flemingo diplomatic - tfwa asia pacific conference

May 2013 | THE MOODIE REPORT | 13

Inside The Moodie Report

128 Power player: We visit Hong Kong-

based King Power Group, and hear about a

planned new era of regional expansion

136 Taking flight: Flemingo Duty Free’s

rise from controversial peripheral retailer to

mainstream global force

152 Grand vision: Spotlight on

China Duty Free Group’s hugely ambitious

Haitang Bay project

158 Mission to greatness: How

Hainan Provincial Duty Free Co and DFS

plan to create a high-quality visitor

experience in Haikou

162 Putting people first: The

remarkable story of Ever Rich Duty Free

Shop’s rise, through the eyes of group

Chairman Simon Chiang

170 A new landmark: Profiling the

new Ever Rich Shopping Mall & Hotel in

Kinmen, close to the Chinese Mainland

176 Pride in progress: Ever Rich

Duty Free Plaza at Neihu, Taipei is one of

Asia’s great travel retail stores; we pay a visit

182 Russian travellers in profile:

Exclusive consumer research on one of the

world’s highest spending travelling nationalities

188 Tracking the global shopper:

L’Oréal Luxe on the challenge of China and

the strategic role of travel retail

199 Nagoya’s new face: On location

at Central Japan International Airport, where

a commercial transformation is taking place

152

136

162

(Right) Atul Ahuja; (centre) The planned Haitang Bay complex (bottom) Ever Rich Duty Free in downtown Taipei


Martin Moodie The Moodie View

to survive in a world of corporate giants; and

much, much more besides.

In a proud and defiant clarion call for

independent enterprises, Benny Fattedad says

memorably: “How big you are is just about

money. Our company is different. It’s not for

sale. We have the creativity, we have the brains.

We have the technology. We have the will and

the dedicated staff. Mergers, conglomerates

– so what? With these big conglomerates, the

boss doesn’t know what is going on down in

the shop. And the shop doesn’t know what the

management’s intentions are.”

Simon Chiang is, of course, another great

entrepreneurial character, a self-made man

whose rags-to-riches story (see page 162) is

the stuff of legend. My interview with him is

one of my favourites of recent times, a tale

that I was privileged to hear as we prepared a

special publication dedicated to Ever Rich’s

history. “We’re very different from other

companies,” he says.

“We are always thinking about how to help

the children and the poor. It’s not only about

making money. One day you are going to die,

so money is nothing.”

Simon Chiang has made plenty of money. But

the real story is what he has spent it on. If you

want a role model for Corporate Social

Responsibility, he’s your man.

The independent spirit looms large in one of

my other favourite articles in this magazine.

Caviar House & Prunier Chairman Peter

Rebeiz (page 227) is a man I have huge

admiration for. A purist in every sense, he

despises the concept of compromise when it

comes to food or service quality.

He’s also, like Benny Fattedad, a hands-on

entrepreneur, someone who insists on

putting his personal e-mail at the foot of

every one of his restaurants’ menus, so that

customers can tell him what they think –

good, bad or ugly.

Like all good entrepreneurs he’s also obsessed

with innovation. Just as he pioneered one of

the seminal breakthroughs of airport food &

beverage back in 1984 with the opening of

Heathrow Airport’s first Caviar House Seafood

Bar, now he’s doing something equally radical

with the hitherto humble (and often awful)

airport sandwich. Move over ham and cheese:

here come caviar, Balik salmon and even

oyster sandwiches, each carefully hand-

prepared for the travelling consumer. In both

taste and price-point (€20–25) these won’t be

for everybody, but in ambition and sheer

fearlessness they represent a culinary

Matterhorn compared to the great mediocrity

plateau of so much airport ‘grab and go’ food.

Atul Ahuja (page 136) is another successful

entrepreneur – but of a very different type.

Branded “habitual litigants”, his company

(Flemingo) broke down the long-standing

Indian duty free monopoly of state-owned

ITDC and opened the gates through which

a number of international rivals have since

passed. It’s fair to say that as a result of its

many legal actions, Flemingo is not the most

popular retailer in the industry – but its

accomplishments are testament to the

powers of determination, and the ability to

spot a niche.

Here’s a company, remember, that started

with little more than a retail kiosk in

Trivandrum in 2003 and which has since

expanded to 120-plus operations in more

than 25 countries, which will generate

around US$400 million in revenues in 2013,

and which is poised to be listed on the New

York Stock Exchange late next year. It’s one

of the industry’s most unlikely success

stories – and simultaneously one of its

most real.

There you have it, four very different tales

of men who carried the courage of their

convictions. Four men who, in Twain’s words,

dreamed, explored, discovered. Four men

who we get to know much more about than

we did before as a result of their candid

interviews in this issue.

I hope you’ll enjoy reading their stories as

much as I enjoyed writing them.

(Left) Caviar House & Prunier Chairman Peter Rebeiz; (Right) Flemingo CEO Atul Ahuja

136 | THE MOODIE REPORT | May 2013

Atul Ahuja is the driving force behind the remarkable rise

of Flemingo in recent years from a controversial, peripheral

player to an increasingly mainstream, global and successful

retail force. Martin Moodie met him recently for an update

on the company’s planned IPO, its 2020 vision and its

determination to become a diverse travel retailer with

interests spanning duty free, food & beverage, convenience

shopping and even foreign exchange.

Flemingogears for growth

Publisher’s introduction: Back in August 2008 I took a trip to Flemingo CEO Atul Ahuja’s ranch, an hour or so from the sprawling metropolis of Mumbai. Back then Flemingo was an enterprise virtually synonymous with court action (“We are branded habitual litigants,” Ahuja told me) but as a fascinating interview took shape it was clear that there was more to this company than first met the eye. Flemingo was going places fast and little, it seemed, would hold it, or Ahuja, back.

Back then it was a story of an entrepreneurial business that had begun with a single store in Trivandrum, Kerala in 2003 and within five years had become the operator of 45 airport shops, seven seaport stores and two land border outlets. By using the force of the law to challenge many of the impediments to private enterprise duty free retailing in India, Flemingo broke down the long-standing monopoly of state-owned ITDC and opened the gates through which a number of international rivals, including The Nuance Group, Alpha Retail (now World Duty Free Group) and Aer Rianta International, subsequently entered the country’s travel retail channel. In the process it became an unexpected bedfellow with industry giant DFS Group, a rival with whom it had previously locked horns. Now they are long-term partners in Mumbai and elsewhere.

Nearly five years on, Flemingo remains no stranger to controversy – it is currently involved in legal action in a number of locations including India, South Africa and Poland – but it has been transformed in terms of scale, professionalism and ambition. Today it operates more than 120 operations in over 25 countries and will generate around US$400 million in revenues in 2013, with a well-documented vision of reaching US$2 billion by 2020. And next year it plans a long-awaited IPO, almost certainly on the New York Stock Exchange.

Five years after that landmark interview, it was time to catch up with Atul Ahuja – not this time in India but in London, where the self-confessed workaholic was taking a rare holiday with his family.


Interview Flemingo

“For us, small is big,” says Atul Ahuja. The

Flemingo CEO is referring to the company’s

long-term strategy of picking off relatively

small concessions in difficult markets in

order to grow a large and thriving global

enterprise specialising in emergent countries.

At the TFWA World Exhibition in Cannes last year

Ahuja announced that the company was targeting US$2

billion in revenues by 2020, driven mainly by organic

growth, including the creation of several new business

channels such as food & beverage, and a probable

IPO. It will hit around US$400 million this year.

So how is the game plan developing? “We

crystallised the vision which we announced in

Cannes last year, and then we set about identifying

any gaps,” Ahuja replies. “We wanted to build a great

team first, and we have made a lot of progress – in

fact half of our top management have joined us in

the past 18 months.”

High-profile recent appointments include long-time

Alpha Retail Asia boss Paul Topping and well-known

Nuance executive Carlo Bernasconi. “And over the

next two months we have another seven or eight

additions joining that list – all great guys from the

industry with a lot of experience,” says Ahuja.

“We also went about some significant fundraising.

We closed two deals: with Albright Capital

Management for US$30 million last year, and with

China Development International Bank (CDIB) in

the first quarter of this year we raised US$20 million.

This year we will raise another US$50 million with

another fund. All this is coming into the company as

growth capital.”

But where – in a tough global market marked by

white-hot competition, feverish competition for

concessions and a scarcity of potential acquisitions

– is the growth?

“We are adept at finding niches,” says Ahuja. “We

have just secured a very nice contract in Morocco.

It’s a unique project – it was tendered by Tanger

(Tangier) Med Port [a cargo and passenger port

located about 40km east of the Moroccan city, one of

Flemingo’s duty free operation at Colombo Bandaranaike International Airport is thriving


Interview Flemingo

the largest ports in the Mediterranean and in Africa

–Ed] to build, operate and transfer two terminal

buildings on the seaport. It currently handles two

million passengers annually, but is expected to grow

to five million within three years.

“They wanted a concessionaire to build and operate

the terminal. It’s got duty free, convenience retail,

souvenirs, a travel goods store, foreign exchange, and

food & beverage including a bar and a fast food café.

“We pick out such niche opportunities, which are not

subject to the crazy bidding that you see elsewhere.”

To spot and then land such opportunities, Flemingo

has a business development team of 15 people. “It’s

a pretty large team, with very good skills,” says

Ahuja. “And it’s regional, rather than centrally

controlled. We have separate teams in several places

– for example even in Latin America, where we

don’t have any business, we already have a team

in place. So we have knowledge of everything

happening in these emerging markets. Morocco

is one such example.”

Another recent contract success is Poznan Airport in

Poland where, once again, Flemingo has been

appointed master concessionaire. It’s the company’s

third master concession in Poland and includes F&B,

a channel into which Flemingo is pouring

considerable investment.

“There are synergies between retail and F&B, and it

helps make economic sense when we bid on small

airport duty free contracts,” Ahuja explains.

Developing a masterly approach As part of its drive to become a master concessionaire with a full suite of products to offer airports, Flemingo has developed a number of new retail and food & beverage concepts.

These include Starter (pictured), a convenience food to go offer; Coffee Express and Coffee Corner.

“We are capable of bringing a complete master concession to airports that offers duty free, convenience retail and F&B, including full-service restaurants,” notes CEO Atul Ahuja.

“We’ve identified over 300 airports where this kind of master concession can work. We’ve engaged quite a few of them, and many of them are keen on working with us.”

Starter, one of Flemingo’s promising new concepts, designed as part of its master concessionaire approach


“There are many airports where the duty free is

US$3–5 million, which normally don’t show on the

radar of the big boys. But if you add the F&B and

the convenience retail, it can make a package of

US$10–15 million. So we have decided to pursue

this avenue pretty aggressively.

“Last year we won Gdansk Airport, which is a very

successful contract. Then we got Modlin – the

second Warsaw airport – where we didn’t win the

duty free but we got the F&B. And it’s more lucrative

than the duty free.

“Morocco is our fourth success in taking the entire

master concession, though there we have gone one

step further and actually taken the ownership of the

terminal building.”

Passage from IndiaBack in 2008 Flemingo was very focused

geographically on India, but today Ahuja’s native

country accounts for less than 15% of the business.

The company’s net is now spread far and wide with

what appears at first to be some odd pockets of

isolated businesses, for example in Europe.

But Ahuja insists there is sound rationale behind

Flemingo’s business development.

Travel Chef is proving a winning concept in Poland as Flemingo extends its food & beverage skills


Interview Flemingo

“Our focus is emerging markets,” he says. “From

Warsaw, for example, we expanded into Romania

and Ukraine – where last year we got a big contract

and are upgrading to a very large store in the new

airport this month. We’re all over Africa – that’s our

strong point. We’re very strong in South Asia, and

have expanded from India into Sri Lanka; we are

now going into other neighbouring countries.

“We’ve also been looking at Latin America for the

past year, and we’ve completed mapping out the

opportunities and what we’re going to go for. Brazil

is the next big step for us – we expect to win

something there.”

Such a strategy would appear to put Flemingo on a

converging course – potentially a collision course

– with a rather larger emerging markets specialist,

Dufry.

“Yes, there would be competition. They are very

strong in Latin America, very strong in Northern

Africa; we are strong in the rest of Africa – East,

West, South. We’re strong in South Asia, where they

only have small pockets.”

Putting the structures in placeHow is Flemingo managing the structural transition

into becoming a global player, albeit one focused on

emergent markets? “We have divided our

geographies into regions,” Ahuja explains. “We have

South Asia. We have Africa, which is not a country,

it’s a continent. Since we have so many projects

already there, we are splitting Africa into two. We

have the East and the South as one region. And we

have North and West, what we call French Africa,

where we now have three projects.

“We’re creating a new region, the Middle East, and

putting in some projects like Georgia, Iraq and

Yemen. We have the Latin American region on the

drawing board, which we will be rolling out soon,

when we announce a new project. We also have

Central Eastern Europe which is headquartered in

Warsaw, which is growing year-on-year.”

That performance comes in spite of the company’s

well-documented problems at Warsaw Frederic

Chopin Airport, where Baltona (of which it acquired

an 86% stake for US$9 million in 2010) was forced to

vacate the stores after the termination of its contract

in February 2012 – a decision Flemingo is contesting

in the courts.

“Despite losing I would say 30% of its revenue last

year, we were still able to grow year-on-year in that

region – and that’s because we added a lot of new

projects there,” Ahuja says.

Does he still consider Flemingo a family company?

“No, not at all now,” he replies candidly. “It’s

completely professionalised. We have a big Board,

including two independent directors, Paul and Carlo.

Then we have two observers from our private equity

funds, Albright Capital and CDIB. And we have one

private equity member on the Board. So it’s very

balanced. We have a very easy Board to work with,

and they love what’s happening.”

Both private equity partners are “completely aligned”

with Flemingo strategy, he says – with both

committed to at least six years of sustained

investment.


Interview Flemingo

Flemingo Group factfileFlemingo Group has a diversified geographical presence with more than 120 duty free retail outlets across 25 countries in Asia, Africa and Europe.

The group handles the duty free operations at 11 out of the 18 international airports in India, including Chennai, Ahmedabad, Calicut, Goa, Trivandrum, Amritsar, Kolkata, Mangalore, Trichy, Jaipur and Lucknow. It also runs seaport stores in Mumbai, Chennai, Goa, Paradip, Haldia and Mundra.

Aside from the successful joint venture with DFS at Mumbai Chhatrapati Shivaji International Airport (in which it holds a 30% stake), Chennai, Kolkata and Calicut are the major revenue-generating Indian airports for Flemingo.

In April 2010 Flemingo Group acquired an 86% stake in Polish travel retailer Baltona. Flemingo also holds 95% of the Turkey based inflight duty free company Iris Ekspres. Source: ICRA Credit Perspective

Inflight and diplomatic opportunitiesInflight is another prime focus for this increasingly

broad-based group. In 2011 Flemingo concluded a

joint-venture agreement with Turkish inflight

specialist Iris Ekspres, taking a majority shareholding

in a newly formed company. Since then plans to

create a wider inflight division have been stalled by

the bankruptcy of airline clients in Bahrain and

Ukraine, but Ahuja says it’s a matter of when, not if,

the operation really takes off. To that end the

company is currently seeking a highly experienced

duty free executive to head the division.

Generally organic growth is Flemingo’s chosen route

to market, though acquisitions will be considered if

they accelerate the route to entry in a sensible way.

“Acquisitions are not the driver for us, because they

take a lot of capital, and we’d rather spread it across our

operations where the return on capital is much higher.

Baltona was one acquisition which got us into Eastern

Europe. It was strategic and small ticket. Similarly

Iris Ekspres in Turkey was our route into inflight.”

Food & beverage, by contrast, is such a localised,

contract-driven business that acquisitions don’t

figure. “We don’t need them, and we’ve been pretty

successful in bringing in contracts anyway.”

Coffee Express: a new concept within the expanding food & beverage portfolio


Ahuja laughs as he recalls how he and fellow

directors started off the F&B business “on the back of

a cigarette pack” when Flemingo was planning to bid

in Poland. But things got serious very quickly. “We

developed a great team in Poland, and now we are

adding a central team,” he says, adding that the

company is also seeking a high-profile head for its

global F&B business.

Yet another string to the Flemingo bow comes with

the diplomatic business, a key area of focus. In Africa

it has a 10,000sq ft, five-storey outlet in Pretoria,

South Africa as well as Nairobi, Kenya. It has also

opened a diplomatic store in Accra, Ghana and

another in Bujumbura, the capital of Burundi. Two

more are under construction, one in Abidjan, Ivory

Coast and another in Dakar, Senegal.

“The beauty of these stores is that they are perpetual

duty free businesses,” says Ahuja. “So we don’t really

get into concession wars, and the market is pretty

immune to any economic ups and downs. We are

also experimenting with the online diplomatic

business, and will go full-fledged with this model

during this quarter.”

Was he disappointed that Flemingo failed to secure

any of the spoils in the recent Mumbai tenders in

India, the company’s original heartland?

“Not really, because at the costs which they went for

it just doesn’t make economic sense to us,” he says.

“India’s now less than 15% of our global business.

And for the last contract in Mumbai, I’m still amazed

as to how somebody could bid those kinds of

numbers.

“Currently we (and DFS) are doing US$44 million in

revenue, and it’s difficult to grow that by more than

about +10% year-on-year. The competition [Aer

Rianta International and Buddy Retail –Ed] bid

+60% higher than us. Our NPV [net present value]

was US$230 million; ARI’s was US$390 million. We

think they will need a US$115 million turnover in

year one, and I just don’t know how they’re going to

do it.

“Similarly in the case of fashion [The Nuance

Group], they bid at three times what we did, and we

were very hesitant to bid at all.”

But Flemingo hasn’t given up on India. It has duty free

operations in around a dozen of India’s 18 international

airports with 22 shops, and its partnership with DFS

is continuing steady and profitable progress at Delhi

Indira Gandhi International – where the alliance has

opened three luxury boutiques and is soon to open a

fourth with Ferragamo.


Interview Flemingo

Brewing up a new approach: Coffee Corner blends in well with

Flemingo’s multi-channel philosophy


Interview Flemingo

Ahuja describes Flemingo’s relationship with DFS as

“amazing”, noting that the two companies work on a

complementary basis rather than competing. “For

example, although we qualified in Bali we withdrew

from bidding as DFS was there,” he says. “It’s a great

relationship. And we’re not getting in each other’s

way. It gives us a lot of opportunity to do things

which I really would not do under normal

conditions. The beauty is that there are no set

guidelines in these markets.”

Ahuja’s view of a fast-changing global travel retail

landscape is an interesting one. He claims that

retailer desperation to retain airport concessions – or

compensate for lost ones – is driving a series of

increasingly unrealistic bids by some players. “That

means certain operators will be under huge pressure,

and you will see complete margin erosion in the

contracts… which works to the benefit of the airport.

And by now most of the larger airports have an idea

about what the concession fees and MAGs being

paid elsewhere are, so they are no longer willing to

compromise. So the days of 20% and 25% concession

fees are over. It’s all about 30% and more. This in turn

puts pressure on the brands.

“The brands always found the airport business to

be the most interesting part of the duty free

business, but now they are getting squeezed more

and more. They’re going to look at alternative duty

free channels, and we’re already seeing that

happening now. A company like Philip Morris is

very keen on looking at non-airport business as

much as airport business.

“The days of double-digit EBITDA for a contract

are gone. If you can make a high single-digit

EBITDA it would be great in an airport business. So

we are carving out a niche. For us small is big. We

don’t want to go in for very large projects, because

we don’t want to do anything where we’re going to

make no money, or take risks. We’re looking at

master concessions, which is a niche which we

have created.”

Preparing to go publicFlemingo is getting ready for its long-touted IPO,

possibly as soon as the third quarter of 2014, though

that will depend on many external factors –

including the state of the markets, Ahuja admits.

The timing isn’t certain, but the venue is – New York.

“The reason why we have selected New York is that

our company is now a multinational rather than an

Indian company, and it’s not wise for us to list in

India,” Ahuja explains. “In the US market we’ve seen a

scarcity of growth stories and a hunger for emerging

markets, and we represent both. The pockets are also


Interview Flemingo

really deep in the USA, so that’s the right choice for

us. It’s the most difficult market to get listed in, but

we’re prepared to go through the pain.”

The company is now in the right shape to take the

public plunge, he says. It has the appropriate IT,

financial and warehousing platforms, and has taken a

quantum leap in management terms. “Having so

many top people onboard is big for us. We’ve also

taken a quantum leap in terms of our

professionalism.

“Getting the right funding in place was also key. We

had multiple funding options, but we selected

strategic partners. There’s a huge value-add from

both companies – Albright is focused on the

emerging markets and CDIB is focused on the East.

“The first quarter of 2013 was very positive and

encouraging, and this quarter is also looking very

good. Hopefully there will be a major contract this

week, which I can’t speak about yet as it’s not closed,

but it would be another hundred million dollars-

plus revenue.”

All these years on from that single store start-up in

Kerala, Ahuja says he still loves every minute of

what is now a very different role. “Do you still

sleep well at night?” I ask, noting his apparent

permanent air of calm in the face of what must be

constant stress.

“Well, I sleep little,” he replies. “I start my day at 4.30

in the morning.” Finishing when? “When I fall

asleep. When your work becomes your recreation, it

doesn’t tire you.”

Where does he want Flemingo to be in five years

time? He points to a copy of an article in The Moodie

Report headlined ‘Flemingo’s US$2 billion’. “There,”

he says with a chuckle.

“We are looking at growth of about 25% year-on-

year to achieve our vision. And to get there, the next

one or two quarters are very important. They can

completely jump start us.”

The jump start, in fact, happened long ago. This

Flemingo is now set to take full flight.

Flemingo is also developing a news and books proposition for selected airports

flemingo diplomatic - tfwa asia pacific conference

Business

atul ahuja page

moodie viewto

martin moodie

howhainan provincial

flemingo duty freesrise

rich duty freeshops

caviar house seafoodbar

moodie report128 power