Fostering retail excellence to create stakeholder value

Travel retail is the connecting and central element of three very important industries: retail, travel and leisure locations, as well as consumer goods brands. Linking and aligning the different expectations of our stakeholders is critical in order to generate value for all. Our strategy to achieve this goal: we focus on offering the best services to our customers to create profitable and sustainable growth for all our stakeholders.

Our clear travel retail focus, where we mostly concentrate on locations with captive audiences, creates a winning formula for all stakeholders of the Dufry ecosystem. For customers, by providing an unrivalled shopping experience; for suppliers, by showcasing their brands to a fast-growing group of affluent customers; for landlords, by fully exploring the commercial potential of a travel or leisure location; for shareholders, by creating long-term value through generating cash and profits and for employees and local communities, by creating job opportunities and wealth. For more information please refer to Our Stakeholders.

For our customers, we create memorable shopping experiences by constantly improving our shops and developing best-in-class retail formats, as well as by implementing innovative cross-channel marketing initiatives and extending our online services, allowing us to increase customer engagement. Our sales representatives will always receive travelers with a friendly smile, introducing them to the world of travel retail and providing them with detailed product information – increasingly supported by digital technology.

Unique experiences to exceed customer expectations.

Besides offering customers great promotions, novelties and the exclusive products they are always looking for, an unparalleled sense of place is, for Dufry, a key element of an attractive customer shopping experience. This includes local product offerings, as customers also increasingly want to complete their travel experience by bringing home memories, as well as internationally recognized brands that are well known and much liked. Our shops combine the famous assortments of global brands and high-quality products with a special local touch, which differentiates our shops worldwide and wherever they may be – at airports, seaports, ships, railway stations and also in downtown or border locations – and irrespective of whether they are duty-free or duty-paid. A selection of our main retail concepts can be found here.

Demographics play a big role in our business and changes in customer profiles and preferences can occur rapidly. For this reason, Dufry sets high priority on consumer intelligence, extrapolated from internal operational information, regular customer field surveys and external research. This permanent tracking of customer behavior is the base against which to continuously fine-tune our offering, not only matching, but exceeding expectations of our clients.

For suppliers we offer access to the largest footprint in the ever more attractive travel retail channel, through more than 2,300 of our shops in over 430 locations in 64 countries, further supported by our growing digital footprint. Our shops offer suppliers an unrivalled worldwide opportunity to promote their brands and products, reaching an affluent consumer segment and allowing them to purchase their products at our various locations.

In recent years, we have seen an increasing importance in novelties, exclusive products and limited editions to attract customers to our shops. Despite some short-term shift and the growing importance of food and convenience products related to the faster acceleration of domestic travel during the COVID-19 pandemic recovery, the long-term interest to find new and unique products and experiences is maintained. Dufry works closely with brands to offer customers a unique product selection and brand experiences, which make the channel even more attractive.

Novelties and exclusive products confirmed as important trend.

Landlords get the highest productivity from their retail areas, maximizing their revenues when working with Dufry. We offer a full range of retail concepts adapted and customized to any specific location, complemented by the most comprehensive portfolio of global and local brands. We enable landlords to offer their travelers attractive commercial spaces, thus increasing revenues from non-aeronautical sources and further optimizing their overall business performance.

For shareholders, Dufry is the world’s leading global travel retailer, offering an attractive investment opportunity to participate in a growing industry and a company that focuses on profitable growth and strong cash generation. Despite the current challenging business environment, travel retail is a structurally resilient growth industry with a proven track-record.


Business diversification maximizes opportunities and mitigates risks

Diversification has always been a fundamental element of our strategy for a number of reasons, which contribute considerably to minimizing risks and providing consistent growth opportunities. In our understanding, diversification includes aspects such as geographies, market sectors, channels as well as, ever increasingly, also digitalization.

Geographic diversification is the best way to benefit from the ever-growing number of travelers worldwide, as we can leverage the captive audiences in our locations. Our global presence also allows us to evaluate thoroughly the opportunities of new projects in any location by capitalizing on the expertise of our local teams. Their clear understanding of the local market characteristics forms the foundation for a close collaboration with landlords and other local business partners, to effectively develop new businesses.

Our wide geographic footprint in 64 countries and the fine-meshed network of locations and shops is also a unique marketing asset we can offer our brand partners. It allows them to engage directly with a growing number of customers through a window display in and access to any given mature or emerging market. Today, Dufry is not only the global market leader in travel retail, but also by far the most diversified player in the industry.

Furthermore, geographic diversification considerably mitigates risks generated by external impacts in single markets or regions. This has been widely proven in 2020, when our global footprint mitigated the impacts of geographically differing restrictions and containment measures associated with the pandemic. Furthermore, Dufry has limited exposure to single contracts as best illustrated by the share of individual concessions in the Group. With the largest concession accounting for around 6% of our business, and with the ten biggest representing less than 25% of 2020 sales.

Diversification by channel and sector widens the scope of the company providing access to additional customer groups and behaviors. In this context, the cruise and ferry businesses, train stations, and also border shops and downtown locations such as hotels, casinos and leisure resorts are gaining in importance.

Diversification: by geography, by channel, by sector – and digitally.

On the duty-free side, the airport channel is expected to continue to be the largest and fastest growing part of our business. We continue to see additional potential in further developing the cruise ship and ferry business, duty-free border shops – currently mostly in South America – and downtown duty-free shopping in selected markets, mainly in Asia, where this type of operation is particularly popular, due to specific local regulations.

Cruise lines offer an attractive channel to engage with customers during a longer time period, and ferries have been quite resilient even throughout the current crisis. Despite the momentary challenges the cruise business is experiencing, we are convinced that this type of vacation will continue to be “en vogue” in the long-term.

The duty-paid sector also has considerable development potential in airports, since the expected growth of domestic passengers – including intra-EU travel – is similar to that for international travelers. In the 2020 recovery phase of the pandemic, this sector has temporarily gained over-proportional importance as domestic travel and flying – due to less travel restrictions – has picked up faster than international travel. Furthermore, this sector is fragmented even more than duty-free, thus offering attractive new expansion opportunities.

The newest development within duty-paid is the new concept store ANECDOTE opened at The Circle at Zurich Airport in November 2020, which offers travelers and residents of the Greater Zurich area a vast variety of global brands and local premium labels at fantastic prices. The assortment covers all core categories such as perfume and cosmetics, food and confectionery, wines and spirits, sunglasses as well as fashion, accessories and convenience. We also continue fostering the expansion of our successful duty-paid retail concepts, Hudson and Dufry Shopping which are already implemented in several markets and have potential for further deployment. Hudson is a well-established convenience store concept that has been very successful in North America over the past 30 years and which, since 2009, we have deployed in 17 countries world-wide such as Italy, Switzerland, Brazil, UK and China among others. Dufry Shopping is a dutypaid concept that offers a high-quality assortment of international brands in an exclusive setting, similar to a duty-free travel retail store, but targeting domestic passengers.

We originally piloted Dufry Shopping in Brazil in 2014, expanding to 7 locations across the country and the immediate success has led us to a strategic decision to roll out this concept into other countries. The first Dufry Shopping store outside Brazil opened in 2017 at Las Vegas McCarran International Airport. This was followed by the Malta Dufry Shopping in 2018 and by the contract signed in 2019 with Newark Liberty International Airport for a new Dufry Shopping, and the newest shop in Salt Lake City, which both opened in 2020. Also in 2020, we further opened Dufry Shopping stores at the Fortaleza airport in Brazil and at Odessa airport in Russia. Based on the positive results with 13 Dufry Shopping locations in 4 countries so far, we are convinced that this concept can be successfully rolled out to other markets globally.


Accelerating digitalization

Digitalization is the newest form of diversification and it will change the way business is done in travel retail. Its characteristics, which allow to considerably increase customer engagement cross-channel, crossgeographies and cross-sector, and to serve customers from when they plan their trip to the moment when they return home, are a great asset. Implementing digitalization not only means at the shop front, but also with respect to the whole back-office and support area of the company, where digitalization opens new opportunities to simplify processes and increase efficiency. The recently announced joint-venture with Alibaba will further accelerate our digital initiatives and shows how these types of partnerships will shape the future of travel retail.

Growing opportunities of digitalization.

At Dufry, we are excited about the possibilities and opportunities these new technologies offer. In the past three years, we have successfully built and deployed our digital platforms, which allow us to engage more frequently with customers and to provide them with additional services, with the ultimate goal of driving sales. For Dufry, digitalization is and remains a key element of our strategy, which supports and evolves a strong business model to the next level and continuously improves our offer to the travelers we welcome in our shops.

Normally customers come to our stores while they are waiting to board their plane or train, or while they enjoy their stay on a ferry, cruise liner, in a casino or hotel. They enjoy strolling through the attractive retail spaces and take away memorable shopping experiences. Sales are often generated by impulse decisions and/or immediate needs, which protect travel retail from the direct competition of online platforms. To attract more customers to our stores we want to provide a superior customer experience and in addition, create further value through a more efficient business. Thus, the use of digital and online technology is changing our business in three major areas: how we engage with our customers, how we sell products, and how we organize our processes internally and in the value chain.

Specifically, this means that we will be further increasing personalized digital communication with customers at home, during their whole journey, and in particular when they are at the airports close to our shops. We are also digitalizing the shops to increase conversion rates and to simplify in-store processes, focusing on areas such as product consultations, payments, locations-specific promotions etc. Finally, we will further improve customer service and individualize product offers for specific customer profiles, based on advanced research and data analytics facilitated by digital tools.


Financial discipline focusing on returns

At Dufry, we have a disciplined financial approach to all our projects, be they organic or acquisitions. We carefully analyze every project or significant investment with detailed projections and with a focus on minimum return requirements. This includes a careful assessment of the initial investment needed to build and set up the stores as well as the cost structure, profitability and cash flow generation of the business once it is operational and over time. This culture of giving importance to returns and cost control has allowed us to grow our business profitably and capture opportunities in many different markets.

As part of our financial risk management, we minimize business risks by implementing a highly variable cost structure. These defensive characteristics help to protect the business in case of downturns, which are usually local and temporary, thus providing a solid and resilient profile. The outbreak and spread of the COVID-19 pandemic in 2020 and the company’s ability to react fast with the adaptation of the company and cost structure to the new market challenges, is an impactful example of the highly variable degree of our cost structure.

Resilient cash flow generation.

Dufry’s typically strong cash generation capacity is a combination of the company’s usually solid profitability and the low capital intensity of our business. Prepandemic and based on the 2019 business performance, Dufry would expect to further improve its cash generation capacity in line with top-line growth. Post full recovery and going forward, we are confident that cash generation capacity will continue to be one of the key drivers of our strategy implementation, and will even accelerate based on the structural measures taken.


Organic growth complemented by acquisitions

Dufry’s fundamental growth strategy continues to be characterized by a combination of organic growth as well as M&A opportunities with increased visibility on the pace of recovery. Although, the current COVID-19 pandemic might slightly delay some expansion projects from a landlords’ perspective in the short-term, travel retail remains a resilient industry on a mid- to long-term horizon, and we expect to see further growth and partnership opportunities going forward.

With respect to organic growth, the travel retail industry has the unique advantage of benefitting from a secular increase of travelers around the world and offering the great opportunity to directly engage with them. This characteristic clearly differentiates travel retail from any other retail channel. Consequently, organic growth will continue to be an important driver of Dufry’s development going forward. We will focus on driving sales through implementing best-in-class shop concepts in duty-free and duty-paid, by further deploying our digital strategy and by evolving the proven marketing and promotional activities we have used and fine-tuned over the years. Besides benefitting from additional passengers in line with regional developments, we expect to further increase our retail space, be it through expansion in existing locations or by winning new contracts in airports and alternative channels. A specific focus will be on growth acceleration in Asia, with first projects being implemented in Hainan in 2021 already, based on the JV with Alibaba Group and the collaboration agreements with Hainan Development Holdings. Specific to the US market, the scope of alternative channels also includes F&B shops, as this segment is of great importance for North America and represents a synergy potential for our existing travel retail footprint. At Dufry, we traditionally maintain a sizeable project pipeline, allowing us to grow our retail space in different channels, regions and sectors.

Offering the best retail experience for international and domestic travelers in multiple channels, Dufry currently generates about 56% of its revenues in duty-free and 44% in duty-paid operations, with both sectors continuing to offer further, substantial growth opportunities.

Long-term passenger growth remains a key driver in travel retail.

Despite the consolidation seen in travel retail over the last years, the industry remains relatively fragmented, with the top 10 players controlling just over half of the market and the remaining market consisting of small and medium-sized operators. We expect to be able to capitalize on M&A, with a focus on Asia and on F&B or by complementing our presence in other existing markets. Furthermore, the joint-venture with Alibaba Group to partner in the Chinese travel retail market is promising to drive our growth in Asia and with Chinese customers worldwide, while also accelerating our digitalization through the extensive know-how in this area, which Alibaba can contribute.

The full reintegration of our Hudson subsidiary, previously listed at the NYSE and completed in the fourth quarter 2020, will not change the overall group strategy from an operational perspective. With respect to North America we will continue to expand our footprint with duty-free and duty-paid operations complemented by airport F&B. Please find out more on the North American region here.


Long-term industry fundamentals remain strong despite short-term challenges

While in 2020 tourism and travel were heavily impacted by the spread of the pandemic, we have also seen encouraging behaviors from passengers around the world, who have resumed travelling as soon as restrictions were lifted. This is an important indication that the fundamental resilience of travel retail is unchallenged and that the industry will confirm its attractiveness as a growing retail channel featuring its own growth dynamics, which are not comparable with high street retail.

While visibility on the travel pattern recovery remains low, pre-pandemic, external industry specialists such as Air4Cast estimated global passenger numbers to grow by around 4% per annum, which translates to a potential of over 300 million new customers for the industry every year. This underlying growth potential is further increased by the development of innovative commercial concepts with landlords and brands, as well as Dufry’s acceleration of its digitalization to drive change in the way travel retail evolves. We believe that being the global market leader also means being at the forefront of this development.

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