Adani airports' duty-free shops to give more space to non-liquor items

Liquor ++ strategy for extracting maximum revenue from duty-free shops at seven airports run by the group

Adani-run airports have adopted an unconventional strategy called "Liquor ++" for their duty-free shops. Under this strategy, more space will be allocated to non-alcohol items such as health supplements and baby food.

"When you start looking at a consumer, and when you start looking at their usage and attitude—specifically at duty-free or at F&B (food and beverage section) or at retail—then you suddenly realize that there is a world outside liquor that needs to be focused on," said Harshad Jain, chief executive officer (Non-Aero), Adani Airport Holdings Ltd (AAHL).

AAHL, an Adani Group company, manages seven airports in Mumbai, Ahmedabad, Lucknow, Mangaluru, Jaipur, Guwahati, and Thiruvananthapuram. It is building the Navi Mumbai airport, which is expected to start operations by the end of 2024.

According to Knight Frank Research, the duty-free market size in India was estimated to be $0.7 billion in 2020 and it will grow to $2.4 billion by 2030. The product categories in a duty-free area generally include perfumes, cosmetics, liquor, tobacco, apparel and accessories, confectionery, etc. A major chunk of revenue at Indian duty-free shops comes from selling alcohol, which is cheaper there than in the local retail market.

"Now, you look at health supplements. It is a very, very large segment. It is a huge segment. So, people buy a top brand of liquor (from a duty-free shop) because they believe it is authentic and that's there, but, you know what, whey protein at a duty-free shop has the same kind of consumer insight," said Jain at the CAPA India Aviation Summit 2023 last week.

For example, if you have a "disproportionate" amount of whey protein that is displayed, it can have similar or even higher ATVs (average transaction values) than that of liquor, he said.

"Second, a person is going to spend much more (on health supplements) because this person is a real aficionado or an indulgent consumer who is looking for the best. Third, this is a trend that is picking up," he said.

Similarly, if you dice the consumer cohorts, there is a lot of work that has to be done. "And therefore, I spoke about health supplements, then there is baby food. There is a lot more there," Jain noted.

AAHL runs duty-free shops at its airports. Other airport operators such as Bangalore International Airport Limited (BIAL) have contracted third-party operators to run their duty-free shops.

Jain said, "We are perhaps the only company that runs the duty-free and also runs the airports. Now, everyone is very sharply focused on revenue per square meter. Everybody is very sharply focused on what is the kind of extraction (of revenue)."

How to resolve the issue of extracting maximum revenue from duty-free shops? "You actually have to drive digitisation, which takes away the space constraints. And then you are able to introduce a lot more product categories, and you are able to address the needs of the consumers, which is "Liquor ++". And that is what is going to get done...as the new terminals get built," Jain said.

"We are building new terminals at many of our regional airports, and new duty-free outlets will be coming up at our greenfield project as well. You will see that they are going to be significantly different from conventional duty-free shops," he added.

Manishi Sanwal, managing director of Voiceback Analytics, said that profits from selling liquor at duty-free shops are higher than from other products.

"If you look at the entire product portfolio, there could be many products that can give you turnover but don't give you that kind of margin. However, in this chase of variable revenue share, you end up narrowing down on liquor, perfume, and cosmetics," said Sanwal, who was the chief executive officer of Mumbai airport's duty-free shop from 2012 to 2019.

There is pressure on airport operators (and then duty-free shop operators) to extract margins, and liquor's margins are what they are, he said.

"Thereafter, you become a slave to the data because if the store is designed in such a way that 70 per cent is allocated to liquor, then your sales will always be in that ratio, and no operating manager would ever have the strength or conviction to touch liquor. Even if you do, you do it incrementally," he explained.

"So, it does require a bit of a bird's eye view, and new executions to that extent would take care," Sanwal added.

He said that even categories such as liquor, perfume, and cosmetics have issues today. "Gurgaon has changed the game as far as liquor prices are concerned. If you look at cosmetics, there is pressure on prices due to e-commerce websites. For example, certain products on Nykaa would be cheaper than duty-free, primarily because the revenue share (paid by the duty-free store operator to the airport operator) sometimes is more than the duty that you save," Sanwal said.