RETAILER INTERVIEW • Michael Dinar

March/April 2005

Investment in the bad times pays off in the good for

Duty Free Americas By Martin Moodie

Michael (‘Miky’) Dinar is a youthful 17-year veteran of the duty free industry. Having spent 11 years with Tel Aviv Airport concessionaire James Richardson, he took up a very different cultural and commercial challenge in November 2001 when he came to the US to manage the new Airports Division for the Falic family group’s Duty Free Americas. It was just weeks after two landmark events – the family’s acquisition of the former World Duty Free Americas from BAA, and the terrorist attacks of 9/11. They were testing times, but Dinar had first-hand experience of such trying circumstances and he immediately set about preparing for better days. Now they have arrived, he told Martin Moodie in an interview at the company’s British Airways terminal seven New York JFK store.

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ichael Dinar was the perfect choice when the Falic family was looking for a top executive to run its new airports division after it acquired the former World Duty Free Americas in late 2001. Not only did Dinar have extensive experience of airport retail, but his 11 years with Tel Aviv Airport concessionaire James Richardson gave him a unique insight into the security and trading constraints that airports would face in the wake of 9/11, which immediately preceded the acquisition, and that knowledge helped guide Dinar’s strategy for the start-up division. “I came over at the end of 2001, so for me 2002 and 2003 were exactly the time to prepare the airport division for what I was sure was to come,” he recalls. “The effect of 9/11 was devastating, but I knew it was not going to last. I knew from my experience that you have bad times, but you also have good times – after all, I come from a country that has suffered terrorism for the past 100 years. “When you are in the bad times, that’s the time for you to change the house and make the improvements. We did

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it in Tel Aviv after the first Gulf War in 1991 when we had no passengers, but David Mandie – owner of James Richardson – approved the plan to invest heavily in the store and we all saw the fruits soon after. So here we invested in 2002/03 in the premises, in the fixtures, in the associates, in the sales people – everywhere we could. And we were right to do so: the results are here.”

Factfile Duty Free Americas locations in the US Baltimore Washington International Boston Logan Chicago O’Hare (all terminals) Detroit Laredo McAllen, Texas New York LaGuardia New York JFK (three terminals) Phoenix San Antonio Washington Dulles Washington Reagan The Moodie Report

RETAILER INTERVIEW • Michael Dinar Now, he says, the approach is paying off. Buoyed by the extraordinarily prolonged softening of the US Dollar and strong growth in air passenger traffic, particularly at the New York airports so badly affected by 9/11, Duty Free Americas’ business is prospering. The company posted a +30% year-on-year rise in sales during 2004 at its three New York JFK Airport locations, thanks to a combination of currency benefits, heavy instore investment and a sharp rise in passenger numbers. “Traffic was very strong in 2004 and sales were very good,” Dinar notes, “as the passengers were willing to spend more because of the difference in the exchange rate [the soft Dollar versus the Euro, Pound Sterling and Japanese Yen, in particular]. The currency helped – and of course we had SARS and the Iraq war in ’03 – but we took full advantage and pushed hard – we had a great year.”

March/April 2005 “but I knew that 2004 had to be better because the [Iraq] war would not last forever and SARS was more in the media than in reality. In 2004 everyone came back, including the Asians. Everything is back.” And the spending? Isn’t the Japanese spending still soft? It depends on where you set the benchmark, Dinar notes. “People compare it with ten years ago,” he says. “I know the Japanese spending was outrageously high back then, but I wasn’t here. And I know it then went down. But over the past three years the numbers have been coming up slowly.” In Duty Free Americas’ case, all the elements have come together nicely. “There’s no miracle,” says Dinar. “If they spend +5% more and we have +5% more passengers, then whether the currency is +5% weaker or stronger, you have growth. So for me it’s been all good news since 2003. And I’m more than optimistic.

“In some airports the toilets are located better than the duty free stores are”

A +30% lift in sales versus a +15% rise in international traffic [across the three New York airports, JFK, Newark and LaGuardia] suggests the retailer must also be doing something right. “When 2004 came and we had the passenger growth and the currency working for us, all our investment kicked in.”

According to the Port Authority of New York and New Jersey, passenger traffic across JFK, Newark and LaGuardia airports climbed to 93.9 million in 2004, beating the previous high of 92.4 million set in 2000 – nine months before the tragic events of September 2001 that were to change the course of US aviation and world history. Encouragingly, international traffic is expected to race past pre-September 11 levels this year. In 2004 37.5 million passengers passed through JFK, representing an +18% upswing over 2003 and making it the fastest-growing airport in the region – and one of the fastest-growing in the US. “I have always thought that when sales are slow, that’s the time to invest,” says Dinar. “We all know that airport traffic has increased by around +5% a year over the past 60 years. OK, we had years where we had just +1% or +2% or even a minus percent – but in the long run the numbers don’t lie. And that’s what guides me.” He admits he couldn’t have predicted the Dollar’s softening. “If I could have, I’d be a millionaire,” he chuckles,

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“The future of air traffic is clear. Everyone knows it’s going to grow, though nobody knows by how much. But the numbers are going to keep going up and everyone is going to enjoy it – not only Asia, not only America, not only Europe – the whole global economy is going to enjoy it.”

Location, location, location So the key fundamental of the business – passenger traffic – is in good shape. Like all airport retailers, Dinar’s biggest hurdle is converting those passengers into shoppers – and in US airports that isn’t easy, as he explains: “The challenge for us in the US is that the terminals tend to be run by the airlines or by the city. The main concern for the airline is to get the passengers from point A to point B. The main agenda for the city is to run the civil services rather than running airport retail. It is simply not their main business. “Neither the cities nor the airlines are retail-orientated, and they are especially not duty free retail-orientated. As a result you find newspapers, food and coffee stores in the best locations and duty free is maybe the fourth or fifth in line.” That is doubly frustrating for a company such as Duty Free Americas as duty free tends to produce the highest revenue in a terminal. Too many airport managers just don’t see that, says Dinar, and the impact is damaging. “My stores are too small and not always located in the best The Moodie Report

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RETAILER INTERVIEW • Michael Dinar locations for this type of business,” he observes. “In some airports the toilets are located better than the duty free stores are, or there’s a conference room in the best spot. “My philosophy is that if you need to find a conference room, a cup of coffee or go to the toilet, you will find it. Duty free is very important – but you won’t search for it, because you’ll ask if you really ‘need’ a bottle of Scotch or some perfume or cosmetics for your wife.” Attitudes are changing, but slowly, he says. “The port authorities, the cities and the airlines are realising slowly but surely that we are a good business for them, that the revenue they make through us is big and that the potential for growth is excellent. We have proved it over the past two to three years. But it’s a long process, especially as many of the terminals have been here for 30 years or more.” That’s a strong contrast to the site of our interview – the duty free store in the new terminal seven at New York JFK. Less than ten minutes after electronic check-in and a surprisingly quick, efficient and friendly security procedure I am riding the escalator to departures where I am immediately confronted by a big, open and highly visible Duty Free Americas store.

March/April 2005 ing, he says. Remember that JFK T7 is comparatively big by US standards, matched by a few others, including the same airport’s T3, Detroit, Chicago T5 and Washington Dulles, where the retailer opened a new store in Concourse B last November. Dinar says that while accessories are the fastest-growing sector, the overall business remains very traditional. “We sell more chocolate and accessories than before but liquor, tobacco, perfumes and cosmetics were always the backbone of the business and still are.” Business is growing nicely, but Duty Free Americas would like to accelerate the process by winning more tenders – naturally Miami International Airport is the key sounding on the radar at present. But Dinar insists that the company won’t bid to win at any price. “From what happened in Dallas and Houston [airport tenders recently won by DFASS and The Nuance Group, respectively – Ed] you can see that we did not overbid,” he notes.

“I told anyone who would listen that security is an advantage, not a disadvantage”

“This is a brand-new terminal and you can see where they put us – in the best location,” enthuses Dinar. “You can’t miss it. That’s because they know the potential of the store. And they’re not sorry – they’re very happy with what we are doing.”

The T7 store has a strong traditional offer, from fragrances and cosmetics to liquor and tobacco. But like many Duty Free Americas stores, it also features a growing emphasis on fashion and accessories. Is this a central element of the company’s growth strategy, I ask? “Yes it is. We cater for the Asian traveller, but it’s not just for Asians, it’s also for Europeans. People love to buy brands. We are in the brand business, and we meet that demand. Years ago you bought a pen and you didn’t care as long as you could write with it – now you want a certain brand. It’s the same with your belt or your sunglasses – everything is about brands. So the more the merrier. The more we can offer, the more we can sell.” That’s another reason the shortage of space is so annoy-

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“We studied the numbers very carefully. We know the expenses very well and we know our business very well. And we definitely did not overbid – we’re not here to lose money.”

So is Duty Free Americas making money in every location? “We are not losing money in any location,” Dinar answers adroitly. “And we definitely don’t want to lose money in any new RFP – just for the sake of winning. It’s not about winning – it’s about staying for ten years and doing a good job, making money for yourself and for the airport. It’s not about prestige, it’s about making money. You can’t bank a victory. “I hope that since September 11 people realise it’s not about prestige, it’s about profitable business. So we can only be as professional as we can and do our best to win. Hopefully we can convince the port authorities wherever we go that we know what we’re doing. We have proved that in the past years.” So three and a half years on, is Dinar pleased with the division’s progress? “Absolutely yes. I’m enjoying working with the Falic family. I came here right after they bought the company and I was very confident we could do it – and we did it together. All the airports are working very well and doing more than expected by anybody – vendors, port authorities, and the competition.” The Moodie Report

March/April 2005 Enjoying the freedom of security I tell him that I am surprised by how painless the security process is – a very different experience to my last time through New York, at La Guardia airport, where a security guard treated my laptop with the same level of respect waiters show to plates in certain Greek restaurants. That’s all down to learning and experience, he says, unsurprised by my observations. “In 2002 people were crying about security. But I told everyone who would listen that security is an advantage, not a disadvantage. I said it would take some time for everyone to know what they are doing – the airlines, the passengers, the airport – but now the learning curve is behind us. “Everyone knows they need to come to the airport two or three hours ahead of time, and they do. They enjoy the airport and the terminal and the retail and they have the time and freedom to walk around the stores [of the retailer’s major stores, only Chicago T5 is pre-security – Ed]. Today you have electronic tickets and the check-in process can take just five minutes. On a busy day it’s going to take you 30 minutes. So what? “So the passengers are relaxed, they’ve finished everything, they know where they are going – they know they have another hour, so they shop. I was never worried about security – but that’s because I came from an environment where I understood it. I see security as an advantage for us.” Miky Dinar prefers to tell the company’s story than dwell on his own – but it’s an interesting one, well worth relating. In his 11 years at Tel Aviv, James Richardson’s sales built up from around US$20 million a year to over US$180 million – despite that period embracing the first Intifada and the Gulf war of 1990/91. Dinar and his colleagues built a huge business, including a major pick-upon-arrival system, despite a woefully inadequate airport infrastructure. It was experience that was to serve him well in the very different environment of the US. So how different a challenge is the one he faces today to what he used to face in Tel Aviv? “That’s a great question,” he chuckles. “You know I called my friend from the Israel Airport Authority, Yoram Shapira [Director of Commerce, since left – Ed] the other day and I said I have exactly the same meetings with the authorities here as I had there. There are just two differences – we speak English, and when someone speaks the others are quiet – whereas in Tel Aviv everyone speaks at once! “But overall it’s exactly the same meeting in Tel Aviv as The Moodie Report

RETAILER INTERVIEW • Michael Dinar “The Americans are getting more exposed to the idea of duty free through the tobacco saving. The saving compared to the local market in tobacco is huge” it is in Chicago or New York – the same issues apply despite the different cultures. And the customer is the customer is the customer – he wants good service, good prices and good products, and he wants to find the brand names he is looking for.”

Smoking out a value-for-money message At JFK Duty Free Americas places strong emphasis on its value message, with plentiful signage promoting the savings on offer. In particular colourful neck tags offer a range of incentives that increase as the spirit-buying customer trades up. “It’s a key message, absolutely, and they get even better value when they spend more,” says Dinar, adding that – with currency working in favour of overseas visitors – the incentive to trade up is strong. The value message is imperative in a low duty, low tax country such as the US, even though the New York business is mainly targeted at foreign visitors. Coming from a high duty, high savings country like Israel to the direct opposite in the US must be a challenge, but Dinar says awareness of duty free among American consumers is rising – largely thanks to the price offering on cigarettes. “The Americans are getting more exposed to the idea of duty free through the tobacco saving. The saving compared to the local market in tobacco is good,” he says. “The Americans are learning – they respect their money very much, and a saving is a saving.” Three and a half years since leaving his native land, Miky Dinar is thriving on the challenge and the perhaps unexpected (at least by outsiders) success Duty Free Americas is enjoying. “It’s a great industry, a great opportunity for me and a great challenge,” he enthuses. “Moving one’s family is not an easy thing, and moving to a different culture is not easy either. I speak English, but it’s not my first language. But I love it – I really love it.” �

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