Profitable growth and global footprint
Dufry’s strategy is to grow profitably operating its own travel retail shops globally with a portfolio diversified by geographies, sectors and channels. Our operations cover both the duty free and the duty paid environments, benefiting from the large number of passengers traveling internationally and domestically. Through a combination of organic growth and acquisitions, Dufry has become the undisputed leader in airport retail having a market share of over 20% globally.
Retail excellence for Customers, Landlords and Suppliers
Travel retail is a fast moving and growing industry driven by ever changing customer expectations, which we address with a broad range of retail concepts and continuously develop and refine. We aim to offer retail solutions for landlords in every travel location be it airports, seaports, railway stations or border shops. Ultimately, the goal is always the same: we want to offer a memorable retail experience for our customers by combining the sense of place of any location with the international appeal that any travel locations has. Hence, we ensure that our shop designs reflect local cultural characteristics and have an individual appearance. In order to offer customers the right products, create the right retail concepts and provide an excellent service, it is Dufry’s priority to understand the customer and their buying habits through business intelligence. This information is the basis to refine concepts, adapt assortments and to structure passenger flows with a view to achieve two goals at the same time: providing customer satisfaction and make the available retail space more efficient to maximize sales.
On top of Dufry’s well-known retail capabilities, the acquisitions of Nuance and World Duty Free contribute further to enhance our skills by combining the expertise and know-how of three major players in the industry. This excellence in retail will be an important asset creating added value for Dufry, and in turn for our landlords and suppliers alike.
Geographic Diversification to maximize opportunities and mitigate risks
Geographic diversification is one of the most important aspects of our strategy as it is the best way to benefit from the global opportunities provided by the ever growing number of travelers worldwide, a key driver for growth of the travel retail industry.
Dufry’s global footprint with operations on all continents allows us to better and quickly evaluate new projects wherever they arise, as we already have local teams almost everywhere. Having an own team on the ground gives us a clear understanding of the local market characteristics and to closely collaborate with landlords and other local business partners to best develop new opportunities. Furthermore, Dufry is also the only true global travel retailer, with a clear organization that links global headquarter and central functions with divisions and the countries where we operate. This setup grants us a substantial efficiency potential, as we can combine the benefits of global central functions and global standardized process creating economies of scale, while still keeping the proximity to the customer and landlords at local level. Moreover, being geographically diversified considerably mitigates risks generated by external impacts in single markets or regions. This risk mitigation effect is best illustrated by the share any individual operation has on the total Group. With the largest concession accounting for about 6% of our business, and with the ten biggest ones representing less than 25% of sales, Dufry has no significant exposure to single operations. The defensive nature of our business is further enhanced through the highly variable cost structure, resulting in a solid and resilient business profile.
Priority on organic growth and focus on returns
In the ten years from 2006 to 2015 Dufry has grown with an average annual top line growth of 21%, to which organic growth contributed 5%, while acquisitions added 16%. While our basic strategy of profitable growth continues, organic growth will play a more important role going forward. Supported by the increase of passenger numbers, we will focus on increasing sales through the implementation of attractive shop concepts and new retail techniques. We also expect to grow through additional retail space, be it by expanding in existing locations or by winning new concessions in further airports or new businesses. Dufry currently generates 63% of its revenues in duty-free and 37% in duty-paid operations and both sectors continue to offer growth opportunities. Dufry traditionally features a strong project pipeline, which has allowed us to increase retail space in different channels of both sectors. While the duty free business at airports is expected to continue to be the largest and fastest growing part of our business, we do see additional potential by further developing airport duty paid business or also in duty free border shops, downtown duty free as well as the cruise ship business in selected markets. The duty paid sector has a considerable development potential as well, since the expected growth of domestic passengers is similar to the one for international travelers. Furthermore, this sector is still unexplored and even more fragmented than duty free, thus offering attractive new expansion opportunities.
One of our main initiatives is the international roll-out of our successful retail concepts, Hudson and Dufry Shopping, which today are implemented in specific regions and which have the potential to be deployed on a world-wide scale.
Hudson is a well-established convenience store concept that has been very successful in North America in the past 25 years and which we have deployed into 15 countries so far since 2009. Dufry Shopping is a duty paid concept that offers a high quality assortment of international brands in an exclusive setting, similar to a duty free travel retail store, but in a duty paid environment targeted to domestic passengers. We pioneered Dufry Shopping in Brazil where we have achieved strong results and based on this positive experience, we are convinced that it can also be successful in other markets globally.
With respect to acquisitions, Dufry has been the industry’s most active consolidator. As a result, Dufry Group has become the largest travel retailer, not least because of the Nuance and WDF acquisitions done in the last two years. For these two acquisitions the goal is the same as to previous transactions done in the past: create value for shareholders by improving the business and creating synergies. As the travel retail market is still fairly fragmented, acquisitions will remain a growth component of Dufry’s strategy, albeit the contribution will be more moderate going forward as potential targets are likely to be small or mid-sized businesses. We will continue to assess potential targets with a focus on Asia and Middle East or bolt-on acquisitions that complement our presence in existing markets. For any of its growth opportunities, be it organic or acquisitions, Dufry applies a disciplined financial approach. We carefully analyze every project or significant investment with detailed projections and with a view on investment returns. This implies that not only the original investment needs to be carefully assessed but also the cost structure and profitability of the business once operational. This culture of focusing on returns and cost control has allowed us to grow our business and to capture opportunities in many different markets.
The combination of Dufry’s solid profitability and the low capital intensity results in our proven and strong capability of generating free cash flows. With the current size of the Group and post the full integration of both acquisitions, we expect to be the most efficient travel retailer and our cash generation capability will be second to none in the industry. As a consequence, we expect to deleverage quickly, which will give us strategic flexibility in the future, to drive further growth and to return value to shareholders, who have been greatly supporting the company in the past years.
Our strategy is supported by strong and resilient industry fundamentals
The travel retail industry has seen strong growth and has more than doubled its size in the past decade. The fundamental driver of this performance is the growth in passenger numbers, which has been showing a steady increase year after year. Industry specialists expect this trend to continue, thus providing a resilient driver of growth for travel retail going forward. As airports need to further develop their offering and optimize their revenue mix in order to attract airlines and passengers, the development of their commercial offering plays a crucial role. Dufry plays an important part in this trend as we hold the tools to maximize commercial space revenues of our landlords, be it airport operators or other facility owners. On the supplier side, structural growth of travel retail is a very attractive feature for global brands, which attribute to travel retail an above average growth potential. Besides the pure commercial aspect of generating additional sales, the opportunity to present their brand products in a unique window display across the globe generates additional value to them. Thus, positioning themselves in the travel retail market is a priority for many brands, and they have extended their activities by providing special travel retail editions, and to use travel retail to present novelties, both of which add in turn to the attractiveness of the channel. Overall, the travel retail industry will continue to see a dynamic development, which will be supported by sustained growth of passengers, and developing innovative commercial concepts with landlords and brands alike. Dufry’s ambition is twofold – capture the market growth and also reflect the industry leader position by excellence in execution and driving change in the way the travel retail industry operates.
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