Gebr Heinemann hits €3.8 billion in 2016 turnover; pledges €100 million in investments for 2017

GERMANY. Gebr Heinemann has revealed €3.8 billion in consolidated full-year turnover for 2016, a solid rise of +5.6% year-on-year amid a challenging backdrop in some key markets. It also revealed plans for €100 million in investments this year, principally at the New Istanbul Airport, which is scheduled to open in 2018. Other key investments will come in the Scandinavian market, in IT and extending the company’s digital footprint.

The company announced the figures during its annual press conference at its Hamburg headquarters, which was attended by The Moodie Davitt Report.

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Plotting the path forward: Gebr Heinemann board members Raoul Spanger, Kay Spanger, Gunnar Heinemann, Claus Heinemann and Peter Irion

Retail turnover in 2016 (75% of the total) climbed by +4% to €2.9 billion with the distribution arm rising by a healthy +30% in the year to around €900 million. The latter business was driven by a rebound in Russia/CIS, which posted a +33% surge in sales.

Among the leading product categories in 2016, liquor, tobacco & confectionery combined accounted for 58% of the business, with P&C at 31% and fashion & accessories at 8%.

The company noted that it today controls around 30% of Europe’s airport duty free market. Germany accounted for 15% of 2016 turnover, EU states (excluding Germany) 30% and the rest of Europe 40%. Asia Pacific’s contribution leapt from 6% of sales in 2015 to 10% last year, with the rest of the world accounting for the balance. Heinemann hailed the contribution of Sydney Airport in boosting the business in Asia Pacific, alongside its joint venture in Malaysia.

Airports remained the dominant channel at 77% of sales, with border shops at 13%, cruise & ferry 4%, airlines 2% and other channels making up the rest.

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Claus and Gunnar Heinemann: “A benefit we have is that we are independent and our aim is to stay independent”

Commenting on the macro factors affecting performance, Co-Owner Claus Heinemann said: “2016 was a satisfying year. We had many unexpected political and economic events from terrorism to Brexit to the US election and all of these influenced our business. Currency of course has a huge impact, whether it is the UK Pound, the Turkish Lira or the Russian Rouble. It had a dramatic effect in 2016.

“There are many factors we cannot influence but we still want to react using our humanity, collegiality, openness and humour, the values that serve us well. We don’t have to impress a shareholder, we work only for the long term and the next generation.

“We are also becoming a more global company, which is important. Asia is now 10% of our business due to our Sydney and Malaysia business. We also strengthened in Europe, creating a new JV at Frankfurt Airport and growing in Russia too.

“We will spend €100 million this year in renewing shops, in our IT and in our organisational optimisation and structures. Personally I’m pleased that we have finished a major extension to our headquarters in Hamburg last October. We have moved some divisions to this new K5 building, including IT, ensuring Gebr Heinemann in Hamburg comes more or less under one roof.”

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Business breakdown: Gebr Heinemann sales by channel, category and region (above and below)

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Key market performance

Executive Director Retail & HR Raoul Spanger outlined the performance in some of the company’s key markets, where external factors ranging from security concerns to currency played a big role.

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Speaking out: The Heinemann board with travel retail media (above and below) at the annual press conference on Tuesday

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In Turkey, the largest national market, sales dipped from €631 million in 2015 to €576 million in 2016. Turkey was hard hit by the impact of terror attacks in the country, though this affected tourism destinations more than Istanbul, Ankara or Izmir, at which combined sales only fell by -5% in 2016. “We had a record year in 2015 in Turkey, and are at par with 2014, which is an achievement in the circumstances,” he noted.

Norway turnover was down slightly in Euro terms, from €544 million to €541 million, although in Norwegian Kroner the business rose by +4%.

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The Sydney Airport duty free business proved a strong performer in year one, with further growth projected in 2017

In Germany, turnover fell from €407 million to €384 million. “There was an effect from Chinese choosing to travel to other destinations, which affected the Frankfurt Airport market. But against that we see many more of them flying to Australia and Sydney for example,” said Spanger.

“That was one reason behind an +18% leap in sales in Sydney, to A$356 million/€248 million (including electronics and bar concessions), though the comparison is not exact as the first five weeks were missing in the previous year and we had all of the construction. But we’re happy about this development and are budgeting a further +7.5% rise in 2017. In the first three months we have hit that budget.”

On the new Sydney duty free environment, Spanger added: “The opening of our biggest departures store at Sydney adds a new dimension. We all face issues of penetration and challenges from other channels. One thing is clear: if the customers don’t come to your store, you have to bring the store to them. We are trying elements of this in Sydney and will do more under this idea.

“We don’t see the future store as a box with cashiers at the end, we see an open space in the traffic, where people can pay as they walk around, with transactions being quick, convenient and on the move. This could be the next generation after the walk-through generation.”

On Istanbul New Airport, Spanger said: “This project is heavily supported by government, so it is progressing well and we are right on track. We are looking into the right retail mix, negotiating sub-leases with a combination of Turkish and international companies, we have defined the store layout and are deciding which spaces our company Unifree will manage. This is by far the biggest project we have ever undertaken. We always see a lot of support from the suppliers. This is a long-term contract so even if times are difficult we want to start it in the best possible way.”

In Istanbul departures there will be 18,000sq m of duty free shops, with a further 11,000sq m in arrivals. Luxury will sit at the heart of the terminal, flanked by the core category duty free stores, and complemented by five ‘villages’ that reflect different aspects of Turkish identity.

On the company’s Frankfurt Airport joint venture, Spanger said: “Joint ventures are one of our preferred models but not the only one, and we must be flexible around what each airport needs. We may operate like this in other places too. A JV is a good way to connect yourself better with the airport and with the consumer; that makes it more a likely for airports to pursue it in future. We have operated at Frankfurt for 40 years so that makes such an arrangement more likely than at an airport where we have just arrived.”

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The New Istanbul Airport operation, scheduled to open in 2018, is “the biggest Heinemann project ever”

In Oslo, Heinemann has just opened its second departures store, with the new terminal now almost compete. It already has the world’s biggest arrivals duty free store, which opened in September.

In Amsterdam, a downturn in UK business has had a negative impact, but Spanger noted a strong development in sales in its joint venture with Schiphol Group. “We updated one of the main stores last year and will do two more this year. There is a bright future for this business.”

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Raoul Spanger: “We don’t see the future store as a box with cashiers at the end, we see an open space in the traffic, where people can pay as they walk around, with transactions being quick, convenient and on the move.”

Russian rebound

Executive Director Distribution Peter Irion hailed a strong performance in Russia/CIS with a +33% leap in turnover, as noted above. Commenting on other markets in his division, he said Africa grew by just +1%, affected by currency shifts and access to foreign currency in certain markets.

Cruise and ferry turnover in the division climbed by +5%, supply to European airport customers grew by +6%, airline & catering sales +6% and border shops by +13%.

“After two years of declines in Russia/CIS we turned our business around. We had a difficult environment due to the Rouble and fewer travellers, but we take a long-term perspective,” said Irion. “Difficult times give you opportunities for new business. It’s like in any partnership, you stay together in good and bad times. We have invested in 2016 into border shops and airports and this is paying off. It pays off in commercial terms, but also our Russian partners see that we stick with them by extending credit terms and by investing in stores, when others run way from the market. They don’t forget that.”

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Imperial Duty Free: Heinemann’s Russian business is rebounding as the Rouble enjoys a period of relative stability; key investments include rebuilding 12-15,000sq m of space at Moscow Sheremetyevo

In terms of border stores in this region, key investments in the past year took place in Georgia, Belarus and Ukraine.

At Moscow Sheremetyevo, the Heinemann-airport IDF joint venture took over stores in the key Terminal D last year. Over the next two years the company plans to rebuild 12-15,000sq m of space across the airport with its partners. It also said it aims to begin operating arrivals duty free shops in the country later this year, following the introduction of new legislation to permit the channel.

Currency is a critical factor in Russia, noted Irion, who said that the Rouble had shifted from 80 to the Euro to around 60 more recently.

“What is important is that the Rouble is stable. It does not have to be super strong but stability is important. Since last November when this shift came we have seen more passengers and healthy sales growth.

“We also believe the Rouble will remain stable as the government is working hard to maintain its value. That stability is vital and looks set to continue in coming months at least.”

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Peter Irion: Turnover target for the Distribution division is to hit €1 billion in sales in 2017

He added: “The outlook in Russia/CIS is positive. We see strong increases in Q1. Supplies to the region are up by +30%, our retail joint ventures are up by +50% in turnover and our joint venture at Sheremetyevo is up by +80%.”

The company’s increasingly globalised supply business also made a big contribution in 2017, added Irion. “We want to make sure our customers have the same quality of service in Asia Pacific and the Americas as they do in Europe. That’s important in globalised businesses such as cruise and airlines, with shops and aircraft moving from one region to another. That is a challenge for us but one where our customers are seeing the benefits of our distribution strengths.”

In a key development in the airline market, last week Gate Retail decided to purchase most of its P&C assortment through Heinemann. Irion said: “Gate bought via Heinemann in recent years though of course they now have the Inflight Service business now too. But after making an analysis they decided on a collaboration for this category with us. That shows the value we add. The decision they took was commercially good for them but also it underlines how we can improve their global supply chain. We have the channel know-how for airlines and can implement same service everywhere.”

Another example of the company’s global approach is a supply deal with MSC Cruises, he added.

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The cruise business is fast becoming a key strategic channel, with new clients such as MSC on the supply side

Looking ahead, Irion said the target for the Distribution division was to hit €1 billion in sales in 2017, up by more than +10%.

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Key openings, tender wins and new contracts (above and below): click to view the map details

Heinemann map2Challenging the brands

Purchasing & Logistics Director Kay Spanger candidly assessed some of the market challenges and called for newness and further investment in the business from the supply community.

“One of the biggest challenges we face is the consideration of global pricing and strategic pricing,” he said. “The more transparent the market becomes, the more transparent our pricing becomes. This brings up the challenge of what is the right price for each consumer. We hear recently of brands in Asia reducing local market prices as they know people are comparing duty free unfavourably. That’s an issue when your product is a global brand, known in all regions, and people are familiar with the pricing.

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Kay Spanger: “We [as an industry] need to be more innovative, and find more surprising product ranges”
“There are other challenges. We need more innovative assortments and products. We are doing well with +5.6% growth, which is a lot better than the average domestic market. But we do know that the market is saturated. We need to be more innovative, and find surprising product ranges such as our own exclusive wines. We can do that well also with smaller, flexible suppliers. That is one way forward.

“In line with this, there is the question of investment from suppliers. Some of them tend to use airports as arguments that the market is expensive, as they chase market share. We tell them that when they look at their budgets, they should spend the majority with Heinemann. Why? Because they can count on us to be consistent both today and tomorrow. We hear from many that we are best in class from logistics to execution in retail or in distribution. But this costs something and they should reflect that in their investment.”

Spanger noted how the company was seeking to strike new kinds of partnerships that have both a local and global element.

“With teams in Singapore, Sydney and Miami, we can act locally and negotiate globally. One example of a good partnership globally is with Penfolds. We negotiate and drive the brand in Europe, and we also partner with them and their other wines locally in Sydney.”

On the categories in which potential remains high, he cited areas such as haircare and dermo-cosmetics, travel retail exclusives in skincare and make-up, and niche brands “that are viable commercially”.

He added: “We will focus more on fashion & accessories and jewellery & watches. Of course we’ll work with the big houses for licensed shops where they make sense. But we will also develop our own concept shops and will talk more about this at a later stage. On the other hand we’ll develop jewellery & watches, accessories & fashion within the core category shops. That is an opportunity.”

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Kay Spanger: “In 2017 we will push our partners stronger than ever before.”

Spanger also revealed the creation of a new Fulfillment department. He said: “Even though we think we are good at stock keeping and logistics for distribution and for retailing, we recognised that we needed to concentrate more on this. We have now taken all supplier order and demand management away from the purchasing team. In the future this will be run now through the Fulfillment department as one entity, so we can better service our customers.

“It will give even better ordering and forecasting, mean we are better at demand management, over and above the normal activities, and we’ll be better at master data management. In this global world we know how important data management is, and this department will improve our capability here. Our industry does not do this well, even if does many other things well. Local markets do this far better.”

In addition to this new department, Gebr. Heinemann has initiated the Travel Retail Data Innovation Group (TRDIG) which aims to develop global standards in master data management to enable automation in data exchange between travel retailers and the industry.

On the key goals for 2017, Spanger said: “We will push our partners stronger than ever before. We will improve our logistics and stock management. The market is saturated so we want new activities and products.”

To suppliers, he had a message: “Take the quality of travel retail more seriously than you often do today. Don’t tell us today what we should do in our own stores. You have to take care of the clean pricing, distribution and development of your product. We take care of the store as the retailer and distributor. And if you want to have the same space as the other brand, then you have to invest.”

Family values, CSR credentials

Co-Owner Gunnar Heinemann concluding with some thoughts on the company’s values – and a new initiative that underlines its corporate social responsibility credentials.

This year Heinemann has begun a pilot project at 14 locations in Germany and Austria aimed at reducing plastic bag use and protecting the environment. Disposable bags (plastic bags, paper bags, zip bags) are offered at a cost of 30 cents each in Heinemann Duty Free stores. As an alternative to disposable bags, Heinemann Duty Free offers high-quality reusable bags at two euros each.

It aims to reduce the volume of single-use plastic bags in circulation, while a share of the proceeds from the initiative goes to the marine conservation organisation OceanCare. The initiative has already been well received by customers, with the figures for March showing a +400% increase in reusable bag sales and a -50% reduction in plastic bag consumption.

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Gunnar Heinemann: Pride in the company’s CSR track record, underlined by its new plastic bag initiative in support of OceanCare

Gunnar Heinemann said: “The topic of plastic pollution affects us greatly. Through our shops we have the opportunity to discreetly influence people in our shops. We are proud to be a pioneer with a new project. It is still in a test phase. After six months we will discuss how to proceed in the existing locations and how we roll out further to international locations.

“Personally I am committed to supporting corporate responsibility. A company like ours has a presence in many locations and we need to be mindful of our actions and their consequences. We are committed to acting in harmony with the environment, showing sensitivity to customers and safeguarding the natural world.”

On the company’s position in the industry and on its core values, he asked the question: “What makes Heinemann stand out in this challenging time? We need to break new ground to be competitive. We have to take the advantage of our 135-year-plus history. A benefit we have is that we are independent and our aim is to stay independent. We can carve our own path, or try new projects, by only asking our family, our ten shareholders. I can only imagine trying to please 200 shareholders.

“To achieve our aim of being the travel retailer of choice in the industry, we have derived strategic directions, objectives and measures for every dimension within the company. In 2017 all departments will be involved in implementing new ways of working.”

He added: “We want to place greater emphasis on our global reach. The more we are global, the better we can offset country-specific risk. Winning the contract in Sydney or our joint venture with DFI in Malaysia shows that the European retailer Heinemann is capable of acting with success in Asia. In Miami, Heinemann as distributor also shows what it can do.

“On the fifth generation of Heinemanns, [CEO Asia Pacific] Max Heinemann and his family is happy in Singapore. In due time he will come back and take up a leading position in headquarters.”

Heinemann concluded: “We have four principles that will define our future: we are one family; we lead through trust; we persevere and we delight our customers.”

*We’ll bring you more detail on Heinemann’s 2016 performance and the vision of its senior management team through our online and print titles soon.

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Gunnar and Claus Heinemann hosted a special tour of the newly opened ‘Room 1879’ in the extension to company headquarters (exterior pictured above). It’s a showcase of the illustrious Gebr Heinemann history dating back to 1879, with images, log books and products as depicted in the images below

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