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The tender advertising, released this week, features some stunning visuals; Source: Airport Authority Hong Kong |
HONG KONG. Airport Authority Hong Kong (AAHK) will this week issue tenders for its core category duty free concessions at Hong Kong International Airport (HKIA), setting in motion what may be the most hotly contested bids in industry history. [UPDATED STORY – The tenders were formally issued this afternoon (Monday, 15 August) Hong Kong time. Scroll down to view details.]
On offer are the highly valued Liquor & Tobacco concession currently operated by Sky Connection, and the Perfumes & Cosmetics and Airside General Merchandise concessions, held by Nuance-Watson (HK). The bid deadline is 28 October.
The Moodie Report estimates liquor and tobacco sales last year at HKIA to have reached around US$200 million, with perfumes & cosmetics a little higher at about US$225 million.
But what really makes the contracts so attractive is HKIA’s passenger mix. AAHK noted that over 70% of its passenger base stems from Asia. Critically, 27% are from Mainland China, a booming market that has become an increasingly vital driver of the sector’s growth in recent years, particularly at HKIA.
Other high-spending nationalities are also to the fore: Taiwan accounts for 18%, South and Southeast Asia for 15%, Japan 7% and South Korea 5%. Such a mix amounts to a retailer’s dream.
The Liquor & Tobacco duty free licence, currently operated by Sky Connection, comprises 15 units across Departures and Arrivals. The space on offer covers around 2,730sq m, with stores measuring 20sqm up to 770sq m coming under this contract.
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Sky Connection has won widespread praise, particularly from wines & spirits brands, for the quality of its offer. Pictured is the pioneering Martell Experience Boutique at Hong Kong International Airport’s T1 Arrivals zone |
The airport company said the penetration rate (its definition is the percentage of passengers and visitors who browse rather than purchase) in stores under this category was 46%, with an average spend of HK$608 (US$78) on liquor & tobacco items.
The second key tender launched is for Perfumes & Cosmetics, currently operated by Nuance-Watson (HK) and covering 2,240sq m of space. This concession offers 13 stores, ranging from 24sq m up to 740sq m. The category has a 50% penetration rate, said AAHK, with an average spend of HK$1,050 (US$135).
The third key contract is for the Airside General Merchandise concession, covering a range of categories, also operated by Nuance-Watson Hong Kong. The space on offer covers 2,570sq m, with ten units ranging in size from 56sq m to over 750sq m. Penetration across these stores is 75%, said the airport, with an average spend of HK$888 (US$114).
AAHK said that 84% of its passengers are tertiary educated and 55% are “professionals, managers, executives or proprietors”. On average, they dwell four hours at the airport, spending HK$1,118 per person.
HKIA has handled 52 million passengers in the past 12 months (to July 2011), with a growth rate of +8% year-on-year.
In each case the incumbent is committed to retaining their concessions. By common consent both Sky Connection and Nuance-Watson (HK) have done an excellent job in driving sales and the passenger experience during their respective contract terms. But they will face intense competition in each of the three bids, driven mainly by the allure of the Chinese travelling consumer.
 | Perfumes & cosmetics concessionaire Nuance-Watson HK’s Temptation Duty Free stores have won many awards, driven by excellent partnerships with brands (such as Lancôme), intense promotional activity and top customer service |
The major Mainland China-based travel retail companies, China Duty Free Group and Sunrise are considered likely to bid, while Hong Kong-based DFS and King Power Group (HK) will also be to the fore given their understanding of the Chinese consumer.
Korea’s powerful duo, Lotte Duty Free and The Shilla Duty Free, have studied the opportunity closely, while many of the top international companies – including Dufry, Autogrill, Lagardère Services Travel Retail and Gebr Heinemann – are set to complete what may be one of the biggest fields ever seen in a duty free tender. Bidding levels, driven not only by financial considerations but also by strategic and political factors, are set to be commensurately high.
The Moodie Report understands that some players may bid as partnerships, perhaps in association with powerful local players.
