CHINA. Reports from China say that the country’s tourism flagship company China International Travel Service (CITS) has formally taken over China Duty Free Group (CDFG).
CDFG is the leading supplier to and operator of the country’s duty free shops. It is also a partner in buying group China Power Duty Free Group, along with King Power Group of Hong Kong.
The reports quoted CITS president Li Lu’an.
The Moodie Report understands that China Duty Free Group president Gai Zhixin is set to head up the new expanded tour and retailing enterprise. The joint venture partnership with King Power Group will continue.
Li said the acquisition will raise the total assets of CITS to 3.9 billion yuan (US$470 million), which will help enhance its international competitiveness.
CITS is a powerhouse of Chinese tourism. It recently began a co-operation with Guangdong Tourism Group Co. It also joined forces with American Express in January 2002 to set up CITS American Express Travel Services Ltd, the first Sino-US travel service joint venture in China.
CDFG is the dominant force in the fast-developing Chinese duty free industry, with annual sales of around US$200 million in 2002. There are 150-plus duty free outlets managed or operated by CDFG, while it supplies all but a few key independent duty free locations in the country.
Comment: The integration of China’s leading tour and duty free companies is not unprecedented. CDFG had its early roots in the late 1970s when duty free was run by the China Travel Services Co with links to the China National Tourism Administration (CNTA). King Power Duty Free Group director Ayub Khan was a key force in the creation of China’s first duty free operation. The business later evolved into China National Duty Free Merchandise Corp (CNDFMC) and then China Duty Free Group.
Despite the “business as usual” message, this is a key play in the Chinese duty free business. As DFS has proved over many years with the Japanese, a close relationship with the tour industry is critical to getting travellers into the stores and making them spend more. The Chinese authorities see huge potential in the travel retail sector and want to drive it forward as aggressively and professionally as they can.
Interestingly, the announcement comes just after DFS Group announced it was relocating its Executive Office to Hong Kong to be closer to the key markets of the future. Number one on that list is China.
Here is what DFS chairman Ed Brennan told The Moodie Report earlier this month after the Hong Kong move was announced: “DFS is fortunate to be presented twice within its business life cycle the opportunity to build a relationship with an emerging consumer. Over the past 40 years we have built a strong bond with the traveling Japanese consumer. We have aged well together and developed a deep level of respect for each other. We intend to do the same with the PRC Chinese in the next 40 years.”
Those are hadly flippant words from a man who chooses what he says carefully. The big question is how and when DFS will make its play in China.
