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The Moodie Report 41

May/June 2005 TALKING ISSUES • Sunil Tuli

Martin Moodie: You’ve had a number of store open-ings at Singapore Changi Airport in the past year.You’ve opened confectionery; you’ve opened fashion,under contentious circumstances; and you recentlywon the travel accessories contract. How has theChangi business performed for you?

Sunil Tuli: It hasn’t been easy. First of all we had a lot ofproblems with some of the major fashion brands not sup-porting us because of what we understand to be pressure

from rival operators not to come with us. So it took a whileto get the major brands, but by the middle of April we hadcompleted our last boutique. So things have improvedfrom that point. We’ve now completed one year – it’s beena long road but things are settling down.

What brands have you added recently?

The shop has Zegna, which came in quite early with us,Aigner, Paul & Shark, Celine, Porsche Design and

It’s been quite a year for Hong Kong-based King Power Duty Free Group,which has enjoyed a strong post-SARScomeback thanks to solid organicgrowth and a string of new concessionsat Singapore Changi Airport. But ithasn’t been all plain sailing, as KingPower Group Director of Merchandisingand Operations Sunil Tuli told MartinMoodie. In a refreshingly candid and attimes sharp exchange, he opened up onthe subject of an ‘equal playing field’ forretail tenders – and sent a few well-aimed volleys towards competitors,suppliers and the ‘Trinity’.

Turning up the

Power

Fashion-savvy:King Power’s roll-call of designerfashion boutiquesat Changi Airportincludes Zegna,Aigner, Paul &Shark, Celine,Ferragamo andPorsche Design.Escada joins theline-up soon

KingPower.41-55.qxd 5/3/05 9:50 PM Page 41

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Ferragamo. More will follow. By the middle of the yearwe’ll have Escada as well, again as a stand-alone area.Within the generic area we’ve got personalised fixturesfor Longchamp, LeSportsac, Dior Jewellery, and FreyWille which we’ve just launched. So we have a goodassortment of brands.

Your Changi fashion contract was for three yearswith a two-year option. Do you think you can makemoney over the initial term?

It’s difficult to say. It’s no secret that we haven’t mademoney over the past year. I wouldn’t go so far as to say that

we’ll recover all our losses; we may, we may not. If wedon’t there’s always the hope that we’ll get the extension.

What are the criteria for gaining the extension?

That’s difficult to answer and I don’t want to speak onbehalf of CAAS [Civil Aviation Authority of Singapore].One of the issues is negotiating the rent. It may be anincrease, but it doesn’t have to be. I think CAAS will lookat the economic situation at the time, the profit or the lossthe company has made, and so on. They’re very reason-able about these things. But it’s a bit premature to talk anymore about it now.

King Power Group restructures into six business divisions

Diversification has been the name of the game for Antares Cheng, Group Managing Director of the KingPower Group, in recent years.

The Hong Kong-based company has gained a number of recent newretail concessions serving domestic Chinese airports. And geographi-cally it has forged ahead with its strong Singapore Changi fashion andconfectionery contract gains of the past year.

The group has also leveraged its strengths in the travel retail businessby pushing into the wholesale and distribution business in China throughpartnerships with major brands including Cartier, Guess, Pianegonda,Agatha, Antica Murrina, Anthon Berg and Pal Zileri.

King Power Group has also broken new ground, following its recentsuccess in gaining a concession at Hong Kong International Airport todesign, build and operate an executive nine-hole golf course – the firstairport owned golf course in Asia.

Cheng (pictured left at the prestigious MIS-HIT trophy, an adeptgolfer himself) says: “Our business interests have diversified over thepast few years. The group is now involved in travel retail, domesticretail, agencies and distribution, manufacturing, investments, leisure(golf courses, spas etc), and catering. We see immense opportunities forgrowth in the region and are now focusing on each business venture.As part of the rapid expansion, I felt there was need for restructuringthe group, to prepare for the future.”

In order to accommodate the growth opportunities in the various business areas and the need to better allo-cate its resources, the group has recently reorganised into six business areas:� Travel Retail Business: focuses on the development of duty free and non-duty free businesses at airports,

seaports, in-flights, borders and downtown areas� Wholesale and Distribution Business: will develop the domestic retail market operations through partner-

ships with leading brands� Catering Business: includes both the operation of restaurants, bakery outlets and production facilities in

both Hong Kong and China� Leisure Business: includes the golf operation, massage (including Hong Kong International Airport) and

florist shops� Manufacturing Business: to set up facilities for both the energy related and raw material processing� Investment Business: to identify new business opportunities either through direct investment or joint ventures


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46 The Moodie Report

TALKING ISSUES • Sunil Tuli May/June 2005

But there’s a big difference between a three-yearcontract and a five-year one…

There is. But when you make such a bid you normally cal-culate it on the basis of three years, not just by hoping foran extension. Everybody goes in with their eyes open.Everybody knows what they’re doing.

You have been a staunch critic of the bidding systemin the past and you’re also on record as saying youdon’t think it will ever change. But your critics saythat King Power itself overbid for the fashion con-tract at Changi. Did you?

No. I once said that the people who decide a bid is anoverbid are the people who lose. And that’s the case atChangi. I could say that about all the bids we have lost,but I don’t.

If everything had been the way we had wanted it to be, interms of opening the shops with all the brands we hadwanted – which had actually given us letters of supportearlier but then withdrew their support – then thingswould have been OK.

You didn’t see this coming?

No.

Are you surprised by how hardball your rivals haveplayed?

I shouldn’t be. I have been in the business long enoughto know some of them well. But it did catch us off guard.

Presumably though you would play equally hardballif the circumstances were reversed? If you enjoyed aportfolio of relationships around the region (as yourrival has in this case) and invested a lot behind thosebrands, would you not expect the support of thosebrands?

No.

Why not?

First of all, because our offer is in a completely differentterminal [from our rival’s offer]. The passengers are dif-ferent, the airlines are different – there is no competitionbetween one terminal and another.

Secondly, I’m not sure it’s correct to deprive passengersof certain brands because they happen to be flyingthrough one terminal and not another.

When you make that point to the brands – that yourproducts are simply not being offered to the travel-ling public in Changi T1 – what do they say?

There is always an excuse – that they’re not ready for it,it’s not the right time… whatever. They don’t come outand say officially why they’re not supporting us. Unoffi-cially we know.

Sunil Tuli: “Thepeople who decidea bid is an overbidare the people wholose. And that isthe case at Changi”


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I guess they look at the picture on a global basis. Andthat’s why when people talk about the tender processthey also have to talk about the different levels of supportthat different suppliers give. They do not make it a levelplaying field.

You’ve heard suppliers say on many occasions thatthey should be part of the Trinity – that they’re thevictim of the tender game. But you’re saying they’renot always innocent parties?

Not always. The supplier sells his product to the oper-ator and it goes out to the consumer. The airport author-ity is getting either guarantees or variable rents. If thingsgo wrong the only one who loses money is the operator.

Except the suppliers would argue that the margindemands on them are often severe because of the guar-antees you pay – and offer to pay with your eyes open– which makes it difficult for them to make money.

Absolutely right. But the supplier doesn’t lose money bynot selling to you. He’s only selling to you at a certainprice because he wants to.

Well not really – he’s got no choice if he wants to belisted. So he has to either play the game, by yourrules, or not be in it.

If you’re not listed you don’t lose money. Whereas ifyou’re listed, and you’re losing money, the more you sellthe more you lose.

But that’s like saying ‘You will face unacceptableconditions or you won’t be part of the offer.’ That’snot much of a choice for brands!

No, it’s not, but on the other hand do suppliers give thesame deals to every operator? Why is it that one gets 60%and another gets 50% for the same contract? Who’s cre-ating that? Not the operator. Of course the operator willask for more, but it’s your choice to say yes or no.

But retailers are not much good without the brandsare they? And you’ve already highlighted that withfashion. TFWA President Erik Juul-Mortensen saidat the recent ACI conference that brands are thelifeblood of the industry: that without them theretailers and the airports are lost. Are concessionairescreating an unacceptable cost of entry?

This whole debate as to who’s at fault and the whole formation of the Trinity – with the retailers blaming the

suppliers and the suppliers blaming the retailers and everyoneblaming the airports – has been going on for a long time…

…you told Doug Newhouse recently in Travel RetailBusiness that the whole thing had become boring.

Let me explain that. I think it has been misconstrued.First of all I support the Trinity – let’s make that clear. Isupport the fact that retailers and airports must worktogether. I have always said that suppliers and retailersmust work as partners, not just as sellers and buyers.

I support the concept of Trinity. When you did the Trin-ity Forum two years ago you [and others in the industry– Ed] came up with the White Paper, which was good –but it was nothing new. You simply put together thethoughts of all the parties.

For years I had discussed these subjects at my old com-pany Weitnauer [now Dufry] with a former executiveclosely involved in the ACI tender code, Guntram Bren-del [now sadly passed away – Ed]. At last year’s Gate Oneconference in Singapore I said similar things. The tendercode is something that just cannot be enforced.

Can you imagine ACI going to a government in, say,China or Vietnam or Russia or South Korea, and sayingthat tenders have to be on the basis of a code?

I don’t think ACI is going to say that. In its responseto the White Paper, ACI is saying it will champion acertain set of principles and promote them. You arequite right that no-one can enforce a code or set ofguidelines on either private or public enterprise.

That’s what I’m saying. I don’t say it’s wrong – I just don’tsee it happening across the board at every airport. Theother thing that upsets me – and it did at Gate One in2004 – is that, just as the debate is warming up, it’s ‘time’sup’. You need a day to talk about these issues and try toresolve them.

The Trinity should not just be about the tender code. It’sjust one of the elements. The Trinity should talk abouttaking the industry into the future, and I believe that’s whatyou are doing in September [at the Trinity Forum 2].

So when I said ‘boring’ I meant we’re not making anyprogress. You can sit in conference after conference. Iread that a Recommended Best Practice Charter hasbeen recommended by the ACI – that’s great news, butwhat has happened in real life? What airport has said ‘Yes,we will follow this code’? Which supplier has said ‘We


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will make it the same rules for all retailers, regardless oftheir size or our relationship?’ Which operators havesaid ‘We will work within these rules?’

A particular operator may bid high(not overbid) for many reasons.Maybe it doesn’t aim to make aprofit, maybe it’s for strategic rea-sons and it wants to enter a certainterritory. How do you stop all thatfrom happening?

You don’t. But the supplier per-spective on all that is ‘Go ahead ifyou must – but don’t expect us tofund it.’

Let me tell you something. My former company [Weit-nauer, now Dufry] ran large concessions in Singapore air-port for many years. I never once met a supplier who saidthat we were asking them for too much. Most wantedmore space and exposure, and wanted to put more moneyinto promotions.

We put in a joint bid with another company many yearsago for the liquor and tobacco concession in Singapore[Weitnauer and Aldeasa – Ed]. And before we bid we wentaround the UK meeting suppliers of liquor and tobacco.I remember a leading executive at UDV [now Diageo] say-ing to me “I’m glad you’ve come to see me before you putin your bid, because we can agree anumber and I’m going to stick to it.If you want to go over that don’tcome to me after the bid and saythat you’re losing money and thatyou need more support.”

So I think the correct way of goingabout it is to talk to your suppliers,agree on the figures and then put ina number. I think a lot of the opera-tors have been doing that for a while.

Do you think those within theTrinity who are saying the con-cession model is busted, that it will never work andthat owned retail is the way forward – the RandyEmch/Brian Collie school of thought – are right?

In certain circumstances, for example Dubai, yes. They’resuccessful – they own the airport and they own the retail.

Why can’t other airports follow the same model?

Take out the middle man – the concessionaire…

Because you’re taking out the operator that has theexpertise to do the business. Clear-ly, in the case of BAA, it has theresources to go out and buy theexpertise and buy the business[World Duty Free] and run it them-selves. How many other airports cando that? Can you imagine DelhiAirport doing that on their own?Or Bombay Airport or Ho ChiMinh City?

If airports start talking about own-ing their own retail you are knocking out the operator andlimiting competition because there won’t be a tender.

What’s so wrong with that?

So there’s no tender, no free market.

It’s their real estate. You don’t have to have a freemarket on your own patch…

Because they don’t have the expertise. You, Martin,have an office in a building. Why are the owners of thatbuilding not running something called The MoodieReport? Because they don’t have the expertise. It’s aspecialised industry, like airports.

Fair point, but I think the argument would run some-thing like this: that instead of the airport which ownsthe real estate and controls the passenger flows, thedesign of the airport and so on being at odds with athird party, all their interests are instead tied up as one.

Why limit it to duty free? You’re saying that the airportshould run retail, food & beverage outlets, car parks,



“I never once meta supplier who

said that we wereasking them for

too much”

King Power’s newChangi confectionerystore was renamedChocolate, Confectionery& Delicatessen in linewith its upmarket image.“We’ve done a lot ofrebranding andpersonalisation and nicelighting so it very clearlylooks like a fun chocolatestore – it’s working outreally well”




money changers, hair-dressing salons and so on becausethey control the airport. Airports are meant to take pas-sengers through, give them all the facilities and services,put them on the plane or clear them. That’s what airportsare supposed to be doing – not running commercialactivities such as retail.

Maybe that was the case in the old days when70–90% of airport revenues might have come fromaeronautical fees. Typically that ratio is now tippedmuch more towards non-aeronautical revenues. Thatvery significant growth – and share – of commercialrevenues has changed the position.

But the rental revenue in airports will be much higher ifthey open it up to tender rather than give it to their owncompany. It’s for the market to decide the price.

So you don’t see the era of the concessionaire beingthreatened by the evolution of the owned model?

No. While some airports want to do it on their own, evenin my region, they may change the overall arrangementbut they will always go ahead with an operator.

Advocates of the owned (or controlled) model pointto the industry’s success stories – Heathrow, Dubai,Abu Dhabi, Buenos Aires. In all those cases the air-port and its retailer work almost as one, on every-thing from announcements to signage to flow. Theretailer is not having to cope with the fact that retailis a secondary business, it’s core business.

No it’s not. In Dubai or Abu Dhabi it is, but in Heath-row it is not because BAA doesn’t own all the retail. Itonly owns the duty free. There are 100 other retailers.So why is someone saying that you have to be a specialistretailer as opposed to a generalist retailer? Which iswhich? Everyone is a generalist retailer.

Airports can either take over as generalist retailers –which is what Dubai is doing – or you have someone likeBAA which only gives one part of it to a specialist ownedretailer – selling liquor and tobacco and perfume.

So, no, I don’t see retail concessionaires being knocked out.

What about when you look at airports such asBAA’s in Scotland or Heathrow T3 where the storeshave been rebuilt as walk throughs? You can’t missthem – could a concessionaire have asked for that?

It depends on the authority. What about Sydney? It’s got

walk through, yet it’s got a concessionaire [Nuance].They’ve done the same at Melbourne. It all depends onthe relationship and how much the airport wants to sup-port commercial activities. Look at Changi – the CAASis very flexible, supporting the operators in anything rea-sonable they want to do. Look at Hong Kong: it’s beendesigned for retail.

Moving on, do you feel that suppliers belong in the Trin-ity? Aer Rianta International–Middle East’s John Sut-cliffe, for example, has argued that suppliers are toochoosy about when and where they support the retailers.

I agree to a certain extent. Suppliers pick and choose. Andthat’s one of the reasons working against the Trinitybeing a success – the different treatment given to differ-ent operators and locations.

But I do think they should be part of the Trinity. As Fab-rice Weber from Estée Lauder said at the first TrinityForum, the shops are there because of the products theysell. That’s clear. But we and they need to understand onemore thing – that the products are being sold in theseprime locations because the shops are there. It’s the oper-ators who get these shops at these very expensive, veryhigh-profile locations. There’s a certain value for suppli-ers in having their products in these shops. Everyonewants to be there, which is why they pay the price.

Let’s talk about your Changi confectionery stores.This was comparatively new ground for King Powergroup. You’ve changed the offer and the shops quitea lot since you opened. You’ve re-branded from ‘TuckShop’ to ‘Chocolate, Confectionery & Delicatessen”.What was behind that move?

The shops have worked well from day one. Remember,from the day we were awarded them we had three weeksto start up. Which at a new airport, with new productsand staff to be hired and so on, is not easy. But we did it.

When you do something like that it can’t be perfect. Wehad very basic generic fixtures and the shop turned outto be a lot more upmarket than the name. We changedthe name because it was not really the image we werelooking for. We’ve also done a lot of rebranding and per-sonalisation and nice lighting so it very clearly looks likea fun chocolate store – it’s working out really well.

It’s another ‘three plus two’ contract. Are you mak-ing money?

We’re doing all right.


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How all right?

(Laughs) Would you like me to give you our P&L?

You can! Seriously, I think it’s a fair question to aska retailer whether they are making money from acontract, given all the fuss over the unsustainabilityof so much bidding.

We are happy with our sales growth. We are happy withour location. We are happy with the support we get fromour suppliers. We are happy with the product mix andwith the brands we have brought in. I think it’s the firsttime Changi has seen such a wide range of international[confectionery] brands.

We’re happy with the traffic. But we obviously wantmore business. Especially from the delicatessen area.We’ve been concentrating on confectionery until now,but you’ll see some changes to our delicatessen before theSingapore show [TFWA Asia Pacific].

You touched on an important point there. The Changiconfectionery offer [under former concessionaireSwizzle] was historically not very branded. The shopslooked enticing but you didn’t find a big internationalbrand selection. Should the confectionery offer bedriven by the leading international brands?

I think it should. Firstly, people know the big interna-tional brands. You buy what you know – it’s not just aquestion of buying cheap. Secondly, and very impor-tantly, it’s in the contract with the airport authority thata certain percentage of your product mix will be majorinternational brands. We have made a commitment tothe airport that we will do that. We are sticking to it –and it’s working.

You seem to have set out your stall in Changi as beinga key location for the group. You’ve gone hard afterthree contracts there. Will you go after liquor andtobacco, which may be the big tender this year?

We’re interested, definitely.

Let’s look at King Power’s overall duty free business.What sort of shape is it in?

King Power generally has very good operations. We’revery healthy in Macau – downtown, airport and ferry; andwe’ve got a good joint venture with King Power Travel-er to run the Air Macau and Thai Airways business.We’ve also got our business in China (see page 43).

What retail business does King Power have inChina today?

We have Shanghai Pudong Airport – general merchan-dise both landside and airside – trading as Orient KingPower. That’s doing well. We also have a number ofother supply agreements. And there is King Power Japan.

Where will your growth come in retail terms? Will itbe organic or acquisitional?

Most of it will probably come from within the business. Thereason for that is that we have some great locations whichwe need to concentrate on. One of the key factors in thedevelopment of duty free in the region is the growth in out-bound Chinese. All of us – not just King Power – have tobe sure we’re ready for them. So I think a lot of our growthwill be catering to the outbound Chinese, either fromexisting business, or from business we bid for or acquire.

How long have you been in duty free, Sunil?

Nearly 21 years. I joined ITDC in 1984 as Deputy Gen-eral Manager running the five major airport shops in India.I joined a joint venture in Singapore in 1991 called ScottsWeitnauer which was wound up in 1995 due to share-holder issues. Weitnauer had nothing in the region thenbut wanted to stay so I was asked if I would help developtheir business. We got the major perfumes & cosmeticsstore in T1 as well as a men’s accessories store, and westarted electronics which is now so important in Changi.

We took Weitnauer to Vietnam. We did a managementand supply contract with Imex. We did retail business inBali and Myanmar and a lot of distribution businessaround the region. I came to King Power two years ago.

How do you see the state of the industry today?

The state of the industry has improved sharply over thepast year – it had gone through a hell of a lot. Things havestabilised. Hopefully, if the path to growth continues, theindustry will be very successful. People are travelling, theworld is becoming an even smaller place. The prospectsare good – and I hope to be around for a while and con-tribute my bit to the industry.

(Laughs) You are without doubt the industry’s pre-eminent influence in Asia Pacific.

I’d like you to print that, Moodie.

Sorry… I can’t. �


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ABC - The Moodie Davitt Report · Peter Cincotti, Singer/Pianist, presents Ermenegildo Zegna:Reversible Nappa Cabrio Jacket and Highway Sneakers ABC Moodie_170x225 EZS1 …