flemingo’s chosen routeto market, though acquisitions will be considered ifthey accelerate the route to entry in a sensible way.“Acquisitions are not the driver for us, because theytake a lot of capital, and we’d rather spread it across ouroperations where the return on capital is much higher.Baltona was one acquisition which got us into EasternEurope. It was strategic and small ticket. SimilarlyIris Ekspres in Turkey was our route into inflight.”Food & beverage, by contrast, is such a localised,contract-driven business that acquisitions don’tfigure. “We don’t need them, and we’ve been prettysuccessful in bringing in contracts anyway.”Coffee Express: a newconcept within theexpanding food &beverage portfolio
  10. 10. 146 | THE MOODIE REPORT | May 2013Ahuja laughs as he recalls how he and fellowdirectors started off the F&B business “on the back ofa cigarette pack” when Flemingo was planning to bidin Poland. But things got serious very quickly. “Wedeveloped a great team in Poland, and now we areadding a central team,” he says, adding that thecompany is also seeking a high-profile head for itsglobal F&B business.Yet another string to the Flemingo bow comes withthe diplomatic business, a key area of focus. In Africait has a 10,000sq ft, five-storey outlet in Pretoria,South Africa as well as Nairobi, Kenya. It has alsoopened a diplomatic store in Accra, Ghana andanother in Bujumbura, the capital of Burundi. Twomore are under construction, one in Abidjan, IvoryCoast and another in Dakar, Senegal.“The beauty of these stores is that they are perpetualduty free businesses,” says Ahuja. “So we don’t reallyget into concession wars, and the market is prettyimmune to any economic ups and downs. We arealso experimenting with the online diplomaticbusiness, and will go full-fledged with this modelduring this quarter.”Was he disappointed that Flemingo failed to secureany of the spoils in the recent Mumbai tenders inIndia, the company’s original heartland?“Not really, because at the costs which they went forit 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 amazedas to how somebody could bid those kinds ofnumbers.“Currently we (and DFS) are doing US$44 million inrevenue, and it’s difficult to grow that by more thanabout +10% year-on-year. The competition [AerRianta 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. Wethink they will need a US$115 million turnover inyear one, and I just don’t know how they’re going todo it.“Similarly in the case of fashion [The NuanceGroup], they bid at three times what we did, and wewere very hesitant to bid at all.”But Flemingo hasn’t given up on India. It has duty freeoperations in around a dozen of India’s 18 internationalairports with 22 shops, and its partnership with DFSis continuing steady and profitable progress at DelhiIndira Gandhi International – where the alliance hasopened three luxury boutiques and is soon to open afourth with Ferragamo.
  11. 11. May 2013 | THE MOODIE REPORT | 147Interview FlemingoBrewing up a new approach:Coffee Corner blends in well withFlemingo’s multi-channel philosophy
  12. 12. May 2013 | THE MOODIE REPORT | 149Interview FlemingoAhuja describes Flemingo’s relationship with DFS as“amazing”, noting that the two companies work on acomplementary basis rather than competing. “Forexample, although we qualified in Bali we withdrewfrom bidding as DFS was there,” he says. “It’s a greatrelationship. And we’re not getting in each other’sway. It gives us a lot of opportunity to do thingswhich I really would not do under normalconditions. The beauty is that there are no setguidelines in these markets.”Ahuja’s view of a fast-changing global travel retaillandscape is an interesting one. He claims thatretailer desperation to retain airport concessions – orcompensate for lost ones – is driving a series ofincreasingly unrealistic bids by some players. “Thatmeans certain operators will be under huge pressure,and you will see complete margin erosion in thecontracts… which works to the benefit of the airport.And by now most of the larger airports have an ideaabout what the concession fees and MAGs beingpaid elsewhere are, so they are no longer willing tocompromise. So the days of 20% and 25% concessionfees are over. It’s all about 30% and more. This in turnputs pressure on the brands.“The brands always found the airport business tobe the most interesting part of the duty freebusiness, but now they are getting squeezed moreand more. They’re going to look at alternative dutyfree channels, and we’re already seeing thathappening now. A company like Philip Morris isvery keen on looking at non-airport business asmuch as airport business.“The days of double-digit EBITDA for a contractare gone. If you can make a high single-digitEBITDA it would be great in an airport business. Sowe are carving out a niche. For us small is big. Wedon’t want to go in for very large projects, becausewe don’t want to do anything where we’re going tomake no money, or take risks. We’re looking atmaster concessions, which is a niche which wehave created.”Preparing to go publicFlemingo is getting ready for its long-touted IPO,possibly as soon as the third quarter of 2014, thoughthat 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 thatour company is now a multinational rather than anIndian company, and it’s not wise for us to list inIndia,” Ahuja explains. “In the US market we’ve seen ascarcity of growth stories and a hunger for emergingmarkets, and we represent both. The pockets are also
  13. 13. May 2013 | THE MOODIE REPORT | 151Interview Flemingoreally deep in the USA, so that’s the right choice forus. It’s the most difficult market to get listed in, butwe’re prepared to go through the pain.”The company is now in the right shape to take thepublic plunge, he says. It has the appropriate IT,financial and warehousing platforms, and has taken aquantum leap in management terms. “Having somany top people onboard is big for us. We’ve alsotaken a quantum leap in terms of ourprofessionalism.“Getting the right funding in place was also key. Wehad multiple funding options, but we selectedstrategic partners. There’s a huge value-add fromboth companies – Albright is focused on theemerging markets and CDIB is focused on the East.“The first quarter of 2013 was very positive andencouraging, and this quarter is also looking verygood. Hopefully there will be a major contract thisweek, which I can’t speak about yet as it’s not closed,but it would be another hundred million dollars-plus revenue.”All these years on from that single store start-up inKerala, Ahuja says he still loves every minute ofwhat is now a very different role. “Do you stillsleep well at night?” I ask, noting his apparentpermanent air of calm in the face of what must beconstant stress.“Well, I sleep little,” he replies. “I start my day at 4.30in the morning.” Finishing when? “When I fallasleep. When your work becomes your recreation, itdoesn’t tire you.”Where does he want Flemingo to be in five yearstime? He points to a copy of an article in The MoodieReport headlined ‘Flemingo’s US$2 billion’. “There,”he says with a chuckle.“We are looking at growth of about 25% year-on-year to achieve our vision. And to get there, the nextone or two quarters are very important. They cancompletely jump start us.”The jump start, in fact, happened long ago. ThisFlemingo is now set to take full flight.Flemingo is alsodeveloping a news andbooks proposition forselected airports