Life after duty free death: P&O Ferries mounts a classic tale of recovery – 06/08/06

Editor’s introduction: It’s a glorious summer’s day on England’s South Coast as P&O Ferries’ Pride of Dover prepares to sail to Calais. The notoriously unpredictable waters of the Channel are tranquil and a pleasantly smooth and quick crossing to France lies ahead.

But in corporate terms, P&O has had to contend with much stormier waters in recent times. It is seven years since the abolition of intra-European Union duty free wreaked a terrible havoc on the UK shipping company. This ranged from route closures to redundancies and eventually prompted a ‘fundamental business review’ of the group’s operations. The focus of that review included the price proposition, customer offer, onboard services, sailing schedules and routes. Nothing was spared.

The modern face of P&O Ferries, the Pride of Dover (left) and the Pride of Kent

But there’s something stirring at P&O Ferries, whose parent company P&O was acquired by Dubai Ports World in March in a £3.9 billion deal. The shipping line is fighting back against the “˜triple whammy’ – the duty free abolition and tough competition from low-cost carriers and Eurotunnel – by promoting the experiential elements and affordability of sea travel and by developing a new style of onboard services.

“It’s a classic tale of recovery with growth,” says Director of Onboard Services Mike O’Dwyer. The Moodie Report took a return trip to France – on two different P&O vessels – to examine that recovery first hand..

THE PRIDE OF DOVER – AN ENHANCED CONSUMER ENVIRONMENT

Onboard the Pride of Dover the well-coordinated marketing messages mirror the company’s bid-budget external publicity campaign. “Come onboard and you’ll enjoy more space and comfort”; “a refreshing alternative to other travel choices”; “so much more than just sitting around and waiting to arrive”.

Part of that “˜so much more’ is onboard services and P&O is proving that there is life after duty free death with a rejuvenated retail offer and an impressively diverse catering portfolio. It’s also a slick, well-managed operation – and has to be, given the need to operate 25 cross-Channel crossings a day.

The first impression onboard the Pride of Dover is of a sparklingly clean, well-run ship, with myriad shops and services. Since June smoking has been banned in all internal passenger areas – a risky move in terms of potential consumer backlash, but one that is already paying off through an enhanced consumer environment.

On the day of The Moodie Report’s visit I tour the ship’s facilities with Head of Buying Neil Towns, Director of Onboard Services Mike O’Dwyer and Head of Food & Beverage Mark Frost. They’re a deeply committed trio, all relatively new to the company, and who have all embraced the need for change with vigour.

(Left) Neil Towns, Head of Buying: “The reality of redundancies and closed routes hit everyone very hard. So our people are now buying into everything that we are doing in transiting from that period.” (Right) Coming out of the shade: Sunglasses is one of the new generation categories that has benefited from more space and a wider selection

We make an early stop off in the Club Lounge, where for just £10 the traveller can relax in stylish comfort, with waiter service, complimentary Champagne, tea or coffee and newspapers – with the best view of the Channel from the bow of the vessel thrown in for extra measure.

“It’s a real haven,” enthuses Towns. “If you value peace, quiet and relaxed comfort with excellent service at your table, then Club Class is for you. It’s somewhere quiet and more selective.”

It’s certainly comfortable. So comfortable in fact that I wonder if anyone travelling in such fashion will want to avail themselves of the shopping opportunity onboard. But Towns has already thought of that. “We offer a personal shopper’s service for our guests here,” he says. “One of the USPs of the Club Lounge is that people can stay in here throughout the trip, but as they have the spending power it’s important we offer personal shopping.” Staff take the orders and then bring them to the passengers, still in the comfort of their seats.

A cabinet display at the entrance to the lounge showcases some of the premium items available in-store. “We’re trying to incentivise people to stay onboard and shop with us – not to shop in France,” says Towns.

P&O goes to impressive lengths to achieve that aim. O’Dwyer cites one regular customer who buys 30 to 40 cases of Pink Champagne twice a year. “We always make sure we’ve got what he wants onboard. We’re trying to be pro-active rather than reactive.”

That approach is epitomised by cross-selling initiatives across different departments and services. The till system is set up to issue vouchers for other departments after a purchase is made – for example a free coffee in return for a particular fragrance purchase. Free boxes of chocolates are offered to customers spending set amounts in upscale restaurant Langan’s Brasserie.

“There’s an absolutely huge opportunity to have people using and touching all the onboard services,” says O’Dwyer. “People are creatures of habit and once they have found their place they tend to stay there. We’re trying to move them around the vessel – and that’s leading to a healthy increase in penetration and sales.”

PROMOTIONS DRIVE RETAIL SUCCESS

Coffee and biscuits over, it’s time to head down to the shops, now duty paid but still keenly priced. “The product categories are still pretty much what they were [pre-1999],” says Towns. “It’s still a lot of beer, wines and spirits. We have always been driven by a huge spirits business and it’s still very important but now wine is growing very fast.”

What’s changed is the increasing emphasis on – and sophistication of – fragrances and cosmetics as well as a host of other categories, including watches, jewellery, toys and confectionery.

The Pride of Dover (and Pride of Calais) features a traditional liquor and tobacco store, bolstered by separate outlets for other categories. The Pride of Kent, Pride of Canterbury and the Pride of Burgundy each offer a single shop.

We begin with the fragrances and cosmetics area, which to the uninitiated comes as a pleasant surprise. “It’s as good as you’ll find anywhere,” enthuses Towns. He gestures towards a men’s area, including skincare, which is generating strong growth, an assortment of travel retail exclusives and a packed summer fragrances offer.

Most of the big names are onboard and merchandised with some panache – better certainly than many leading international airports. Says O’Dwyer: “We’ve had 12 hard months working with suppliers on this. Now the relationships are truly coming together, hence the heavy investment in the sales environment, in fixtures and fittings and in product launches. We really are building partnerships in the truest sense with all the key houses.”

Towns adds: “It’s all about marrying travel retail with UK High Street activity. We now have our own Category Manager Jo Heasman who was new to both travel retail and to beauty – she has assimilated all the traits of a beauty category manager extremely well.”

“It’s as good as you’ll find anywhere,” says Neil Towns of a surprisingly diverse fragrances and cosmetics offer that marries an airport-like emphasis on summer fragrances, travel retail exclusives and men’s lines with a sophisticated, brand-driven women’s skincare offer and a constant focus on new launches

Given the downturn in the ferry sector in recent years P&O Ferries appears to have done a persuasive job in convincing the beauty houses to support the business. How did it manage to achieve the turnaround?

It’s a subject that Towns is refreshingly candid about. “Three years ago we carried a lot more passengers on more ships so of course we bought more. Fundamentally that’s changed. It’s always difficult to stop people from looking back to the good old days but you simply have to stop beating yourself up about that and move on.”

Now times are changing for the better, Towns insists. “Our beauty partners and others will see year-on-year growth this year and next. We’re up +14% in revenue for 2006 to date.

“We’ve seen excellent growth of +10% on fragrance turnover but the real stars are skincare and cosmetics which are growing at +24% and +60% respectively. Clarins, for example, has proven to be an absolutely key relationship for us.”

Towns believes P&O must offer the best and the latest. “The products onboard are not yesterday’s items but are today’s and tomorrow’s,” he says with conviction. “We’re not just out looking for deals or looking to be cheap. We’re looking to create real value.”

Promotions feature heavily across the fragrances and cosmetics store. During our visit a free gift was on offer for every two purchases from the CK range, while an array of -50% items added price appeal in the fragrances selection.

To the other side of the fragrances and cosmetics store is an impressively merchandised and well-lit premium-priced selection, featuring big names across the back walls, including Chanel, Estée Lauder, YSL, Calvin Klein, BPI, Giorgio Armani and Christian Dior. Fragrance SKUs are generally 50ml and 100ml – “We want customers to find what they buy at home,” explains Towns.

They buy a lot of Chanel in particular. The great French brand is number one fragrance house by some distance and its striking, spacious and elegant back-wall display clearly reflects that status.

Towns talks enthusiastically of “the latest, greatest, best value promotions” and P&O is doing its best to live up to the tag. In particular, summer fragrances have been a smash hit, generating sales of over £1 million across the fleet of 10 passenger ships running from Dover to Calais, Hull to Zeebrugge, Hull to Rotterdam and Portsmouth to Bilbao during the high season. Travel retail exclusives are also an important part of the mix.

Beauty advisors are key to the department’s success and Towns pays due credit to the houses for their increasing support in funding and commitment terms. That’s particularly important in the dedicated skincare area at the far end of the Pride of Dover store, which features the heavy hitters such as Dior, Clinique, Lancôme, Clarins and L’Oréal.

Full ranges of fragrances and cosmetics are essential to consumer perception and spend, Towns reckons. “You need the full brand strength to lend the authority that makes consumers say, “˜Yes, I should be shopping here’,” he says.

L’Oréal dominates both the women’s and men’s cosmetics rankings and Towns is effusive in his praise of the French house. “It represents fantastic business,” he says. “Their back-up support and merchandising is superb; it’s a real partnership in the true sense of the word.”

The spirit of partnership has also been embraced in fashion and accessories, an under-developed sector now coming into its own, particularly with sunglasses, watches and jewellery. Towns recalls that when he joined the company the Pride of Dover featured only 1 metre of sunglasses, selling just Police and Polaroid.

That’s all changed. “The UK public loves sunglasses,” he says, “so now on every ship we have 3-4 metres of them.

“Rayban is king,” admits Towns, adding, “Fabris Lane [the Anglo-Italian house] are fantastic partners who really understand travel retail. We’ve also got Gucci, Prada, Diesel, Emporio Armani and Police.”

And it’s working – sales are up by +257% year-on-year, driven partly by a simple, compelling message – “˜Save 15% compared to the UK RRP. Why pay High Street prices?’

As Towns puts it with some justification, “We now do sunglasses with authority.”

Watches are a growing business too – and another example of transformation. A P&O-owned brand has been “consigned to history” but Sekonda, a long-time onboard favourite, continues to deliver great results. The latter’s Seksy line has had a “huge and sustainable impact” says Towns. “It’s encouraging to see such innovation from a good British company,” he adds.

The other, critical, recent addition is Swatch – “fantastic, a retailer’s dream” – which enjoys an attractive open merchandising unit.

(Left) Sekonda: “It’s encouraging to see such innovation from a good British company” (Right) Swatch: “Fantastic, a retailer’s dream”

Jewellery is a category in transition. Perennially popular Pavé still does well but Towns admits he is seeking more fashion brands to “push the boundaries” within the sector.

On the Dover and Calais routes P&O has introduced German brand Thomas Sabo on a trial basis. “We’re trying to push jewellery into higher price points, just as we did with sunglasses,” says Towns.

Is the classy Sabo the right brand for open-sell? Only time will tell and Towns admits the retailer is prepared to keep trialling new concepts “until we find our right bedfellows”.

Leathergoods – as in any space-constrained environment – is a tricky category and P&O is waiting until its next big refit in January before extending its horizons here.

From upscale Thomas Sabo jewellery to roll-your-own tobacco P&O is trying to make all categories, from emergent to traditional, pay their way via careful space planning

Everywhere though, one theme keeps echoing – trading up. “We’re very good at P&O at selling the masses. We sell thousands of bottles of, say, Blossom Hill wine but we have to start selling more of the likes of Wolf Blass. The same applies to beauty – we’ve brought in Prada and Vera Wang follows hot on its heels, for example,” says Towns.

Something for all age profiles: (Left) Churchill’s tins cater for the gift market while (right) a toys and games section attracts a younger spend

Toys are important, driven by P&O’s high proportion of younger passengers. Many of the lines are travel-orientated (board games, for example) but there’s mainstream appeal too – of the UK High Street’s top ten sellers last Christmas, P&O stocked six at the time. Here the child or parent can find a mix of activity lines (such as Crayola and Top Trumps) and trend-driven items like Spiderman and a mix of boy’s and girl’s products.

A wide “˜travel essentials’ offer is on display, including the usual adaptors and travel plugs, plus an extensive array of motoring safety products for passengers bringing their cars. “That’s something you just don’t get in the airport environment,” Towns notes.

Next stop is the liquor and tobacco store, which includes a big volume beer business. It may no longer be duty free but because P&O sells all alcohol at lower French duty rates on these crossings the range is attractively priced (and profitable). Liquor sales are permitted from 20 minutes out of England and until 20 minutes before return. All the other shops are open throughout both legs.

(Left) Toblerone’s BMW campaign – “a fantastic promotion”; (Right) Walker’s Shortbread – “fast becoming the Toblerone of fine foods”

The main confectionery offer can also be found here, one in which Toblerone enjoys superstar status. “We sold over a quarter of a million of the 400g bars last year,” says Towns.

That figure is likely to increase in 2006 thanks to a highly-successful campaign featuring a BMW bike (pictured) – seven bikes painted in Toblerone gold are being given away in what Towns describes as “a fantastic promotion.”

There’s also been consistently good growth in foodstuffs and related items where Walker’s Shortbread is fast “becoming the Toblerone of fine foods” says Towns. The offer also embraces teas (Twinings) and a nice range of gift tins from Churchill’s which are selling well.

(Left) Brands such as Smarties generate huge onboard volume in the key confectionery category (Right): Keeping the shop ship-shape – Sam King AGM Retail on the Pride of Dover

Because the confectionery volumes require considerable space it is located predominantly in the more roomy liquor and tobacco store. But Towns believes certain items should be near the toys (kid’s confectionery) and beauty (chocolate gift boxes) areas and has reacted accordingly.

Whiskies are the biggest seller in a liquor business that despite abolition still generates “major, major volumes”, driven by highly-attractive duty paid price offers and full 1 litre bottle sizes. During our visit, two one litre bottles of Teacher’s were on offer for £20. Bell’s comes in at £12.69 and a “˜Manager’s Special’ allows the shopper to perm two for £22 from Maxxium line-up The Famous Grouse, Plymouth Gin and Absolut Blue.

From attractively-merchandised Champagne to a value-driven, volume-orientated wines selection, P&O is proving there is life after duty free death for the drinks category

There’s also a decent upscale selection – Johnnie Walker Blue Label (70cl) at £105 makes a surprise appearance while a 3m wall of malts is nicely laid out by sector – Lowland, Highland, Islay and so on.

Cognac does well as does the broader generic category of French brandy. Three Barrels was on offer at two for £20 during our tour and there are plenty of takers – “We buy it by the 40ft container,” laughs Towns.

White spirits are displayed neatly by the shop windows looking out to the corridors, the natural light allowing an appropriately bright setting for what is described as “a great range of summer drinks”.

Champagne sales have grown “enormously”, a testament Towns says to giving travellers the right brands and then giving brands the right space. Table wine too is prospering – P&O having mounted an impressive response to the ultra-cheap offer available in the hypermarkets and other discount stores on the French side of the Channel.

The Pride of Dover is blessed with a spacious “˜cave’ area dedicated to wine, where the retailer’s main emphasis is unashamedly on volume. “The drive is to get people to take six bottles home,” says Towns. And why wouldn’t they with offers such as “˜6 for £12′ (Gallo); “˜6 for £15′ (Lindeman’s) and “˜6 for £18 (Jacob’s Creek)?

There’s also a useful premium selection but the real mover is Rosé, which accounts for an astounding 23% of wine sales. New World wines are very much to the fore despite the vessel heading towards definitive Old World terroir. “Our wine offer echoes the UK High Street,” explains Towns. But there is also a decent French range and an amazing Italian promotional offer – “6 for £14 and it’s good wine”, Towns says.

The drinks range is fleshed out by a decent array of beers, again driven by promotions, and soft drinks – Coca Cola, in particular, generates huge business.

Tobacco is adjacent to liquor and remains a core category despite a decreased area. “We’ve reduced the space this year but we’re ahead of budget because we’ve made it work harder as a category,” says Towns.

French taxes on tobacco may have been hiked sharply in recent times but the country’s duty paid rates are still highly attractive to British travellers. A carton of 200 cigarettes from the mainstream brands retails onboard for £30-35 compared with around £50-55 in the UK High Street. UK favourites such as L&B, Silk Cut, Embassy and B&H drive the business.

RECOGNISING THE KEY ROLE OF STAFF

Sam King is AGM Retail on the Pride of Dover. In her ship’s officer’s uniform – compulsory for certain management in case of safety issues on the ship – she looks as smart as the shops she manages.

Staffing levels are a key consideration and O’Dwyer says a core focus of a fundamental business review was to introduce flexible manpower arrangements “so that we have staff when we need them and not when we don’t”.

He notes: “We’re continually looking at forecasts and it’s a fine balance. We have to also ensure the customer’s experience is maximised.”

He sings the praises of the staff as being crucial to the rejuvenation of P&O’s fortunes. “As management we are spending much more time on the shop floor – talking directly to the store manager and staff. We are immensely proud of what we have done here and there is real pride among the staff too,” he says.

That word “˜pride’ resonates a lot during the day. And rightly so. Here’s an onboard operation that more than lives up to its name – the Pride of Dover.

THE PRIDE OF KENT – BEST OF BRITISH

After a rapid turnaround in Calais – my first visit to France that has involved seeing only a car park – our journey continues on the return leg on sister ship the Pride of Kent.

The vessel is about ten years old and benefited from a major overhaul five years ago that expanded passenger space significantly. Our task here is mainly to focus on food & beverage and what a diverse onboard proposition it is.

Mike O’Dwyer (left): “Management are spending much more time on the shop floor – talking directly to the store manager and staff”; (Right) Head of Food & Beverage Mark Frost: “We’ve sought a melange of food styles but our overall principle is Best of British”

Again first stop is for a coffee, courtesy of the Harbour Coffee Company outlet. It serves Costa coffee, “a brand loved on the High Street everywhere” notes Head of Food & Beverage Mark Frost.

“We’ve sought a mélange of food styles onboard but our overall principle is Best of British,” he explains. It’s a far cry from the “pseudo-Italian deli” approach that Frost encountered when he took up the role a year ago.

“I started in the middle of Wimbledon [tennis championships] and there was not a strawberry on board,” he says. “Today we try to source as much as we can locally from Kent, especially items such as apples and potatoes.”

Getting passengers orientated as soon as they come onboard is critical to maximising commercial revenues on the short sea routes

The trading up so evident in the retail offer on the Pride of Dover also manifests itself here in the catering portfolio. Harbour Coffee Company offers premium crisps from Tyrrells (produced by a Herefordshire farmer who switched to crisp-making when potato profit margins tumbled) for 85 pence a packet, as well as mainstream lines such as Walkers, the number one crisp in the UK. Sandwiches from the basic to the esoteric scale a variety of price points and taste options.

“We’ve had great support from Costa, they’ve been superb,” says Frost as we finish our coffee and head to the Silverstone bar. This was formerly the smoking bar and is significantly larger than its counterpart outlet on the Pride of Dover. The non-smoking edict has prompted a wider clientele to use the facility, he says.

Next up is the Horizon Lounge, a nice environment that offers a range of “˜grab and go’ items such as smoothies, sandwiches and other items ideal for passengers to take on their onward journeys upon arrival.

As crowds pour into the various food & beverage outlets within minutes of coming onboard, both the scale and speed of the catering programme are impressive. “We can serve something like 500 breakfasts in 20 minutes; it’s an amazing operation,” says Frost.

“Some people say we have a captive market but it’s not – they’re only here for one hour and 20 minutes and they have absolute choice both before and after the journey.”

(Left) Within minutes of departure the bar is packed with customers; (Right) Far from the madding crowd in the Club Lounge

Upstairs we enter a calmer, less pressured zone and a pleasantly uncrowded Harbour Coffee Company outlet. Frost’s admirable zeal to promote local foods – “I drive my greengrocer to distraction because I’m passionate about British products” – manifests itself everywhere. The apple juices on sale are from Bramleys (Kent is a major source for the apple variety) and Cox (the UK number one) while there’s even a local pastry called a Gypsy tart – “it’s a uniquely Kent speciality,” Frost explains. “If you have a sweet tooth it’s fabulous.”

Mark Frost: “We can serve something like 500 breakfasts in 20 minutes; it’s an amazing operation”

Again the International Food Court defies pre-conceptions. This is the main operation on the “˜short sea’ – the Dover-Calais sailing. Passengers can choose from a diverse hot selection that offers real value – a family of four can eat for just £19.95. Fish and chips is the best seller by some distance.

Children’s “˜pick n mix’ meals are currently being trialled, offering a range of selections including fruit, cheddar, cake, yoghurt and juice. “The place is packed with people and yet we’re only just moving,” says Frost as the ship sails out from Calais into the Channel.

Onboard guests can take a traditional British breakfast or opt for the best view on the ship from the Club Lounge (right)

That rush to the catering outlets presents real logistics demands. “The ship has a turnaround of 40 minutes but people come in 20 minutes before departure so it’s really a 20 minute turnaround,” explains Frost.

Crew and, vitally, truck drivers also have to be catered for with a quality offer. “Freight is so important to our business that it’s very important to keep the drivers happy,” says O’Dwyer.

Many of the crew live onboard, working shifts of two weeks on, two weeks off, and Frost says it’s essential for job satisfaction and morale that they are not treated as second class citizens.

EXTENDING P&O’S SUPPLY CHAIN P&O operations are backed by an impressive logistics centre and supply chain management. Now the company wants to offer its services to others.Read

As with the Pride of Dover this ship features an elegant Club Lounge with fabulous views from the front of the ship. On one side of the entrance is a glass display featuring Rare Malts, wines, Guylian chocolate and Champagne to remind guests of the shopping opportunities. That is mirrored on the other side with beauty items from Chanel, Calvin Klein and Christian Dior.

On the stillest of crossings with a unique maritime view and afternoon tea being served the Club Lounge is a blissful place to be. Guests can snack on asparagus with melted butter or vinaigrette (£5.95), poached salmon in dill mayonnaise (£3.70) or Stilton and Mature Farmhouse Cheddar (£4.25). In the distance those famous white cliffs of Dover beckon.

But The Moodie Report’s maritime correspondent resists those temptations – there’s something even better in store.

We head instead to Langan’s Brasserie, the great British restaurant brand initially made famous by wayward genius Peter Langan and later rejuvenated by Richard Shepherd, the UK’s first Michelin star chef. P&O now offers a Langan’s restaurant on all routes except the Irish Sea sailings.

Haute cuisine on the high seas: Langan’s is true in every detail to the original London restaurant

“It’s Richard Shepherd’s brand but we operate it,” says O’Dwyer, describing the agreement. “We agree the menu structure with him but all the employees are P&O’s.”

But Shepherd is not a hands-off licensee – in fact he’s the direct opposite. “He’s absolutely passionate about maintaining the brand standards,” says O’Dwyer. Regular audits and menu reviews take place to ensure the standards never slip.

Certainly on our trip everything was first class. The restaurant itself is evocative of the original Piccadilly location – albeit with a better view – with dozens of Shepherd’s pictures and photographs adorning the walls.

Over lunch we discuss P&O’s rejuvenation. Towns says there is now a clear distinction between the commercial operation and the travel side. “That’s proved exactly the right way forward,” he says.

“The reality of redundancies and closed routes hit everyone very hard. So our people are now buying into everything that we are doing in transiting from that period.”

The Pride of Kent’s retail offer features all the latest launches, such as Nina by Nina Ricci, supported by a strong presence from the world’s top beauty houses

So, it seems, are travelling consumers. The company talks cleverly about “˜P&Ople’ in its advertising taglines – “˜P&Ople enjoy a de-pressurised cabin’, “˜P&Ople experience space travel’; P&Ople, and so on – and the message appears to be getting through.

With new well-funded ownership and a commercial management that is rewriting the script, this classic tale of recovery seems set to run and run. No-one here is sitting around ‘waiting to arrive’.

Something for everyone: A mainstream tobacco selection and an upscale showcased selection in the Club Lounge

MORE STORIES ON P&O

New CEO for P&O Ferries; court clears takeover – 02/03/06

P&O votes for DP World’s takeover offer – 14/02/06

P&O Ferries seeks Category Manager for “˜exciting’ sunglasses, watches, jewellery and toys categories – 03/02/06

P&O bidding war breaks out as DP World ups offer – 27/01/06