Timex Group Duty Free - TFWA World Exhibition Red Village L34

Timex Group Duty Free - TFWA World Exhibition Red Village L34

Untitled-8 1 4/10/06 19:01:11

RIDING TOGETHER

A TRUE BUSINESS PARTNER STRIVES TO MEET YOUR NEEDS

AND CHALLENGES, AND SHARES YOUR MOTIVATIONS.

AT PHILIP MORRIS INTERNATIONAL, WE ARE COMMITTED

TO REACH YOUR OBJECTIVES SUPPORTING YOU WITH TAILOR-

MADE TOOLS BASED ON MUTUAL NEEDS AND CHALLENGES.

WE CONSIDER OUR TRADE PARTNERS TO BE TRUE PARTNERS.

CONTACT YOUR PHILIP MORRIS REPRESENTATIVE TO MEET

THE PEOPLE WHO ARE DEDICATED TO THE SUCCESS

OF YOUR BUSINESS.

Untitled-2 2 8/10/06 23:44:46

^

Duty free shops have been built in many places andamid the most trying of conditions. But for hard-ship, horror, drama and ultimately triumph over

adversity, few match the story of Dubrovnik Duty Free.Having been a thriving tourist destination with a boom-ing airport through the 1980s, the beautiful city ofDubrovnik was caught up in the war that tore the formerYugoslavia apart. For 12 months from October 1991,Serbian shells rained down on the city and the littlestrip of coastline that separates modern-day Croatiafrom neighbouring Bosnia. Just 18km to the south of thecity, Dubrovnik Airport was an all-too-obvious target.Soon all that was left was a pile of rubble and a pock-marked runway.

During that terrible 12 months Dubrovnik Airport TradeDepartment and Catering Director Nik^sa Milanovic andhis family hunkered down in the village of Cavtat, closeto the airport, and thought only of staying alive amid thebombardment. “We used to clean the streets every day,”he says, “to prove to ourselves that normal life could goon, and also to defy the soldiers on the hillside, to showthem that we could not be beaten.”

Milanovic wasn’t alone among the airport duty free teamin defying the bombardment. “Many of our team are closeto my age, and there were 16 of us who started togetherin the business in 1973,” he says. “None of those peoplehad any income that year, yet they all stayed loyal to theairport afterwards, and played a part in rebuilding it, andthe shop.” As we sit in Dubrovnik’s Old Town facing oneof Europe’s most stunning coastal views, it’s hard to imag-ine that it is just 14 years since war ravaged this place. It’snot so hard to discern a strong sense of pride and achieve-ment in Milanovic as he describes how he and his team

The Moodie Report 155

October/November 2006 LUNCH WITH… Nik^sa Milanovic

In a region caught up in war, and disfigured by deprivation, few duty free shops canmatch the turbulent recent history of Dubrovnik Airport. But, far from wrestling withthe memories of the past, the airport’s commercial team, led by Niksa Milanovic, hasambitious and exciting plans for the future. Dermot Davitt joined a legend of Croatianduty free for lunch in Dubrovnik, and heard a story of true duty free heroes.

Small space,rising spend:

Dubrovnik’s newterminal will

offer 700sq mof retail, incontrast to300sq m in

today’s store

The date: 19 September 2006

The restaurant: Nautika, in the old town of Dubrovnik

The cuisine: Orada, a native Adriatic fish

The wine: Posip Cara, a dry white wine from theisland of Korcula

Lunch with…Lunch with…

Nik^sa MilanovicNik^sa Milanovic

Untitled-7 1 3/10/06 22:15:52



breathed new life into the airport after the soldiers left.

“We came back in November 1992, and the airport wastotally destroyed,” he says. “We received a table and onechair from donations, and we set about rebuilding. Wespent a month just clearing the ground and cleaning thearea. The conditions were simply awful.” In a symbol ofDubrovnik’s defiance, the first flight from Zagreb land-ed as early as December 1992, although there was noinfrastructure around the airport. That took a further sixmonths, and the duty free shop finally opened in May

1993. Stocks were hard to come by in the beginning.Because the Serb bombardment continued until 1995,few convoys risked supplying goods any further souththan Split; so staff had to organise deliveries to Dubrovnikfrom there.

The Heinemann influenceBut fate was about to lend a hand in the form of a supplyagreement with Gebr Heinemann. It’s a relationship thatlasts to this day, and explains the close bond that Croat-ia’s duty free retailers enjoy with the German company.

Croatia’s land border duty freeshops were outlawed in 1992, butin neighbouring Montenegro –Europe’s newest state – thebusiness is just finding its feet.And it is already presenting achallenge to Dubrovnik Airport.

Montenegro gained its independ-ence from Serbia in May and justa few weeks later the first borderstore, under the Alkprom fascia,opened its doors in the ex-territo-ry area close to the Croatianborder, just 15km from DubrovnikAirport. By September, when TheMoodie Report paid a visit to theborder, there were three bordershops operating under separatemanagement. At the time ofwriting two more were scheduledto open.

On the day of our visit coachparties of predominantly Frenchtourists were offloading at the

Alkprom shop. Inside, the sceneat the counter resembled closingtime at an Irish bar, with thecrowd three-deep shouting theirorders – for top-name tobaccoand liquor brands, and alsobranded fragrances.

It seems almost too good to betrue. And it is. Montenegro’sfledgling status as a nation hasopened up new opportunities forretailing, but it’s questionablewhether all of the product beingsold on the border is gettingthere through the proper chan-nels. All of the branded liquor,tobacco and fragrances on offerare being sold at less than air-port duty free prices, and most ofthe liquor and tobacco productscarry no banderoles to confirmtheir status as legitimate dutyfree goods.

But the origins of the product

don’t concern the tourists whocome here, and it’s becoming aproblem for Dubrovnik Airport.Trade Department and CateringDirector Niksa Milanovic admitsthat tobacco sales in particularhave been affected by the pres-ence of the border shops. “Theseshops are targeting touristsstaying in Dubrovnik who traveldown into Montenegro on day-trips. At the moment we can’t domuch to stop it, except to alertthe brands and hope they will acton it.

“One of our selling points is theintegrity of our product, our‘normal’ lines of supply and ourgood service, and we intend toreinforce those messages in thestore. The border business is aproblem for us in the short term,but in the longer term we willovercome that challenge.”

A new challenge emerges on Croatia’s border

In early July none of these shops on the Montenegro border with Croatia existed. Now, with cut-price brandedgoods on sale, they are proving a major headache for Dubrovnik Airport’s retail team

Untitled-1 2 27/9/06 09:14:21



“Before the war Heinemann was involved in Croatia asagent for Underberg and several other brands, and hadworked with Zagreb Airport,” Milanovic explains. “Wecouldn’t guarantee stocks and there were gaps on theshelves due to a lack of supply. That was partly a hang-over from the ex-Yugoslavia days when we had ten agen-cies all claiming they represented particular brands, eachtelling us their merchandise was the best. Partneringwith Gebr Heinemann was the best thing we could havedone, because it gave us that filter for merchandisethrough the right channels. For them 1993 was probablynot the best time to begin the cooperation, but theymade a commitment then that lasts until now. For me it’ssomething that goes beyond business.”

Milanovic is modest about his own role in rebuildingthe business, and stresses the efforts of his 21-strongteam in growing sales from zero just over a decade agointo a €7 million business in 2005. But he has been a driv-ing force in putting Dubrovnik’s duty free shop back onthe map, and is the figurehead for Croatia’s €25 million-a-year duty free trade. One of his colleagues in Croatiadescribes him as a “historic figure” in the business, whichunderlines the esteem in which his peers hold him.

But Milanovic doesn’t want to be confined to history

204,727

341,836

435,394

249,051

Source: Dubrovnik Airport; The Moodie Report

Dubrovnik Airport international passenger numbers and duty free penetration 2004–2005

� International pax � Duty free buyers

2004 2005

450,000

400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0

3.7

5.4


Dubrovnik Airport duty free sales2003–2005

2003 2004 2005

7.0

€(m

illio

ns)

7

6

5

4

3

2

1

0

14.18

15.85


Dubrovnik Airport average spend perpassenger 2003–2005

2003 2004 2005

16.08€16

€14

€12

€10

€8

€6

€4

€2

0

26.6926.47


Dubrovnik Airport average transactionvalue 2003–2005

2003 2004 2005

28.11

€29.00

€28.50

€28.00

€27.50

€27.00

€26.50

€26.00

€25.50

€25.00

Penetration= 59.9%

Penetration= 57.2%

Untitled-1 1 27/9/06 08:51:01

just yet. He has plans – big plans – for the next phase ofgrowth at Dubrovnik Airport, which will take the businessinto the next decade and beyond. The first phase of a new€25 million airport is scheduled to open in mid-2008, butthe work will mean relocation of the duty free facilitieslong before then.

“The plan is to move into a temporary terminal, currentlyused for domestic flights, on 1 January. We will have a400sq m store there until the first phase of the new ter-minal opens. That will give us 500sq m initially in 2008,and in 2009, when the terminal is complete, we will havea 700sq m shop.”

That will more than double the existing 300sq m allo-cated to airside shopping, and offers a tremendous oppor-tunity to grow the business. “We currently carry 3,800items in the shop, but we can double that in future,” saysMilanovic. “We expect to do €7.5 million in sales this year,but that could rise to €10 million in the new terminal. Pluswe’ll have a good location, which means penetration lev-els should rise. It’s not easy at the moment – at busy timescatering for 2,000 passengers in just 300sq m of space.”

Despite its wide entrance, that crowding can act as adeterrent to potential customers. Penetration amonginternational passengers dipped slightly last year, from59.9% in 2004 to 57.2% in 2005. Overcrowding shouldnot be an issue in the new terminal.

But even in the space available, the duty free team hasmade improvements that have had an impact. The biggestchange came in April this year when fragrances and cos-

metics moved from counter service to a self-service oper-ation. The effect was dramatic. From 25.5% of sales forthe full year 2005, fragrances and cosmetics accounted for36% of the business in the first eight months of 2006.

“Fragrances drive people into the store, and having themvisible at the entrance is important,” says Milanovic.“With Heinemann’s help, and support from the brands,we’ve improved the merchandising, the lighting and therange of products, plus we have a well-trained team ofsalespeople.”

The addition of make-up to the beauty range has alsohelped grow the category. A dedicated presentation areafor Lancôme and additional space for L’Oréal productsunderlines beauty’s undisputed claim as the leading prod-uct sector. Chanel Chance is the leading reference by salesvalue so far this year, followed by Dolce & GabbanaLight Blue and Jean Paul Gaultier Le Mâle. In skincare,Clarins and Clinique are the market leaders.

Milanovic is in no doubt that fragrances, and increasing-ly cosmetics, will be the category that drives growth intothe future, and will command a big share of space in thenew terminal. He also pinpoints confectionery and fash-ion & accessories as future staples, as well as the all-important destination merchandise sector, a criticalbusiness at all of Croatia’s duty free shops.



Fragrances and cosmetics 25.6%Cigarettes 25.0%Liquor 18.3%Domestic products 10.3%Confectionery 9.5%Accessories 5.5%Toys 1.9%Tobacco (ryo) 1.5%Cigars 1.3%Clothing 0.7%Travel accessories 0.1%Sunglasses 0.1%Leathergoods 0.1%Watches 0.1%Other 0.1%

Category Share of sales value


Dubrovnik Airport duty free sales by category 2005

Dubrovnik Airport’s team of beauty advisors – and anew open-sell environment – mean fragrances andcosmetics now account for over 25% of sales

SwissPremium Cigars

ww

w.v

illig

er.c

h

F in

ePipe Toba

cco

Untitled-5 1 4/10/06 16:25:18

The confectionery category is a neat example of thebreadth of products on offer in Croatian duty free shops,a selection that’s needed to cater for the broad tastesamong the many passenger nationalities. Kraft’sToblerone accounts for 35% of chocolate sales, and is theleading brand. The 200g Toblerone at €2.50 is the mostpopular item by volume, selling 7,759 pieces in the firsteight months of this year. In value terms it is more thanmatched by the 400g pack, which sold 3,918 units at€5.00 in the same period. Nestlé, Masterfoods and Stor-ck all make solid contributions from UK and Germanpassengers, while Anthon Berg and Marabou are impor-tant in snagging the crucial Scandinavian passenger base.Lindt is increasing its share of the business too, as a pre-mium brand that contributes in value rather than volumeterms. In total Dubrovnik Duty Free sold 30 tonnes ofchocolate in 2005 – seven tonnes of which was localproduct, emphasising the importance of destinationgoods to Croatia’s duty free retailers.

The pricing challengeThe wide variation in the customer base means pricing atthe right level is critical. For fragrances and cosmetics,Dubrovnik Duty Free prices roughly on a par with Frank-furt Airport and between -30% and -40% less than thelocal market. On confectionery, it prices marginally high-er, not least because matching the highly competitiveGerman domestic market would mean taking a loss onthe category. Instead, the wide range and good packagingallied to the price advantage over local outlets ensure con-fectionery is competitive, and its 10% share of sales atDubrovnik is stable.

“We want to communicate more effectively on pricewith our customers,” says Milanovic. “It’s something I seedone well at places like Gatwick, and we can do this bet-ter. We will advertise our offer more heavily, to help getour penetration levels back up after a slight drop thissummer. We already promote the value in liquor twin-packs, such as Martell 2-for-1 at €46. We want to beinnovative. For example when passengers get theirboarding cards we’ll give them a card outlining our spe-cial promotions in the store. For Benson & Hedges,that might inform UK passengers of the sterling price.It’s a question of communicating better with all our keyspending passengers.”

As well as catering to the needs of those key passengers,Dubrovnik Airport has had to begin catering to a differ-ent category of passenger in the past two years: the low-cost traveller. “This could be an important segment forus because there is the potential to retain low-cost flightsinto the winter, when the tour operators have all gone



Growing Dubrovnik’s tourist base

Dubrovnik has a long and rich history of attractingtourists, and demand has often exceeded capacity.In 1347 the government of the time built the firsthostel for visitors, which catered to tradesmen fromneighbouring countries (Dubrovnik was a republicfor many years) as well as the many pilgrims travel-ling to and from Palestine, Rome and (later) Mecca.

The pressure on accommodation has scarcely abat-ed almost seven centuries on. Although Dubrovnikcan boast 60,000 beds for visitors, it is still belowthe levels of the 1980s, and many hotels destroyedduring the Balkan war have yet to be rebuilt.

It’s one of the big challenges for Dubrovnik TouristBoard Director Vladimir Bakic (pictured above). Hetells The Moodie Report: “Although Dubrovnik isCroatia’s number one destination, it’s a small city sothe pressure on capacity is huge at peak season.We’re missing at least 4,000 hotel rooms, or 8,000beds. It’s the key problem for tourism locally. Youcan’t be efficient in your discussions with touroperators without enough beds. Without those bedsthey won’t plan flights.”

The situation should improve though, with plans torebuild 1,200 rooms in 2007. Bakic is also keen tosee a broader approach to tourism in the region.“We are mainly known for sea and sunshine, andcultural tourists to the city are also part of our corebase. But to be successful you need to provide a‘total experience’ and develop new products,whether that means selling the region as a confer-ence destination, a place for ecological tourism oradventure sports. We want to promote Dubrovnikas a place to come all year round.”

Foreign tourist arrivals are led by the French, fol-lowed by Germans, British and Italians; but there isnow excellent penetration into the Scandinavianand Russian markets, which is good news forairport retailing. “Around 80% of travellers arriveby air, so Dubrovnik Airport is a vital cog in thewheel of tourism,” adds Bakic.

Live

Coi

ntre

auve

rsia

lly. D

rink

Resp

onsi

bly.

SENSUOUSMYSTERIOUS

FLIRTATIOUS

Untitled-2 2 8/10/06 23:39:29

home,” says Milanovic. “For an airport like ours, whichwas open 331 days in 2005 but closes for almost a monthdue to lack of flights, that could be very important. Wewould also like to spread spend across the year. Current-ly we get 65% of our sales in the July–September period.

“We need to understand the tastes of low-cost passengers.It’s clear their spending levels aren’t as high as other pas-sengers, but they achieve an average spend per head of€12, so it’s still good business. It convinces me that youcertainly don’t need to differentiate too much from yourcore offer for these passengers, or create separate termi-nals. If you have good value and good presentation, low-cost passengers will spend just like everyone else.”

A story of rising spendsThat approach is reaping rewards for Dubrovnik Airport,as the key financial indicators show. Average spend acrossall passengers rose from €15.85 in 2004 to €16.08 in2005. The number of duty free transactions rose +21.6%from 204,727 to 249,051 in the same period, while aver-age transaction value rose from €26.47 to €28.11, anincrease of +6.2%.

In the first eight months of this year that growth has con-tinued. Duty free sales were €4.98 million from Januaryto August, up +4.7% on the same period last year. Inter-national departing passengers were 316,392 in the peri-od, up +5.2%. And despite the slight drop in penetration,average spend has risen to €16.76 so far in 2006.

“Things are changing at Dubrovnik,” says Milanovic.“For one, we are no longer seen just as a charter airport;50% of our services are scheduled now. The products weoffer are changing too. We will continue to offer the tra-ditional duty free categories, but it’s becoming clear thatthere is a place for accessories and luxury goods at our air-port, and we plan to exploit that in future, given thespace. We’re also learning all the time about what worksand what doesn’t, about merchandising and presenta-tion. And we’re being helped tremendously by our part-ners at Gebr Heinemann and by the brands, who knowtheir products better than anyone else.”

Milanovic, who has seen enough of the bad times in his33-year duty free career, knows that this is a good time tobe involved in duty free at Dubrovnik Airport. He is vis-ibly excited when he shows off the plans for the new ter-minal and the new store, confident in the knowledgethat the company is organised and prepared to take on thechallenge. Far from sitting back to contemplate the past,Milanovic is ready to play his part in driving the businessto new heights in the future. �



(Above) A stand-alone souvenir store underlines theimportance of local products; (centre) a broadconfectionery offer is needed with a diverse passengerbase; (bottom) promotions and multi-purchase packsare key to driving liquor sales

Documents

Timex Group Duty Free - TFWA World Exhibition Red Village L34