SOUTH KOREA. Entas Duty Free and SM Duty Free have been awarded the concessions to run the first arrivals stores at Incheon International Airport.

SM Duty Free will run two shops in T1 and Entas Duty Free the single T2 store.

Incheon International Airport Corporation (IIAC) Senior Manager/Duty Free Management Team Ms Sul-Hee Shin told The Moodie Davitt Report that the initial concession period is five years with a five-year extension dependent on negotiations between the IIAC and the two retailers.

Contracts are expected to be signed in early April, with construction and operation preparation taking place through April and May. The shops are due to open on 31 May.

As reported, nine retailers tabled offers for the T1 concession (two shops) and T2 contract (one shop), generating a total of 14 bids. Under South Korea’s dual-assessment system, Korea Customs Service (KCS) evaluated the bids after IIAC’s initial ranking of two companies for each concession.

(Above and below) Entas Duty Free already runs the new duty free store at the magnificent Paradise City complex near Incheon International Airport.

The T1 arrivals store contract reinforces SM Duty Free’s existing departures presence at the airport.

Bids on the arrivals shops contracts were tabled at Incheon International Airport Corporation (IIAC) headquarters on 14 March; now Korea Customs Service will evaluate the IIAC selections to determine the winner of each contract.

How the arrivals contracts were judged

Incheon International Airport Corporation (IIAC) first assessed bids on the basis of a 60% weighting for the business (technical) plan and 40% on the financial proposal. Under the country’s controversial two-tier judging system, the corporation’s results were then handed to Korea Customs Service for a final evaluation and choice of winners. The final candidates will then negotiate terms with IIAC before contracts are signed.

In a critical change, introduced by Korea Customs Service on 1 February 1, IIAC scoring counted for just 250 of the final 1,000-point rating that will dictate the victors. The move is intended to reduce the emphasis on the financial component of the tender and thus cool what the government agency views as overheated bidding competition.

Bidders had to offer a minimum guarantee rate (MGR) per category – 21.7% for perfumes & cosmetics; 22.3% for general merchandise; and 26.3% for liquor. Tobacco products are excluded from the arrivals offer.

The bid was open only to small & medium enterprises (SMEs), including, controversially, Dufry Thomas JulKorea Co, operator of one of the two duty free stores at Busan Gimhae International Airport.

Speaking to The Moodie Davitt Report earlier this month, Executive Director/Concession Development Group Chang-Kyu Kim said: “We think sales will hit around US$100 million in the first full 12 months.” Liquor will be the biggest portion, he predicted, while ginseng products (much favoured by the Chinese) and other packaged foods, plus beauty products will also be popular, he added.

As reported however, many retailers, including Korean Air (theoretically the retailer likely be most impacted by arrivals shops), believe sales will be well below the US$100 million mark.

The absence of tobacco products will be a crucial limitation, most believe, while most Koreans like to exit Incheon International Airport as quickly as possible and are unlikely to stop to shop, some claim.

Note: Look out for a major interview with Entas Duty Free CEO David Yu, coming soon.

Martin Moodie met with Entas Duty Free CEO at the retailer’s impressive Paradise City store earlier this month. Look out for the interview soon.

Incheon International Airport Corporation Executive Director/Concession Development Group Chang-Kyu Kim and Senior Manager/Duty Free Management Team Ms Sul-Hee Shin offered an upbeat view of the prospects for arrivals duty free when the spoke to Martin Moodie at group HQ earlier this month.

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