Brisbane Airport seeks partner “with best vision for the future of duty free”

AUSTRALIA. Brisbane Airport Corporation (BAC) is to issue a Request for Proposals (RFP) for its duty free contract on 12 December. Executive General Manager Commercial Martin Ryan has released details in an exclusive interview with The Moodie Davitt Report in advance of the tender.

At stake is a ten-year concession contract, which begins on 1 February 2024. Submissions are due by May 2023. Lotte Duty Free, whose agreement was extended by two years during the pandemic, is the incumbent.

Face of the future: An impression of how the new duty free environment will look once development is complete (Image: Brisbane Airport)

The tender comes to market against the backdrop of a planned major redevelopment of the International Terminal. This will see space in the duty free departures store double in size, from around 1,900sq m to 4,000sq m.

The arrivals duty free footprint will remain around 1,056sq m. Both arrivals and departures duty free will benefit from 100% flow-through from inbound and outbound travellers, respectively.

The International Terminal upgrade is one of a series of airport projects valued at around A$5.6 billion (US$3.7 billion) in total over the next ten years. These also cover the building of a new third terminal, additional car parks, improvements to landside transport connectivity, entertainment precincts and more.

Within the International Terminal itself, security and border processing will move to Level 4, allowing retail to start upon entry to the atrium airside. The Level 3 retail area post-duty free is also being considered as part of this project, allowing for a refreshed speciality retail and F&B mix (more on this below).

Martin Ryan says that the timing is right to embark on a transformation of key services at the International Terminal.

“We now have some certainty about the future, so we are taking the opportunity to make some broader changes and move some of the services to a different level. We aim to open up retail to be something bigger and more amazing than it is today.”

He notes that BAC has high ambitions for how duty free can be developed. “We want the store to be more experiential; consumers today expect that. Also, because we are doubling space, it should not simply be about replicating the mix from the existing store in a new environment. We want it to be a place for trial and innovation. The store will evolve and the offer needs to evolve over a ten-year term.

“We are looking for the retailer that has the best vision for what the future of duty free is at airports.”

The International Terminal will undergo a big transformation over the coming four years, with capacity enhanced and more space for duty free and other commercial activities (Photos: Jen Dainer)

Potential candidates, he adds, should “think more broadly than just cutting and pasting what they have got in other locations”.

The opportunity for the right candidate is immense, he adds. “This represents a chance for retailers to explore ideas they may have for duty free but which have not been possible to execute for space or other reasons.

“We want to see something that is ‘next generation retail’ with duty free in brackets. We want to hear how they are going to retail, and the science of retail, so the concept goes much further than placing more travel exclusives on the shelves.

“As an airport company we have a view about all of this but we also want to be educated. We must have flexibility, not a concept that becomes stale. The top retailers around the world are changing based on the market and are adapting to a faster pace of retail. There is the element of seasonality, there is how they make it interesting and exciting, there is how they use digital, which itself lends flexibility. You want to make people stop along the way, to sample products and services while they are there.

“And there will be premiumisation. Brisbane may not be at the very luxury end but we want to see premiumisation that reflect our passenger mix and our city. So how all of that comes together and evolves over the ten years is really the key.”

Other retail and F&B will also be expanded and enhanced as part of the terminal upgrade (Photos: Jen Dainer)

That need for flexibility will become even more acute as the local population expands and as more visitors come. Brisbane is currently one of Australia’s fastest growing cities, with the population forecast to leap by +43% over the next 20 years. The city will also host the Brisbane 2032 Olympic and Paralympic Games, boosting its attractiveness further.

Against this background, the airport is expected to serve 50 million passengers by 2040, more than double the 2019 figure.

Ryan says: “Brisbane as a city is changing dramatically at the moment. The amount of optimism in the market, in the business community and the amount of new restaurants and bars and retail openings is quite staggering. You can see the progression that is already happening. And we need to be at the forefront of that at the airport.”

Some uncertainty remains in the post-pandemic environment as airline schedules are rebuilt and route preferences change, but some things will remain constant. Ryan says: “Geography determines much of our base. Pre-pandemic 46% of our traffic came from Australians with the next biggest group, New Zealanders, at 15%, so even if the rest of the mix changes you still have to look after that core.”

“For duty free we want a good partner that will learn and evolve. We want to get to the next level, putting out a duty free product jointly that everyone can be proud of.”

On how the contract is structured, BAC says that it will remain a concession with Minimum Annual Guarantee, but it is inviting input and fresh ideas from bidders.

“We will have a conforming structure with traditional elements but we are seeking opportunities for innovative and new thinking within that,” says Ryan. “We are open to creating the future of duty free, and part of that is the structure. We want a long-term partnership that is win-win for each of us. So we invite non-conforming elements, as these can be exciting and bring innovation, and we look forward to having those discussions.

“We are flexible. We don’t want to restrict the thinking based on a contractual model that gives a worse outcome as we deliver what we are trying to achieve.”

Room to grow: An aerial view of Brisbane Airport and the fast-expanding city beyond

That open approach, allied to the exciting growth prospects for Brisbane as location and destination, plus the expansion of space, has attracted “significant interest” in the tender from duty free players around the world, says Ryan.

The winning bidder will also be a close digital partner for the airport. With click & collect sales growing sharply pre-pandemic, storage space for this sector of the online arrivals business will grow under the new contract (even if retail space in arrivals remains as it is today).

Ryan adds: “We created our own BNE Marketplace to help retailers that were without a customer base during COVID. We have been thinking about how we maintain and extend that connection to customers between trips, not just around click & collect when they travel. We have a large domestic audience as well as international so there is a big opportunity, not only a duty free one, that will form part of our digital thinking.”

Brisbane Airport fact file 2022

Duty free opportunity:

  • A ten-year lease term, commencing on 1 February 2024
  • The redeveloped duty free departures walk-through store will double in size to around 4,000sq m
  • The duty free arrival footprint will remain at 1,056sq m

RFP key dates:

  • RFP issue: 12 December 2022
  • RFP submission close: May 2023
  • Trading begins: 1 February 2024

Capex programme (total airport)

  • Next five years: A$2.6 billion
  • Next ten years: A$5.6 billion

Passenger traffic (by end October)

  • YTD domestic passengers – around 90% of pre-COVID numbers
  • YTD international passengers – around 55% of pre-COVID numbers

Future:

  • 50 million passengers by 2040
  • 24,000 workers today, 60,000 by 2050
  • 10,000 jobs by 2032
  • 425+ businesses, 600 by 2050
  • A$8.3 billion annual economic contribution by 2041

Source: Brisbane Airport

The winner of the duty free bid will start operations in the existing location in 2024 as the terminal redevelopment begins, moving into the new areas as a phased transformation continues into 2025 and 2026.

Other retail and F&B will also be enhanced as part of the terminal upgrade.

Ryan says: “While we are upgrading and changing security requirements, we are placing retail and other services into the right area so the space makes sense, and creating new opportunities.

“We want to look at how duty free interacts with other services, how the walk-through store flows into other amenities,” he says. “You need that harmonious mix, a good blend that we don’t have at the moment. The retail mix and locations within it has room to improve.

“So as part of the plan for duty free we are showing bidders where these other areas are. It could be an opportunity for a duty free operator who wants to run F&B; we can have that conversation about how they might interact. Then once we have more certainty about what duty free looks like, it flows into other retail and F&B, which are all reaching end of lease as well.”

And even with further developments coming down the line, such as a planned new T3, the International Terminal will remain vital. “Pre-COVID the International Terminal had 6 million passengers, and it will go to 10-11 million so there is a lot of growth to come,” says Ryan. “And even as new facilities come into play we need the capacity growth to be incremental so it will remain very important.”

The city of Brisbane is undergoing tremendous population growth, with the airport set to benefit from much-increased passenger traffic over the next 20 years

Recent growth has also been robust. In the year to date, domestic passengers numbers have reached around 90% of pre-COVID numbers, with international traffic at around 55%.

Ryan notes: “The return has been even quicker than we anticipated. In January we were doing around 10,000 passengers per day, by March that was 20-30,000, in June it was 50,000 and today we’re at 60,000-plus. So it has been a rapid rise, which is great to see. We are even seeing capacity now being a little constrained, with airlines fighting to add seats and at very high load factors across all sectors, bar international. The international business remains in a ‘wake-up phase’ but everyone is very excited about the opportunity that is there.”

Summing up BAC’s thinking as its duty free contract comes to market, Ryan says: “The opportunity is enormous. The city itself is going through a quite unique period of growth and prosperity. It’s not just about the Olympics in ten years, it’s about the growth in the lead-up to that event and the growth beyond, plus the spotlight that puts on the city.

“Reflective of this, we are increasing the retail area to enable experimentation and development for what is the future of retail and of duty free retail.

“We believe we are the best partners to work with in doing that because we are open and we are not preconceived about the elements involved. If you asked any of the retailers that work with us today, I think they would rate us very highly as a partner. For duty free we want a good partner that will learn and evolve. We want to get to the next level, putting out a duty free product jointly that everyone can be proud of.”

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