Grow profitably and create long-term value
It only took slightly more than a decade for Dufry to emerge from a small company with CHF 950 million turnover to the leading player in travel retail, an industry with a turnover of USD 69 billion in 2018. Our leading position today with CHF 8.7 billion turnover is the result of remarkably rapid expansion. Through a combination of organic growth and acquisitions, we have reached a market share of 13% in travel retail. And when looking more specifically at airport retail, which accounts for 90% of our business, we increased our share from 3% in 2005 to over 20% today.
Focusing on customer experience and retail excellence generates value for all stakeholders
Dufry, and travel retail in general, is at the center of three very important and distinct industries: retail, travel locations and consumer goods. Addressing the different requirements of our stakeholders and aligning their respective interests is critical in order to generate value for all. Our approach can be summarized in a simple way: we focus on offering the best services to our customers.
This clear focus ultimately creates a winning formula for all stakeholders: to customers, by providing an unrivalled shopping experience, to suppliers, by showcasing their brands to a fast-growing group of affluent customers, to landlords, by fully exploring the commercial potential of a travel location and to shareholders, by creating value through generating cash and profits.
For our customers, we aim to create memorable shopping experiences by constantly improving our shops and developing best-in-class retail formats, and by implementing innovative cross-channel marketing initiatives. Our team of sales representatives will always receive travelers with their biggest smile, introducing them to the world of travel retail and providing them with detailed product information – increasingly supported by digital technology.
Equally important for Dufry is to offer travelers an unparalleled sense of place: This includes local product offerings, as customers 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 well-known assortment of global brands and products with a special local touch which differentiates our shops worldwide, wherever they may be – at airports, seaports, ships, railway stations or borders – and irrespective of whether they are duty-free or duty-paid. A selection of our main retail concepts can be found here.
Providing memorable experiences.
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 and through external research. We constantly track customer behavior at our shops and use our market insights to continuously fine-tune our offering and not only match but exceed the expectations of our clients.
To suppliers we offer access to the largest footprint in the ever more attractive travel retail channel, through our more than 2,300 shops in over 400 locations in 65 countries. Our shops offer suppliers an unrivalled worldwide window display to promote their brands and products to an affluent consumer segment.
Dufry works closely with brands to offer customers a unique product selection at the best price, giving special attention to novelties, exclusives and limited editions, which make the channel even more attractive. Please find out more in the Focus Story.
Landlords get the highest productivity from their retail areas, maximizing their revenues when working with Dufry. We offer a full range of retail concepts which are adapted and customized to the specific location. Moreover, Dufry provides access to the most comprehensive portfolio of global and local brands. In a nutshell, landlords benefit by optimizing their overall business and by offering attractive commercial spaces to their passengers.
Geographic diversification to maximize opportunities and mitigate risks
Dufry is today not only the market leader in travel retail, but also by far the most diversified player in the industry with operations in 65 countries on all six continents. Geographic diversification is of key importance to our strategy for a number of reasons: first, it is the best way to benefit from the ever growing number of travelers worldwide; second, as a global organization,we can efficiently develop new business opportunities anywhere; third, major global brands can offer their products via a truly global travel retailer and fourth, it is a very effective approach to mitigating risks.
Diversification remains a key aspect of our strategy.
Our global presence allows us to quickly and better evaluate new projects almost anywhere, capitalizing on the expertise of our local teams. This local perspective helps us to accurately evaluate opportunities, gives us a clear understanding of the local market characteristics and allows us to closely collaborate with landlords and other local business partners to effectively develop new businesses.
Moreover, being geographically diversified considerably mitigates risks generated by external impacts in single markets or regions. This diversification is best illustrated by the share of individual concessions in the Group. With the largest concession accounting for around 7% of our business, and with the ten biggest representing less than 35% of 2018 sales, Dufry has limited its exposure to single contracts. Ultimately, geographic diversification is key to offering our brand partners a fine-meshed network of locations and shops, which allows them direct engagement with a growing number of customers through a window display in any given mature or emerging market.
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 store as well as the cost structure, profitability and cash flow generation of the business once it is operational. 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 usually are local, thus providing a solid and resilient profile.
Resilient cash flow generation.
The combination of Dufry’s solid profitability and low capital intensity results in a strong cash generation. With the current size of the Group and the full implementation of our business operating model, we expect to further improve our cash generation capacity.
Dufry’s growth path going forward
Supported by the growth of passenger numbers – the most important driver of our business – organic growth will continue to be an important driver of Dufry’s development going forward and we will focus on driving sales through the implementation of best-in-class shop concepts and new digital technologies, which will be complemented with proven marketing and promotion activities that we have used and fine-tuned over the years. Furthermore, we expect to grow through additional retail space, be it through expanding in existing locations or by winning new contracts in airports where we don’t currently operate or in other channels.
At Dufry, we traditionally have a sizeable project pipeline, allowing us to grow our retail space in different channels, regions and sectors.
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 being covered by small and medium sized operators. We expect to be able to capitalize on M&A with small and mid-sized opportunities that may arise, with a focus on Asia and the Middle East, or with bolt-on acquisitions that complement our presence in existing markets.
Offering the best retail experience for international and domestic travelers in multiple channels
Dufry currently generates about 61% of its revenues in duty-free and 39% in duty-paid operations with both sectors continuing to offer substantial growth opportunities.
On the duty-free side, the airport channel is expected to continue to be the largest and fastest growing part of our business. We see additional potential in further developing the cruise ship business, duty-free border shops and downtown duty-free in selected markets.
Passenger growth is a key driver in travel retail.
The duty-paid sector has considerable development potential in airports as well, since the expected growth of domestic passengers is similar to the one for international travelers. Furthermore, this sector is even more fragmented than duty-free, thus offering attractive new expansion opportunities.
We continue to actively foster the expansion of our successful duty-paid retail concepts, Hudson and Dufry Shopping, which have already been implemented in several markets and which have the potential to be deployed further. Hudson is a well-established convenience store concept that has been very successful in North America over the past 30 years and that we have deployed in 17 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 that targets 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 was opened in 2017 at Las Vegas McCarran International Airport. Based on the positive results with 8 Dufry Shopping locations in 2 countries so far, we are convinced that this concept can be successfully rolled out to other markets globally.
Our strategy is supported by strong and resilient industry fundamentals
Travel retail is a fast growing industry driven by ongoing growth in traveler numbers. The increased demand from passengers to travel is the reason why this attractive retail channel keeps growing and displays different dynamics to high street retail.
Global passenger numbers are currently expected to grow by at least 5% per annum, which translates to a potential of over 400 million new customers for the industry every year. Industry specialists expect this trend to continue, thus providing a resilient driver for travel retail going forward. The growth potential is further increased by the development of innovative commercial concepts with landlords and brands. Dufry’s ambition is to deliver excellence in execution while driving change in the way travel retail operates. We believe that being the market leader also means being at the forefront of this development.
Seizing the opportunities digitalization brings
As in the case with many other industries, digitalization is changing the way business is done in travel retail. At Dufry, we are excited about the possibilities and opportunities that new technologies offer. Therefore, digitalization is a key element in our strategy going forward.
For Dufry, digital technologies are tools, which support and evolve a strong business model to the next level, to continuously improve our offer to the travelers we welcome in our shops. As customers come to our stores, while they are waiting to board their plane or train, or while they enjoy their stay on a 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 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 communicate with our customers, how we sell products, and how we organize our processes internally and in the value chain.
Capitalizing on digital opportunities.
Specifically, this means that we will be further increasing personalized communication with customers at home, during their whole journey, and in particular when they are at the airport close to our shops. We are also digitalizing the shops to increase conversion rates and to simplify in-store processes, such as product consultations, payments, individual promotions etc. Lastly, we will further improve customer service and individualize product offers for specific customer profiles.
These sections might also be of interest to you:
More about Dufry
Learn more about the Dufry group in more depth: