EUROPE/ASIA. Gebr Heinemann has outlined big plans for expansion in Eastern Europe and Central Asia, with a big focus on Russia. Speaking to The Moodie Davitt Report, Gebr Heinemann Directors of Sales Eastern Europe & Central Asia (the division was formerly known as Russia/CIS) Bernard Schlafstein and Oleg Zhytomyrsky homed in on the huge opportunity for the business in Moscow.
As reported, Travel Retail Domodedovo – an alliance between Gebr Heinemann and local partner Greenway – was recently awarded an exclusive seven-year duty free concession at the new international terminal at Domodedovo, Moscow’s second-largest airport.
Zhytomyrsky said: “The new terminal should be complete by this Summer in time for the [football] World Cup. We will have 7,000sq m to play with and we’re going to have a walk-through concept for the main duty free categories. We will also have fashion brands that are not yet present at the airport, and with which we are finalising negotiations. It will be a state-of-the-art duty free area at Domodedovo, something which did not exist before.
“The environment will be absolutely new for the airport and for consumers, compared to the existing International Terminal, which has many shops [in fragmented space]. Travellers can encounter the new shop right after security control, where they see all the main categories, and then fashion & accessories boutiques come after that.”
As reported, the new terminal will handle all international flights while domestic traffic will be concentrated in the existing terminal. Schlafstein said: “We may turn the stores in the existing terminal into domestic duty paid shops but that is yet to be negotiated with the airport.”
Schlafstein said that expansion at Domodedovo, along with the company’s Imperial Duty Free partnership at Moscow Sheremetyevo, has seen Heinemann become “the market leader in travel retail in the Moscow region”. There are big plans to develop space at Sheremetyevo this year, he added.
“With Imperial Duty Free, in 2017 we had around 6,700sq m of space across all terminals. Through our planned expansion we will grow this to around 10,700sq m in 2018. That will come through our takeover of the former Aerofirst shops in Terminal F and the rebuilding of Terminal E retail into a walk-through store. Plus arrivals shops are yet to come as well as around 5,000sq m of shopping in the new domestic Terminal B. In all, the space will extend to 15-16,000sq m across the terminals by 2019.”
Schlafstein hailed the partnerships with airport companies at both Sheremetyevo and Domodedovo. He said: “Airport management are working very transparently and are very open with us. They are professional airport managers who understand what a duty free company needs. That gives us a good platform to build the best shops for the consumers. In addition, although we had difficult times in 2014, 2015 and 2016 in this market, thanks to our management at Gebr Heinemann we stayed in the market and never stepped away. We really appreciate our Executive Board Members’ long-standing confidence in this market. We continued to invest and that has helped us ensure the outcome we have today.”
He added: “Traffic is increasing across the airport market in Moscow, and we are ready. There is a big concentration on Sheremetyevo and Domodedovo, with the newer location of Moscow Zhukosvky [another Heinemann location -Ed] growing and catching up over time.”
The introduction of arrivals duty free in Russia, noted above, looks set to take place in August, confirmed the company.
Schlafstein said: “The legislation is finalised now after some Customs clarifications. The target is to open the first stores on 1 August. The spaces are being allocated to us now and at Domodedovo they were specified as part of the tender. Arrivals shops will be in all of the major airports where we operate. We believe it will deliver an uplift though at the moment it’s not easy to say by how much. Travellers need to understand this new opportunity, as they did when it was introduced in Turkey or Norway. We see liquor, tobacco and confectionery benefiting most from this development.”
Among other big projects in Eastern Europe, Gebr Heinemann opened stores last year at Kiev’s Zhuliany Airport, the second airport serving the Ukrainian capital city. In addition, it is planning to open its new walk-through store at Vilnius Airport in May, following victory in a recent tender. As reported, Gebr Heinemann’s Travel Retail Vilnius subsidiary will redesign and reconfigure the existing ten Heinemann Duty Free & Travel Value shops in six new locations, but across an enlarged footprint of 1,500sq m.
Developing the regional border business is a further priority. Zhytomyrsky said: “We are moving forward with our partners in the major countries, Belarus, Ukraine, Georgia and Russia itself. That is a strong business. We have refurbished most shops and brought them to the highest international standards with improved assortments and that has lifted the sales results. What we have now are state-of-the-art shops for the border business.”
The bigger picture is positive for Heinemann’s business in the region, especially with Russian consumer confidence returning after several tough years.
Zhytomyrsky said: “We saw a major drop in business during the crisis years from 2014 to 2016. Growth and recovery came in 2017 and we expect similar growth in 2018. That has a lot to do with the recent stability of the Rouble in Russia. We have seen destinations such as Turkey and Egypt (to come) re-open for Russian travellers. We count on further recovery this year.”
That recovery, though tangible in terms of sales, still has a long way to go, noted Schlafstein. “The customers are more cost-cautious now. Yes, the Rouble is stable but it is still worth -50% less in value than it was in 2013, so we see that impact on average spend. We are adapting the mix accordingly. We also have more people who are travelling so are focused more on quantity and growing the volume of business.”
The company said that, led by Aeroflot, Russia’s airlines were contributing to the upward traffic growth trajectory with fresh investment.
Schlafstein noted: “As the major airline Aeroflot has been investing a lot into the fleet, which is now the youngest in Europe. If you fly Aeroflot domestically in Russia you’ll experience great service from very good people and well maintained aircraft. That is very positive.”
Assessing the challenges ahead in the region, Schlafstein and Zhytomyrsky highlighted the risks related to politics and the economy. But they also focused on the big opportunities that Heinemann and its partners plan to seize.
Zhytomyrsky said: “The arrivals shop business is a big opportunity for the longer term. So too is the potential we see in increasing numbers of Chinese travellers in Russia. As in other markets, they deliver higher than average spends. We see that impact, not only in Moscow but also in places like Ekaterinburg, and we are adapting our assortment and our staff to this development.”
Schlafstein added: “Digital is a further opportunity. We are implementing the Heinemann & Me loyalty programme with Imperial Duty Free at Sheremetyevo from September. It has not yet come to Russia and Heinemann & Me will be co-branded with our partners here.
“So there are many opportunities that will emerge from these initiatives, as well as from the additional space that we plan to open. The key message is that we have strong faith and belief in the future of this regional market.”
