The Analyst: Travel retail’s recovery crawls forward down under

AUSTRALIA/NEW ZEALAND. Ivo Favotto, a Sydney-based executive and company owner who has worked for all three stakeholders in the Trinity ecosystem, presents his latest commentary and figures on the gradual re-emergence of airport commercial activities in Australia and New Zealand.

Favotto owns and runs The Mercurius Group, a consultancy focused on industry research, consultancy and benchmarking studies, as well as operating his own destination merchandise supply business.

Here, Favotto – in the latest edition of his unique monthly report tracking the recovery of an initial 832 travel retail outlets across Australia and New Zealand – tackles some of the issues facing retailers including contract concerns and staffing as they seek to open up against a more encouraging backdrop of vaccination rates and borders reopening.

Despite an air of optimism and hope pervading both Australia and New Zealand that the end of the COVID-19 crisis is within sight, given recent surges in vaccination rates across both countries, travel retail’s recovery only just inched forward in November 2021.

According to The Mercurius Group’s 19th monthly report tracking the recovery of travel retail in Australia and New Zealand from the COVID-19 pandemic, only 45% of travel retail stores were open in November 2021 compared to the number of stores open pre-pandemic in 2019.

This is up from 43% in October – a somewhat disappointing result given the increasing level of freedoms being handed back to the populations in both countries.

The pace of retail and F&B stores reopening in Australia and New Zealand airports remains slow, despite improving conditions for travel (click to enlarge)

In terms of outlet type, November 2021 saw total F&B outlets open increase to 49% from 48% in October while the number of specialty stores opened increased a little more to 41% in November, up from 38% in October.

The sobering reality is that more than half of all travel retail stores across Australia and New Zealand, some 374 stores still remain closed, more than 19 months on. Some of these stores have of course gone forever. Some retail operations have gone into liquidation, other operators have walked away from agreements and others will still take a great deal of cajoling to come back given the uncertainties.

Where stores have gone never to return, gaping holes remain in retail programmes, unable to be filled until some certainty returns to the marketplace. Some brave operators are jumping back into leasing spaces at airports but only with the balance of risk if not quite tipped in their favour, at least adjusted from pre-pandemic levels.

After two years without population boosts from immigration, long-term visitors and overseas students, retailers in both countries are reporting material staff shortages. Some staff remain nervous about committing to return to an industry when so much uncertainty remains.

The good news is that both countries have made remarkable efforts to boost vaccination rates. In Australia, 86.7% of the eligible population (over 16 years of age) are fully vaccinated while in New Zealand 85% of the eligible population (over 12 years of age) are fully vaccinated.

In some states and territories of Australia including the most populous, New South Wales (NSW) and Victoria, as well as the national capital, the ACT, double vaccination rates exceed 90% of the eligible population.

While parts of Australia have opened up both their state and international borders, others either remain closed or retain heavy restrictions including onerous quarantine requirements. Domestic travel around New Zealand is also recovering but the country’s Government recently announced that its international borders would not be fully opened until April 2022.

In this context, it is unsurprising that travel retailers remain cautious. Restarting operations means material investment in restocking and restaffing and after two bruising trading years that drained cash reserves, retailers remain wary. And restaffing is proving to be easier said than done.

Ivo Favotto raises retailer concerns on airport contract conditions given the continuing low commercial traffic levels

After two years without population boosts from immigration, long-term visitors and overseas students, retailers in both countries are reporting material staff shortages. Some staff remain nervous about committing to return to an industry when so much uncertainty remains.

Domestic retail and hospitality sectors are clamouring for staff with news reports that wages in some sectors (e.g. baristas, bar staff) have more than doubled in recent months.

And now there are renewed fears about the Omicron strain of COVID-19 which threatens to test the fragile resolve and will of politicians over borders once again, at least temporarily. There are also concerns that the emergence of Omicron is just the latest in what could be a number of mutations coming from countries with lower vaccination rates.

Maybe improving the vaccination rates of poorer countries is the latest trinity issue – an example of where the self-interest of airports, travel retailers and brands can come together to help end the pandemic on a global scale.

But the big fear from retailers is that the desire from airports to “return to normal contractual conditions” will lead, rather than lag, the recovery of passenger volumes. A number of important airports in the region are understood to have committed only to rolling rent relief rather than permanently restructuring agreements to embed passenger drop or force majeure clauses.

While rolling rent relief is very much welcomed by retailers (and have saved many from the brink), their hope is that if there is to be anything like a return to normal contractual conditions, it will only come after months of sustained material recovery in passenger volumes.

Of course, the return to normal contractual conditions is complicated by the fact that two years of term has expired and many agreements are approaching expiry dates. The ability of airports to return to normal contractual conditions is yet to be fully or robustly tested in the marketplace and retailers are adamant that this time things have to change.

But the passage of time and “squid games” style competition has weakened retailer resolve in the past – it remains to be seen if this time will be different.

Case study: A Tale of Two Cities (continued)

For six months now, The Mercurius Group has been tracking the rate of travel retail’s recovery from COVID-19 in two airports of similar scale on two different sides of the planet – Melbourne Airport in Australia and Manchester Airport in England.

The steady rate of retail and F&B reopening at Manchester Airport continues, but there is little movement in Melbourne, despite more encouraging travel-related conditions (click to enlarge)

The differences in the approaches to travel retail recovery can be seen in the difference in the number of outlets open between the two airports over this period.

In the beginning of our analysis in June 2021, Melbourne Airport had almost twice as many as retail outlets reopened versus their pre-pandemic level compared to Manchester Airport.

But as passenger traffic at Manchester Airport started its slow recovery (passenger numbers in October 2021 were 48% of the same month in 2019), the number of outlets opened has climbed from 25% to 60% in November 2021.

The number of retail outlets open at Manchester Airport has reached an encouraging 60%, outpacing the reopening speed of Melbourne

While 60% of outlets open on 48% of traffic is still not fantastic trading conditions for those retailers, it does show there is a sound and steady improvement in the market.

Melbourne Airport – serving the world’s most locked-down city over the past two years – has meanwhile languished for the past few months with 46% of outlets reopened in November 2021, a small increase from the low of 39% in August.

While there may be 46% of outlets open, most are trading on restricted hours and are hoping for increased passenger traffic as the NSW and Victoria border reopens and some international travel restarts.

Footnote: The Mercurius Group, in partnership with The Moodie Davitt Report, has released the inaugural edition of the Airport Food & Beverage Study (AFABS).

The AFABS 2021 edition focuses on the Australian and New Zealand airport F&B markets, covering all 27 airports in Australia and New Zealand with annual passenger volumes exceeding 0.5 million.

The AFABS 2021 also features The Mercurius Group’s Top 12 F&B Operators League Table. These particular operators are responsible for 75% of the outlets within the region.

Other key features of AFABS Australia and New Zealand include:

  • An estimate of overall airport F&B sales in the Australian and New Zealand market;
  • F&B PSRs by country, terminal type and airport size;
  • F&B PSRs by outlet type, outlet location and operator size;
  • The number and type of F&B outlets in the market;
  • A ranking of the Top 12 F&B operators by sales and a profile of their outlet portfolio; and
  • A profile of the F&B programme for each airport (and for each terminal where applicable).

Other special features of the publication include a commentary on:

  • How airports build an F&B programme; and
  • The potential for F&B operator consolidation (mergers and acquisition activity) in the Australian and New Zealand airport F&B market.

To purchase a copy please contact The Mercurius Group:

Tel: +61 423 564 057;

Emailifavotto@themercuriusgroup.com;

Website: www.themercuriusgroup.com

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