INTERNATIONAL. Dubai’s strategic position and logistic advantages have contributed to the rise of Flemingo Duty Free, now the leading Indian duty free operator with 62 retail locations across Africa, India and Sri Lanka.

Flemingo Duty Free – Dubai’s only privately-owned duty free company - in many ways is an underestimated group, and one that was not taken seriously by many suppliers, even after it had broken into the Indian duty free monopoly with its first stores in Indian airports in 2003.

Now with fresh investment from Citigroup Venture Capital International confirmed this year, new shop designs being rolled out across its Indian network and African business very much in focus, Flemingo’s Joint Managing Director Rasik Thakker lets slip a smile when he discusses the company’s recent successes.

One of the latest developments is that Flemingo has just signed an exclusive distributorship with Korean tobacco group KT&G (formerly Korea Tobacco & Ginseng) for the whole of the African continent. In November and December, the company will begin working with cigarette brands such as Esse, Pine, Raison, Lo Crux and This Plus, for 53 countries.

“We have gone with a big bang in the distribution business by taking this agency,” says Thakker. “We want to expand and we have a clear vision which has Africa and the Indian Subcontinent as our focus.”

The African distribution business is neatly supported by the company’s existing operations, which already extend to duty free wholesale business supplying operators in the Gulf; military and diplomatic business in Tanzania; and the company operates the UN Commissary in Kenya.

Since last year, Flemingo has operated the concession for four duty free shops in Lilongwe Airport in Blantyre in Malawi. The contract for the ten-year concession covers two arrival and two departure shops. It has another ten-year contract for exclusive rights to operate duty free stores at Bujumbura International Airport in Burundi, central Africa. With these new additions Flemingo now operates 13 stores in four African countries; the other two countries are Kenya and Tanzania.

Thakker says the company is working on developing a number of new duty free opportunities in Africa and elsewhere, as well as India. While linking up with another international partner has not been ruled out, for now the company is busy upgrading all its operations in India.

New operations will open at Kolkata International Airport by November and together with the company’s other recent new contract, Calicut (Kozhikode) in Kerala, this adds to the list of airports where Flemingo is the exclusive operator, the others being Chennai, Calcutta and Trivandrum airports.

With this five-year concession for Kolkata (Calcutta), Flemingo now operates in 14 airports in India and it has the largest share of the US$150 million duty free market. Flemingo is also operating in four of the top five airports in India.

Some 167square metres of space will be available in Kolkata, where duty free was historically run by the India Tourism Development Corporation. Flemingo is installing all the core categories there, such as liquor, tobacco, perfume and confectionery. In addition, jewellery, consumer technology and gift items will also be available.

Seaport shops also add to the company’s critical mass in India, and the last one added to the list was Paradeep Port, joining maritime shops in Chennai, Goa, Mumbai, Vizac, Kendala and other ports.

“We believe we have made good progress in India and we have recently taken up the project of refurbishing most of our shops. We started with Chennai, which is already upgraded to international standards, and based on this experience we will refurbish all our locations and bring them up to date,” says Thakker.

India’s rapidly-evolving travel retail market received another boost following the reported approval of duty free shops in India’s Special Economic Zones.

The Indian newspapers reported that the government has agreed to allow duty free outlets in the zones. Flemingo confirms that it has multiple applications for these new stores under consideration. Although it is still the very early stages in this development, it is likely that duty free sales in free zones such as those in China, Philippines and other countries will eventually receive a government permit.

The reports said that following an examination by the Foreign Investment Promotion Board such outlets may be permitted, subject to permission from the Department of Commerce. In addition to the Special Economic Zones of Chennai, Salt Lake, Mangalore, Navi Mumbai, Kandla, Nanguneri, Visakhapatnam, Indore, Paradeep and Jodhpur, Flemingo has sought permission to open duty free land border outlets at the Wagah border with Pakistan, besides an additional outlet at Mumbai International Airport.

With such a wide footprint now in Indian travel retail locations, the company takes pride that its retail brand is becoming well known, and this is being reinforced with a big price-cutting exercise and promotional campaign which began at the start of the year.

Indian duty free firing on all cylinders

Ambitious plans of course also require funding and in a widely-reported deal Citigroup Venture Capital International recently acquired a 15% stake in Flemingo Duty Free Shops Private Limited (the Jebel Ali Freezone operation owned by several non-resident Indians as well as a Flemingo offshore company). The deal is valued at more than INR 100 crores (US$24.7 million), as per data quoted from Foreign Investment Promotion Board (FIPB) of India.

These preference shares would be converted into equity at a later date for a premium. Citigroup’s shareholding in Flemingo would be up to a maximum of 15% of the paid-up equity of the company. It is understood the details of the issuance of the one million convertible preference shares has been approved by the board of the company.

The Dubai location, with the ability to send overnight to India anything from a full container to five cases of a brand in consolidation, is a great source of strength, the company says. “It is an advantage compared to other operators that have to ship from Europe,” says Thakker.

Meanwhile, India’s tourism, the domestic retail landscape and consumer trends continue to go from strength to strength and it is difficult to see any dark clouds on the horizon.

“In the new privatised airports, Hyberabad and Bangalore, we see the next opportunities,” comments Thakker. Hyderabad will also see the entry for Nuance when the new terminal opens in 2008.

“At the same time India is developing the existing major airports [Mumbai, Delhi, Kolkata and Chennai] and this will be where the crux of the industry will lie, with bigger spaces.”

“Right now lack of space is a major factor. This is because in previous years when the airports were designed, duty free was not a consideration in the construction.”

Certainly the growth for India is exponential with new low cost airlines such as Air Deccan, Sahara and SpiceJet booming, an estimated 400 new passenger aircraft coming onto the scene by 2010 and the country’s duty free market expected to rise to a whopping US$1 billion by that year.

“Considering both tourism and the Indian consumers, the signs are all good,” comments Thakker, considering the different trends going on in India.

“At the regional airports, the shops are more isolated and they serve the people of that state, going and coming back. But we also have more tourist-oriented airports, such as Goa, which is totally tourism driven.”

“Now with the upgrading of the overall infrastructure, including better hotels, we are getting higher spending tourists too,” he adds. “Average spend was US$0.50 when we entered India [in 2003]. Now it is already US$8 and it has the potential to reach US$30.

“Overall the income level of Indians has gone up substantially. There is more awareness of international brands and with more and more brands coming into the market, that automatically results in higher spending.”

But why we asked has the business revolution happened only in the last few years in India? What happened to drive these factors that are stimulating tourism and duty free? And how does Flemingo view the new competition, now that global ventures like Aldeasa/ITDC (Mumbai) and Nuance/Shoppers Stop (Hyderabad) are entering India?

The Nuance connection is especially interesting, given that its partner Shoppers Stop is the leader in the domestic department store category and it has plans for a multitude of luxury brands stores, throughout the country.

Consumer revolution

The retail revolution is evident everywhere in India. In one of the recent big announcements, Saks Fifth Avenue, with its Middle East operating company Style Avenue Middle East (and Chalhoub Group) has confirmed it is close to signing a 100,000 square feet unit in the Mall of India in New Delhi.

The world’s largest luxury goods company, LVMH Group is also eyeing India in order to take on competition in its third biggest market, Japan with a new 'second-tier' brand. The French luxury group, which is in the process of picking a 20% equity stake in the Indian leathergoods manufacturer, Hidesign, apparently plans to position the Indian brand against its nearest competitor, the US handbag and accessories brand, Coach, in the Japanese market, especially in the department store format. Louis Vuitton is also opening its first manufacturing unit outside of France and Italy in Puducherry (the former French colony) spread over 38 acres next to a planned Hidesign unit.

Besides, entering the Japanese market with LVMH, Hidesign will now focus on a more stylish image in its retail format, as it opens its Luxe Renaissance stores across India and internationally. “We are now taking the next step as far as retail presence is concerned with a focus on our image. The old format stores with a stress on leather will be history,” Hidesign President Dilip Kapur said

Plans are currently underway to open 11 of the Luxe Renaissance stores across Delhi, Chennai and Kolkata this financial year. Along with India, China is being looked at a huge market for the brand with six stores opening in the country.

To date Chanel has two counters in India. [The cosmetics brand] MAC, with two outlets in Bangalore and Mumbai has done very well but it varies from brand to brand. There is a lot to be done there and we have to temper the expectations of our vendors. I would say that the luxury market in the whole of India is equal to just 30% of Dubai as of now.

Flemingo - in its joint venture with another Dubai company, Damas, the leading Middle East gold and jewellery retailer - has high hopes for its chain of Flemingo-Damas airport jewellery stores. To date this has grown to three outlets in Indian airports.

Thakker comments: “India has become a focal point and you can see that from the visits of global companies like Intel and Microsoft that is getting reported. We are gaining from the government approach in a progressive India.

“The people of India were always adventurous. They always had it in them, but the opportunities given to them were restricted by the government, for example with the import restrictions and the ‘licence Raj’ as we call it,” says Thakker.

“The political view was to develop the local infrastructure and the local industry, and that has been done and he political will of the government has changed. Also the mindset had to change with globalisation occurring all around the world.” 

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