The Trinity Initiative: Towards a New Consumption and Business Model

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INTERNATIONAL. The Trinity Initiative, a project designed to help shape the future business, consumer and contractual landscape of the airport retail world, culminated in an engaging session on Thursday at the Virtual Travel Retail Expo Knowledge Hub.

As noted, the Trinity initiative was launched in April by the Moodie Davitt Report with the cooperation of a range of industry stakeholders and in association with leading international management consultancy Bain & Company.

Martin Moodie (top) and Dermot Davitt (center) of the Moodie Davitt Report listen to Jack MacGowan (bottom) present fascinating predictions and ideas. The live chat feature, which you can see to the right of this image, has been busy throughout this key session (click to enlarge)

This session, like previous webinars, introduced Mauro Anastasi, partner of Bain & Company Italy and Jack MacGowan, director of Castlepole Consulting and former CEO of Irish state-owned Aer Rianta International. MacGowan works closely with Bain & Company.

The key final general recommendations – which will be followed by a definitive white paper – point to potential solutions to the industry challenges in passenger penetration through better consumer insight; more flexibility and adaptability; data-driven business strategies driven by dynamic pricing, AI promotion planning, and the use of CRM to unleash customer value; adopt a customized omnichannel strategy for travel retail; and an overhaul of contractual structures.

These charts illustrate that while the growth of the retail channel has long been impressive, per capita spending has actually declined over time (click to enlarge)

Anastasi and MacGowan analyzed each of these areas in detail and presented key data on the current situation facing the travel retail industry as well as forecasts for the recovery in spending going forward.

MacGowan said the airport retail industry can “get out of this [the COVID-19 situation] bigger and stronger, but we’ll have to do things very differently. And over the next few years, we’ll find out how good we are at change. The next few years will be decisive.

Anastasi and MacGowan said the travel industry needs to anticipate the crisis, to take into account likely changes in passenger behavior and spending patterns (click to enlarge)

He said that before COVID, “everything looked good for the airport retail industry on a superficial level,” driven by the growth in air traffic, but, digging deeper, the reality was that ‘a relative decline was already underway. Penetration rates were on the decline, raising questions about the relevance of the travel retail offer.

For customers who travel regularly, travel retail, to an extent, remains as relevant to them as it always has been. But new customers are coming in, and they see the channel in a different way – and for many, it’s not as convincing.

A graph that all stakeholders in the retail industry will pay close attention to – the recovery expected over the next five years and a forecast to 2030

Outlining the outlook for a full recovery in retail traffic and spending by 2025, MacGowan stressed the importance of having a vision for when the full recovery will arrive. That year, Bain & Company predicts that Gen X and Y will account for more than half of air passengers. But what air travelers want now and what they will be willing to buy in five years may have changed dramatically, the authors noted.

In addition, the rise of online shopping has forever changed the consumer landscape. Illustrating the accelerating growth of e-commerce, Anastasi and MacGowan gave the example of the United States, where the market share of online shopping is now 26%, from 15 to 16% before COVID.

This graph gives a fascinating breakdown of the different categories of spending among passengers (click to enlarge)

MacGowan said, “The uncomfortable truth is that people who don’t shop at airports are at the gate on their phones shopping; the tour operator does not benefit from it. This is a huge channel threat and it needs to be dealt with. “

Other headwinds identified include the expected shift in some Chinese luxury shopping spending leaving airports and returning to China itself, due to COVID-19 and the rise of e-commerce. MacGowan said we could see growth as high as 20-22% CAGR over the next ten years from Chinese consumers, but much of that growth will be reallocated to purchases in China.

Mauro Anastasi underlined the importance of a better understanding of the consumer. This is a multi-level exercise, as shown in this graph (click to enlarge)

Bain & Company’s research – compiled using expectations and traffic modeling – predicts that retail sales could rebound between 55% and 65% next year, compared to 2019, at 80 to 90% in 2022, 90 to 95% in 2023, and increase to 90-100% by 2024.

The latter figure is expected to repeat itself in 2025, but by then the industry could see a “leak” to omnichannel of a forecast of 5% of revenue. By 2030, that number could reach around 10%, according to the study.

The reduced profitability in the travel retail sector is another factor to watch in the years to come, as Bain & Company advised in a previous webinar. According to Bain & Company’s simulation, the store’s EBITDAR is expected to generate a profit of 20-30% next year from 2019 levels, falling to 65-75% in 2022 and 70-80% in 2023.

“Over the next few years, we’re going to find out how good we are at change. The next few years will be decisive. – Jack MacGowan, Castlepole Consulting Director

The next 18-24 months are crucial, and the authors said it is vital that airports and retailers work closely together to mitigate negative impacts. Summing up, MacGowan said, “We think this is a difficult scenario, but the fundamentals of the industry are actually very bright, and in fact much brighter than some of the other retail channels. that we see around us. “

In a fascinating breakdown, the low penetration of air passenger spending was highlighted, with the conclusion that only 10-20% of passengers could be considered “one-time buyers”. MacGowan noted that at least 80% of people spend nothing during their average 75 minutes of airside time. “We need to improve the understanding of these potential consumers, a drum that has been beating all week [at the Virtual Expo], and for the last decade.

Dufry’s recently announced joint venture with Alibaba was cited by Mauro Anastasi as an example of how the industry can seize the omnichannel opportunity and become more relevant to the consumer (click to enlarge)

A key to understanding the consumer is data that is currently not shared with airports and retailers, held by outside sources. MacGowan said: “My feeling on this is that with a more structured partnership approach between airports and retailers, they can approach Facebook, Google and the airlines of this world in a much more positive and constructive way. . [to get access to that data]. From that, we’re going to find lots of ways to be more relevant to customers.

Anastasi explained how using CRM can unlock customer value and advocated a tailored omnichannel strategy for retail that encompasses seamless integration of physical and digital information, services and purchasing throughout the business. journey of the traveler.

While acknowledging that few in the travel retail industry will have the capacity to make capital investments over the next five to ten years, Anastasi suggested that all available investments should no longer be spent in physical stores towards estates. IT, digital and supply chain. He said, “It’s hard to move the investment needle. But as soon as you do, you get significant results.

Some examples of how the structure of the contract should differ in the different phases of the takeover (click to enlarge)

MacGowan also summarized the Trinity Initiative’s proposals to rethink contract structures between airports and retailers and explained how the Minimum Annual Guarantee (MAG) has evolved over the decades. However, he questioned whether it was suitable for use in its current general form.

He said, “For most of the world’s airports maximizing yield per square meter is not the current goal, the goal is to bring traffic back to the airport and boost sales. Before, airports maximized space efficiency and retailers tried to maximize their margins. But we have a lot of dead space right now. And we need to remake these thriving, high-density malls. “

Report authors say removing MAGs from tendering for at least three years could help spur innovation (click to enlarge)

MacGowan said airports and retailers need to focus on a common, aligned goal. He continued, “And we see that if you make this your first goal, things change. Thus, many of these MAG rules can be removed from a tender document. So there may be innovative ways to get bidders to come up with ideas to maximize sales.

“This means we won’t have lawyers and accountants dominating airport / retailer meetings and process control meetings.

Some levers that could help travel retail find the path to growth (click to enlarge)

“There will be a lot more behaviors that will be encouraged to drive sales to try new things, to be more innovative. And if it requires data sharing and it requires better and more innovative partnerships with brands, so be it. “

MacGowan – who said there was still a role for some type of MAG or a longer-term fixed rent structure – said his belief that airports have a duty, under the current circumstances, to create the environment for this more creative and more sales. behavior driven. He said: “I think if retailers and airports can work on this together they will do more positive things than ever in the next three years because they are aligned.”


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