EUROPE. The expansion of the European Union from 15 to 25 states on Saturday 1 May will have a dramatic effect on travel retail sales, as the EU represents a big share of travel to and from the ten new member countries.
Travel retailers across the countries in Central and Eastern Europe have been busy this week replacing shop signs, price labels and software in preparation for the new sales regime.
Many retailers we interviewed for the March issue of The Moodie Report said there was much uncertainty over the best ways to reshape the business. Many had difficulties with the preparations and attitudes of local Customs bodies, which seemingly had no sense of urgency in setting new rules for collecting taxes and duties from both airport-based and mobile operators (operating in different national territories).
For example, in Estonia, Customs had set a June deadline for settling policy on the new regime which begins on 1 May. That uncertainty shows little sign of having faded.
Gebr Heinemann regional director for CIS, Mongolia and the Baltics Pierre Viarnaud said that only two or three of the ten EU accession countries have new Customs rules and policies in place. Some countries have had much less time than others to prepare, and many day-to-day trading issues have been left unresolved.
“With a few hours to go, the practical issues are not clear,” he told The Moodie Report on Friday. “We are not sure if there will be a transition period; if Customs will close their eyes, close the shops, or issue fines. As of next week there are going to be a lot of issues,” Viarnaud said.
Eastern Europe’s biggest travel retailer, Gebr Heinemann, is planning to extend the Travel Value brand and methodology to all the countries where it operates. “The aim is to expose Travel Value more,” said Viarnaud. “Passengers are used to it in Western European airports and we will now follow the same principles.
“But the general problem we have is not Travel Value per se, but the fact that Customs and tax regulations need to be adapted.”
Gebr Heinemann is expecting some impact on its sales in the region from the confusion, but says the market should have adjusted by June.
SAS Trading believes that spirits as well as tobacco will be hit hardest, but it is sticking to its strategy of ‘one price for all’. “We will offer the same product groups as we do now. There will still be advantages for the customer in buying at the airport compared to the local market,” SAS Trading president Patric Sjoberg told The Moodie Report.
SAS operates its Euroshop chain in the airports of Copenhagen, Aarhus, Stockholm Arlanda, Gothenburg, Linköping, Malmö, Västerås, Växjo, Örebro, Oslo Gardermoen, Bergen, Haugesund, Kristiansand, Trondheim, Sandefjord and Stavanger as well as Tallinn, Riga, Warsaw, Gdansk and Poznan in the East.
Many countries are also hoping the issue of tax differences between neighbouring countries will continue to drive sales. This could turn into a flood of duty paid buying, without allowance restrictions, in certain cases.
In terms of cigarettes the cheapest countries are Latvia, Lithuania, Slovakia, Poland and Czech Republic. These countries have average duty paid retail prices of €26.05, €38.38, €53.97, €44.11 and €63.80 respectively for 1,000 cigarettes across local and international brands (Source: EU Commission TAXUD excise files).
Such prices and even the higher cigarette prices of the other accession countries will continue to offer big savings to Northern European visitors, in particular. Even between the cheapest cigarette market in the new accession countries (Latvia) and the most expensive (Malta) there is an 83% difference in average prices.
Slovenian retailer and supplier Regal-Gebr Heinemann said this week that all the border stores it supplies are converting to duty paid status rather than closing, although there are continuing worries about their viability.
“Of course they are concerned. Their margins are down and they don’t know what is going to happen,” said Regal-Gebr Heinemann general manager Joze Brodnik. Meanwhile Regal’s own two duty free shops at Ljubljana Airport are converting to the Travel Value concept in keeping with Gebr Heinemann’s approach.
Adria Airways is also converting to the Travel Value format. The new season features a single catalogue with a single price for non-EU and EU destinations (tax free and tax paid respectively) but with no spirits or tobacco on intra-EU routes.
In the Baltic, Estonian ferry operator Tallink has been preparing for the change for some time. “When the [ferry vessel] Romantika was built and launched two years ago the shops were made to be flexible, with a view to what might happen,” Tallink purchasing director Magnus Skjörshammer told The Moodie Report.
“A lot of operators are anxious and there have been a lot of guessing games. Although we studied the cross-Channel routes and learned what happened there [post-1999], we had to make some adaptations. The rules of the game have changed. It is a reality”¦ we will be focusing a lot more on volumes.”
Like all the affected retailers Tallink has been concentrating on listing only those products that continue to offer a price-saving in the duty paid system. In Estonia this is mainly in the spirits category, as tobacco taxes in the country are still quite high and are in the transition period allowed within the EU (until the end of 2009 in the case of Estonia).
Skjörshammer expects his sales volume to rise on spirits and beer and other special products and packs (with price reductions or double packs) that have been selected because they are not available on the local market. Tallink has also been putting much effort into maximising sales for consumption onboard (which stay duty free) and driving customer communication and promotions. The ferry operator retains two duty free routes – one via the Ã…land Islands and one to St Petersburg – as well as two duty paid routes.
“We are starting to promote to the Russian market with a new ticketing and marketing office,” said Skjörshammer. “We have hopes for this segment. The interest is very big. We will see the results closer to the summer season.”
Some other surrounding countries not joining the EU in the current round are seeing benefits from increased West to East travel. At Dubrovnik Airport’s Cilipi Duty Free Shop sales were up by a healthy +60% in the first four months of this year. This contrasts with a total year-on-year rise last year of +35% compared to 2002. Croatia generally is seeing much higher numbers of German, British, French, Belgian and Israeli visitors.
“Dubrovnik is now a much more regional airport after the war,” said Dubrovnik Airport trade department manager Niksa Milanovic. “Split and Zagreb are doing well too. We are also looking forward to being a [EU] member. A positive step toward this was made in the European Parliament this year.”
Travellers arriving in another EU country from eight of the accession countries will still be restricted to an import allowance of 200 cigarettes (and in many cases the equivalent in tobacco and cigars), even tax and duty paid.
These restrictions apply until such time as the derogations agreed with the relevant countries, to allow them time to increase their excise duties to bring them into line with the EU rules on minimum tax rates for tobacco products, have expired.
The deadlines for these derogations are as follows:
Until 31 December 2009 – Estonia, Latvia, Lithuania
Until 31 December 2008 – Hungary, Poland, Slovakia
Until 31 December 2007 – Slovenia, Czech Republic
Until these dates, travellers are restricted to the normal third country import allowance of 200 cigarettes, cigars and so on. There are no restrictions on alcohol beverages. Some authorities have already indicated that they will apply these limits, including UK Customs and Excise who issued a press release at the beginning of last month, providing clear guidelines on the restrictions that will be applied.
MORE ON EU ACCESSION AND ITS IMPACT ON TRAVEL RETAIL & DUTY FREE
EU expansion to have limited impact on BAA retail – 30/04/04
May Day alert for Europe as accession deadline nears – 07/04/04
