SWITZERLAND. Duty free confectionery sales can be doubled by 2008. That was the bold claim made by Nestlé International Travel Retail general manager Stewart Dryburgh at the ACI Europe conference in February. A tall target to say the least. But Dryburgh insists it is achievable, provided retailers are prepared to take risks, abandon some historical practices and embrace critical principles of category management. In a candid and thought-provoking interview, Dryburgh outlined his and Nestlé’s passion for success to The Moodie Report’s publisher Martin Moodie.
TMR: What is your response to Petersen’s Dan Kongsted’s recent call for a complete re-evaluation of the airport pricing offer and a gathering of retailers and suppliers in August?
Stewart Dryburgh: Nestlé’s vision is to double the sales of confectionery in the next five years within travel retail. To achieve that will take a completely different approach to all aspects of the marketing mix. Pricing clearly plays a fundamental role in any product offer, and within the Nordic region where the Petersen business is strongest, competitive pricing is particularly acute, given the still tax-free nature of shopper motivation on the ferries. As such, we fully support Dan’s stance in the region and will fully support the meeting in August.
Within the wider global travel retail business, however, we see the need to review all aspects of the confectionery product offer, starting with understanding the role of each key category for the retailer and the needs of the shopper.
We need to develop quality shopper insight to help develop exciting products, then merchandise them, price them and finally promote them in an appealing way. Confectionery is a fun category with the widest possible shopper appeal and it can and should play a central role for retailers in driving footfall and conversion to purchase.
ON THE RECORD: “COLLECTIVELY WE NEED TO FIND WAYS TO ADD VALUE TO THE CATEGORY AND TO DRIVE UP PRICE POINTS, NOT JUST CUT PRICES AND PROMOTE IN ISOLATION” – STEWART DRYBURGH
TMR: Dan suggests a “loss leader” approach on one key SKU each month with each party – landlord, retailer and supplier – absorbing some of the hit to help re-convince consumers of the value offer. Would it work? Would you support such a proposition?
Stewart Dryburgh: I would certainly support this approach, but only as a part of a full scale review of all aspects of the confectionery category as described above. Applied in isolation outside the Nordic region, I believe that it could have short-term appeal which would only serve to cheapen the category and make it more promotionally driven than it already is. Collectively we need to find ways to add value to the category and drive up price points, not just cut prices and promote in isolation. We need a wider review, seeking to enhance the category in the eyes of the shopper, whilst at the same time providing a value offering in the shopper’s eyes.
TMR: Another key issue you, he and others have highlighted is the low a) footfall and b) penetration/conversion level achieved by most duty free stores? Why is it so low? What can be done about it?
Stewart Dryburgh: I have been vocal on this point since I first understood the scale of the opportunity. In my view, to really understand why footfall and penetration are so low we need to understand better the shopper. It’s he or she who is making a conscious choice not to enter the travel retail shop, or not to spend when he/she is in there. Once we understand more about what they want then we can motivate them to enter the shop instead of passing by and to buy more when they are in there. One thing we do know from other [domestic] channels is that confectionery can be a great footfall and penetration driver.
ON THE RECORD: “TFWA RESEARCH IDENTIFIED CONFECTIONERY AS BEING 50% PLANNED AND 50% IMPULSE. THIS IS A FANTASTIC SPLIT” – STEWART DRYBURGH
TMR: How? What does the domestic market teach us in this regard?
Stewart Dryburgh: As per my previous comments, I believe that confectionery can and must play a central role in driving both footfall and penetration for the travel retail operators. The TFWA research at Cannes last year identified confectionery as being 50% planned and 50% impulse. This is a fantastic split as it says half of all shoppers want to buy confectionery and the rest will purchase if it’s merchandised correctly and the opportunity is there!
There are also clear examples from within the domestic markets where confectionery has been used as a footfall driver. In the UK across two Christmas periods in 2000 and 2001, Wal-Mart’s Asda business added 500,000 shoppers each week to their footfall by specifically targetting gifting confectionery at this key time. This in a truly competitive marketplace is a fantastic achievement and really shows the pulling power of confectionery!
ON THE RECORD: “TO PROVIDE DOMESTIC PRODUCTS AT TRAVEL RETAIL MARGINS IS A NON-STARTER IN THE LONG TERM” – STEWART DRYBURGH
TMR: Does confectionery in duty free/travel retail offer value for money as a consumer proposition? What role does price play in the offer? How – given the financial model of the industry – can it ever truly offer a real price attraction on like for like products? Or is the future with exclusives to avoid the comparison in the first place?
Stewart Dryburgh: The financial demands of the industry are clearly shown in the range of channel exclusives provided by the major players – to provide domestic products at travel retail margins is a non-starter in the long term. As such, however, the ability to price match versus domestic need not be a barrier to growth in the category. The reason is that the shopper in this environment is generally looking for a gift product and he/she will be willing to purchase as long as they believe that they are getting a great product at a value proposition. Our role is to create that value proposition through exclusives and added value, such as the Smarties/Disney link.
A key tenet in all the debate on pricing is that retailers cannot push for excessive margin levels on confectionery, as at this point suppliers will just walk away and commodity product will be the only offer (e.g. some South East Asia outlets) and sales will not be maximised as shoppers are not offered what they want.
In turn if retailers take existing cost pricing and push retail pricing points up to “insult” pricing levels, then the shopper will walk away. It has to be said that some retailers are already dangerously close to excessive margin requirement levels and this is why most confectionery suppliers are already concerned. We need to understand the pressures that they [retailers] are under, to help them walk this tightrope, maximise their mix and exploit the fantastic potential.
TMR: Historically, confectionery was something of a poor relation in duty free, both for the houses themselves and for the retailers. Clearly this has changed in, say, the past 7-8 years. What’s driving that and where is confectionery ultimately headed in travel retail?
Stewart Dryburgh: Looking forward, at Nestlé our clear vision is to double the category sales in the next five years. We believe this to be a truly stretching goal, but achievable by those retailers who want to take up the challenge. Looking back, and recognising that I am still a relative “new boy” in travel retail, it is clear that a huge amount has been achieved in getting confectionery on the retailers’ agenda to a point where a number of the biggest and most forward looking retailers now recognise it openly as the fourth core category.
In great part that is down to the great work done by the pioneers of the category in this channel, lead not least by my predecessor Dan Cappell. It is now up to the most forward looking suppliers to build on these fantastic achievements and continue their great work.
TMR: You also referred to that ability to double the category’s sales over the next five years at the recent ACI conference. But how deliverable is that?
Stewart Dryburgh: Certainly it’s a stretching goal and it won’t happen without fresh thinking and a lot of hard work, but I firmly believe that it is very achievable.
It will require a good understanding of the shopper and the right relationship between supplier and retailer, which will generate the right range, effectively priced, merchandised and promoted. And it will demand the need to apply some best practice from other retail environments, such as effective category management and the ability to benchmark through clear industry performance measures.
ON THE RECORD: “ONLY ONE RETAILER HAS STARTED IMPLEMENTING CATEGORY MANAGEMENT SERIOUSLY” – STEWART DRYBURGH
TMR: You talk a lot about “category management”, something of an abused term, I think, in duty free. How much of a difference do you think proper category management/product segmentation can do for the category in duty free/travel retail?
Stewart Dryburgh: It will make a fundamental difference to travel retail by providing a clear working framework to develop the category, and we know from other channels that the principles work. As yet a number of retailers and suppliers are talking category management, some not really understanding what is involved, but to my knowledge only one retailer has started implementing it seriously.
At Nestlé we are actively discussing the category management framework with our key retail partners. It requires an investment of time and the effort on both sides, but I’m convinced from past experience that it will help drive the doubling of sales in the category for those who want to join with us. It will work by providing a clear understanding the role of the confectionery category for the retailer (e.g. footfall driver vs. profit maker or balance of the two) and then a clear understanding of the shopper needs, from which will stem product development, product ranging, pricing, merchandising and promotional programmes.
TMR: Recently we’ve seen Cadbury and Mars tie up with Genesis for the latter to handle their travel retail distribution in the children’s sector. That seems to augur the beginnings of a real focus on the children’s category. What do you think of that approach?
Stewart Dryburgh: The children’s category has been pioneered and built by Nestlé with Smarties. In turn, the industry has recognised the achievement by awarding Frontier’s Star Product trophy at Cannes last year for our Smarties/Disney partnership. It’s no surprise, therefore, that other suppliers would want a piece of the action. We at Nestlé always welcome healthy competition.
TMR: Given that the travel retail channel must still represent significantly less than 1% of your global business, where does it sit as a strategic priority (and sales channel in its own right) within the Nestlé vision?
Stewart Dryburgh: Nestlé is the world’s biggest confectionery manufacturer with a 16% global share, so it is not a surprise that the current volumes in travel retail are not yet materially significant in percentage terms. That said, the travel retail channel is very clearly a key strategic priority for Nestlé as we are structured as a self-standing autonomous business -we are Nestlé International Travel Retail SA and I am personally incorporated as a director of the business alongside the head of global purchasing with Nestlé’s Chief Financial Officer as Chairman.
Structurally we sit outside of the normal Nestlé zone, region and market operating structure with a very short reporting route to the top and this gives us greater flexibility and speed of action. Nestlé has done this for other key developing businesses such as nutrition and water. In addition, the fact that our chief executive Peter Brabeck is coming to be the keynote speaker at the Trinity Forum in June speaks volumes for how seriously Nestlé takes this industry.
TMR: What are the other key issues that Nestlé identifies for the channel?
Stewart Dryburgh: The lack of reliable, readily available market data, driven primarily through the nature of the tender process, is a major barrier to progress. We are currently seeking ways to overcome this.
TMR: A personal obsession – why are tastings not more part of the travel retail landscape with such an impulse product as confectionery?
Stewart Dryburgh: Well if you want some samples Martin just give me a call! In all seriousness, sampling is a key part of establishing product awareness. However, with most of our key brands being well established and known by the consumer (e.g. Smarties, KitKat, Nestle block) then sampling is not always the most efficient means to invest in exploiting the ‘impulse’ end of the shopper purchase habit.
ON THE RECORD: “THE BEST I HAVE SEEN IN CONFECTIONERY IS DUBAI DUTY FREE” – STEWART DRYBURGH
TMR: Who are the retailers doing confectionery best – and why?
Stewart Dryburgh: In short, the best I have seen in confectionery is Dubai Duty Free, very closely followed by Bahrain. Of those making big strides, DFS in America are now beginning to exploit the untapped potential in that region whilst World Duty Free, Gebr Heinemann and Nuance in Copenhagen are pushing confectionery right up the agenda in Europe. In Asia, King Power in Thailand has recognised confectionery’s potential whilst Chocolate Sales in Kuala Lumpur achieve fantastic sales per sq metre.
The ones who are leading the pack, and those who are making the biggest strides, are the ones who best understand their shopper and are treating confectionery with the seriousness it deserves. Then everyone, retailer, supplier and shopper(!) reaps the reward.
TMR: Do you agree that too many of the world’s confectionery stores look the same? That there is little differentiation of offer or approach and little “sense of place”?
Stewart Dryburgh: On the basis that with only a few exceptions, confectionery does not get enough space as it is, I don’t agree with that at all. Each retailer has to build a sense of local flavour where it is appropriate to their business. Our job is to provide the right point-of-sale to meet their shoppers’ needs when it comes to confectionery, which thrives on global brands.
TMR: What are the worst and most common shortcomings in the way confectionery is handled in travel retail?
Stewart Dryburgh: Not treating it like a core category! Those retailers who give it the space, time and attention it deserves, reap the rewards.
TMR: You came from the domestic market. What have been your main observations about this new and unique channel to date?
Stewart Dryburgh: Two main observations:
* The industry structure with the tender process is very different. This clearly places a lot of stresses in the chain and the shopper sometimes gets forgotten in the rush to meet margin needs and minimum annual guarantees. Category management is a process which puts the shopper at the heart of retailer/supplier thinking within the context of overall business demands.
*The potential is fantastic, not only for confectionery but for all categories. Use confectionery to raise footfall and penetration in store and everyone can win!
TMR: Finally Stewart, if you had one key message to the duty free retailers of the world relating to confectionery, what would it be?
Stewart Dryburgh: Nestlé has a passion for chocolate – come share our passion, work with us and let’s double the sales of the category!
