#3 Growth Drivers that Helped This Duty-Free Venture Transform into a Sustainable Company International air traffic has increased at a CAGR of 6 per cent over the last 10 years.
By Vanita D'souza •
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In the age of e-commerce, the only retail segment which is not worried about the technology disruption is duty-free shops. Once such company operating in this domain is INR 4500 crore worth Flemingo, which is all set to hit the stock markets next month to raise INR 2500 crore and is looking forward to give exits to its private equity investors - Samara Capital from India, Samena Capital for Middle East, CDIB Capital Group from Hong Kong, AllBright and Cardigan Ventures from the US.
Flemingo was formed by a group of four Non-Resident Indians - Suresh Bhatia, Premchand Gandhi, Mahendra Thakkar and Rashik Thakkar during the late 1990's. They were existing entrepreneurs in the Middle East operating in different segments like liquor, food and perfumes.
While finalizing their venture at the edges of Lake Tanganyika in Africa, the entrepreneurs observed a flock of flamingos around them and that's where their company got its name.
When Atul Ahuja, the Group CEO, got involved in the business in 2003 to start the India chapter, duty-free stores was hosted by Government-owned Indian Tourist Development Corporation.
However, Airport Authority India (AAI) and Tourism Government were considering privatization for airports. Sharing his experience, Ahuja says, "Privatization was a big word at that time. Bangalore and Hyderabad airports were under construction. Mumbai and Delhi were being considered under PPP mode. Our idea was that the largest non-aeronautical revenue for an airport could be the private duty-free stores. So, we requested the AAI to consider privatizing this segment."
On an experimental basis, AAI floated tenders for four airports - the three new international airports (Amritsar, Jaipur and Lucknow) and one existing international airport (Trivandrum). Flemingo managed to win the contracts.
Ahuja got 10 per cent equity for getting the business. "With every adversity that came in while setting up the business in India, it gave me the opportunity to up my stake. Within a short span, I had 100 per cent stake in the company while the other promoters cashed out from the business," he points out.
In 2006, Flemingo moved overseas through Africa and in 2010 the retailer entered Europe and today, it also set to hit the Indian stock markets with INR 2500 crore IPO.
Ahuja, in conversation with Entrepreneur India, shares three growth drivers that helped Flemingo's business model to sustain and scale up at the same time.
1. Passenger Traffic
The global air traffic grows by 2X of GDP and this is the correlation, which is established 60 years around the world. International air traffic has increased at a CAGR of 6 per cent over the last 10 years. Last year, as per Airport Council International (ACI), international traffic grew by 8.4 per cent. Emerging market has seen double-digit traffic growths. We have seen traffic in India growing by 12+ per cent.
"The airline and the airports' growth facilitate our shops. And Flemingo enjoys the fruit of that growth without much of an effort," he points out
2. Spend per passenger
This is where Flemingo actually puts an effort. 'Duty-free is free' is a marketing effort by the company to improve spends per passenger numbers which includes partner-led discounts.
"We keep adding categories of products. We keep looking at what consumers want. For example, if a person doesn't drink or smoke, we try to understand what else can we sell to him or her," he says while adding that, "So, we keep on evolving and finding a product which we can sell to consumers so that they can consume the duty-free allowance as it is very rich, which is INR 50,000 or roughly around USD 740 in India. That's how much we can, theoretically and technically, sell to every incoming passenger."
3. Square Footages
In downtown retail, growth drivers are predominately are square footages. Retailers keep adding more square footages to their business.
According to the Group CEO since Flemingo pays the maximum amount to an airport owner, they automatically become their preferred or concessioners. Additionally, if an airport can find space they'll keep on allocating or increasing their duty-free space.
