October/November 2006 INTERVIEW • Aelia Paris partnership · October/November 2006 INTERVIEW • Aelia J oint investment. ... operations at Paris Charles de Gaulle (CDG) Airport

The Moodie Report 49

October/November 2006 INTERVIEW • Aelia

Joint investment. Risk and reward. Profit-sharing.Phrases that are part of the language of our indus-try, yet how often do we see these ideas in practice?

In the landlord-retailer context, hardly ever.

But here’s a notable exception. Three years ago, Aéro-ports de Paris (AdP) and France’s leading travel retailerAelia created a joint subsidiary to manage selected retailoperations at Paris Charles de Gaulle (CDG) AirportTerminal Two. Last year that agreement was extended toT1. Now, under a new deal that radically widens thescope of the partnership, the subsidiary – Société de Dis-tribution Aéroportuaire (SDA) – will take over liquor,tobacco, fragrance and gourmet food (including confec-tionery) concessions across all terminals at CDG andOrly airports from 1 January 2007. Dufry will be amongthe casualties, relinquishing its CDG T3 contract cover-ing beauty, liquor and tobacco as its concession expires.

These are exciting times for France’s leading travel retailer Aelia. Under a newagreement with Aéroports de Paris, their joint subsidiary Société de DistributionAéroportuaire will extend retail operations to all Paris terminals from 1 January2007. That strengthened Paris base will give Aelia a platform to pursue itsinternational ambitions, as Chairman and CEO Michel Perol tells Dermot Davitt

Parispartnershipgives Aelia a towering platform

Michel Perol: Aelia’s CEO welcomes partner Aéroportsde Paris’ fresh emphasis on commercial expansion

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Four years ago Aelia took the firststeps on a path to differentiateits stores – both from the domes-tic market and from other airportretailers. It created a series ofhigh-end concepts such as BeautyUnlimited and Pure and Rare, forthe fragrance and liquor cate-gories respectively. So how doesthe company assess its strategyof differentiation now, and whatis the next step in developing it?

Aelia Chairman and CEO MichelPerol insists the strategy remainsbroadly the right one, even if ithas been tweaked over the years.

He says: “The big issue in our busi-ness is passengers’ claims thatthey see the same products every-where, and the same type of shops.With more and more frequentflyers, falling penetration is a bigdanger for the industry. Creating apoint of difference for your storeis an absolute must. If you can’tdo something different for themyou’re fighting a losing battle.”

The decline of tobacco and theslower growth of liquor reinforcedAelia’s belief that it had to inno-vate. “When the tobacco priceincreases took effect in France in2003 it cost us dearly,” says Perol.“In the period since then we’velost €60 milllion in turnover –

fortunately, in margin terms, mostof it duty paid. Liquor has grownwith traffic rises, and is stable,but the big growth sector hasbeen fragrances and cosmetics.”

It’s therefore no surprise that aninvestment in upgrading the lookof its beauty stores is high on theagenda for Aelia. “It’s eased by thefact that we can now allocatemore space to this category as weexpand in Paris,” says Perol. “Andthat will mean new fixtures, bettercommunication, fresh displays.”

That approach was exemplifiedby the opening in June of a new220sq m branded beauty conceptat CDG Terminal F1. It features aprominent white back wall for thebest-selling ‘axis’ brands Chanel,Lancôme and Christian Dior. Otherprestige brands sold in-storeinclude Estée Lauder, Clinique,Guerlain, Kenzo, Hugo Boss,Armani and Calvin Klein, as well asmass-market brand L’Oréal Paris.A men’s bar area is also included.And it marks a big step forward inpersonalising Aelia’s beauty areas.

But it’s not only beauty that theretailer is putting its faith in. “Wehave created an upscale ‘gour-mand’ concept, a business that isgrowing very fast for us,” explainsPerol. “As a French company we

believe this should be a strength ofours, but by adding high-end giftsand souvenirs we can appeal tofrequent travellers. It’s an interest-ing area for our EU passengers.”

Expect to see a fresh emphasis onfashion in the future at Aeliastores too. Under a joint venturewith HFP Phénix, Aelia has beenoperating some fashion, but nowplans to give it a more dedicatedfocus. “It’s quite a new category,but a key one in our portfolio. Weare taking a greater stake in thatjoint venture business and we’reinvesting. You’ll see some of theresults in the new S3 when itopens in June next year.”

Paris Charles de Gaulle’s new S3Terminal should be somethingspecial – and very different –from the tight retail spaces thatcharacterise much of CDG today.It will contain the largest fra-grances and cosmetics store at aFrench airport, at 600sq m.Aelia’s Cave à Cigares concept,including high-end Cognacs andwhiskies, as well as cigars, willfeature. And Aelia’s wine concept,featuring over 300 differentreferences, will also star. Theremay also be some stand-alonebranded stores, although the finalplans have yet to be decided.

Striving for a point of difference

Fragrance focus: Aelia pledges to allocate a greater share of space to fragrances and cosmetics. Its improvedemphasis on personalised areas is already in evidence at the retailer’s new CDG2 F1 store

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V I S I T U S I N C A N N E S , M A R I N E V I L L A G E , S TA N D S 7 .

L U X U RY C I G A R E T T E S

T O B A C C O S E R I O U S LY D A M A G E S H E A LT H

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AdP will increase its holding in the joint venture from49% to 50%, creating a 50:50 profit share with Aelia.

That AdP is expanding its interest in retailing comes aslittle surprise. International passenger traffic at its Parisairports is rising fast – up +6.3% in the first half of 2006compared to the same period last year – yet SDA’s salesoutstripped this increase with an impressive +26.6% risein sales in the half, through the addition of CDG T1. In2005 SDA’s total sales before tax amounted to €163.9 mil-lion. Crucially, over 80% of this was duty free.

When AdP launched its initial public offering of sharesin May it signalled its intention to develop commercialactivities as a priority. At the time, AdP President PierreGraff pledged to increase retail space at its Paris airportsby +30%. It’s that fresh emphasis on commercial opera-tions that excites AdP’s partner Aelia.

Aelia Chairman and CEO Michel Perol tells TheMoodie Report: “In the three years of our cooperationthere have been huge changes in AdP’s strategy, its organ-

isation and the way it has prioritised retailing. And thereare two main areas where the joint venture has benefit-ed. First, there’s the commitment laid down by PierreGraff that retail is key to AdP’s development. He realised– and stated – that the retail locations in Paris were toosmall by comparison with other similar-sized airports,and that there simply wasn’t enough room in the termi-nals for shopping.”

From now on, all new terminals at Paris CDG will havea strong emphasis on retailing at the planning stage andwill deliver a higher quality of retail space. The first bigexpression of this will be in the new S3 Terminal, sched-uled to open next June.

“What is happening in S3 would have been unthinkablethree years ago,” says Perol. “It will have a 600sq m fra-grances and cosmetics shop, the largest by far at anyFrench airport. The space devoted to duty free retailthere will reflect the terminal’s importance to our busi-ness, and won’t have the cramped spaces that used to bethe norm at CDG.”

Classy concepts: Dedicated gourmet (above) and liquor concepts (below) such as these at CDG T1 mark a breakfrom the cramped retail spaces traditionally associated with the Paris hub

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DANZKA® VODKA. BOTTLE CHILLS FASTER. FLAVOURS CHILL SMOOTHER.

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The second crucial development is that AdP as an organ-isation is now much more retail-focused. Once, the onlydepartment that took an interest in commercial activitieswas the retail department; but that’s all changed.

Perol says: “Now, every terminal has a manager whosebusiness includes not only operations and security, butalso retail. It’s become a profit centre for each terminalmanager so they have to concentrate on retail as a corepart of their business. That’s a huge change.

“Five years ago your only contact in the field was the air-port architect. Now there’s a close working relationshipbetween the retail department and airport management,

so the processes are far more efficient. The focus is nowon entertainment, on signage, on lighting, on colour;and the customers notice the difference too.”

So when Aelia proposes ideas for a new use of space, ora new concept, it is pushing against an open door with itspartner – the airport.

Walk through T2F today and it’s symptomatic of thenew approach. There is far more commercial signagethan ever before, and the colour-coding of bars, restau-rants and retail simplifies the job of getting around.

“It’s been one of the great changes recently at the air-ports,” says Perol. “AdP has been focused on strength-ening its communication with passengers, and you see itacross the terminals now.”

Long-term viewFor Aelia, the benefits the partnership brings are secu-rity of tenure, and the recent agreement cements itsposition as France’s leading travel retailer. There havebeen compromises too. Moving from 51% to 50% ofprofits dilutes Aelia’s stake in SDA, however marginal-ly. Perol says: “There has to be a balance between thesecurity of a long-term partnership and profit-sharing,and the agreement has been amended appropriately.

“But we need that long-term view. It’s more predictablethan having a short-term concession contract, whenyou’re gambling that your investment will pay off.

“Looking forward, we have the opportunity to developa coherent retail strategy across the Paris terminals,

L’Occitane’s storeat Paris OrlyWest: raising thestandard of retailright across theParis terminals

Source: Aelia; The Moodie Report

Aelia sales breakdown 2005

� Perfumes & cosmetics � Liquor & Tobacco� Gourmet foods � Inflight sales

� Electronics, media, fashion accessories

2005 sales:€432 million

32%

12%

38%

12%

6%

People buy from people they like

Valora Trade Travel Retail will be pleased to wel-

come you at our stand located in Yellow Village G59

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in positioning, in prices, in brands, in service. We caninnovate with new concepts and brands, in a way thatis very risky under shorter contracts.”

Having the luxury of operating across all of the CDGterminals and Orly will also allowthe partners to develop retail solu-tions for the very different passen-ger profiles at each. And if airlinesswitch terminals – as happenedabruptly in August after the UKterror alert – then it becomes lessof a challenge for one retailer tomanage that change across severallocations.

“In September US flights movedfrom CDG2C to the temporary ETerminal,” says Perol. “That kindof move can be a nightmare forconcessionaires. It was decided onthe Monday, and implemented on the Wednesday. Butunder a global contract and with a unique partner, we canadapt to those changes quickly. The same applies if Chi-nese flights change terminals at short notice. We canmatch the passenger profile to their shopping needs with-

out looking at the fine print of our contract. And we cando it quickly.”

It’s no accident that Perol singles out the Chinese; in thenext two years AdP forecasts that they will overtake the

Japanese in terms of passengernumbers at CDG. And Aelia isreacting. “We have hired staff whospeak Mandarin, and we have ded-icated advertising, special prod-ucts and promotions aimed at thisgrowing group,” says Perol.

Dreams into realityThis interaction with Asian con-sumers could come in handyshould Aelia manage to turn itsdreams of international expan-sion, particularly in Asia Pacific,into reality. In joint venture withJames Richardson, Aelia compet-

ed hard for the Sydney Airport duty free tender (even-tually won by incumbent The Nuance Group). But theventure whetted Aelia’s appetite for further expansion.

Perol says: “In Australia we had our HDS-Pacific business



After the UK terror alert of 10August, France’s airport securityauthorities imposed some of thetoughest measures on passengers– and retailers – anywhere inEurope. Until 8 September nopassenger flying to the US, UK orIsrael could take any liquids orgels on board – including dutyfree purchases. The move affectedAelia at every one of its Frenchairports, but hardest hit wasParis Charles de Gaulle.

“Our average sales to thesepassengers dipped by -50% inthat period,” says Aelia Chairmanand CEO Michel Perol.

From September, passengers onUS- and Israel-bound flightscould purchase, but only if goodswere delivered by the retailer to

the gate. “It was complicated forpassengers and dented theirconfidence. It was expensive andinefficient for us. We had to stopselling to these flights 60 to 90minutes before takeoff.”

So when the security authoritiesallowed these passengers to buyin the shops and take their pur-chases with them on 1 October,Perol breathed a big sigh ofrelief. “Removing the need todeliver to the gates makes ahuge difference. The passengersare much happier about buying,even with the transparent sealedbags, and we are all relieved,”says Perol.

“We had a very strong lobby, withAFCOV (the French travel retailassociation), the European Travel

Retail Council, Aéroports de Paris(AdP) and suppliers, throughComité Colbert, all involved. Wehad to explain that our processesof delivery from bond to shopwere secure.”

As a reaction to the new meas-ures, airport authority AdPmoved all US flights to the tem-porary Terminal E. “That was agood move as it meant the ruleswere implemented in only onelocation, so made it easier tomanage.”

Alongside the airport authorityAelia developed clear, simplesignage outlining what passen-gers could buy, to alleviate someof the confusion that occurrednot just for US flights but amongall passengers.

Relief as “inefficient” gate delivery rules are eased

“We have theopportunity to

develop a coherentretail strategy

across the Paristerminals”

Monica Bellucci

www.dior.com

Tyen

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as a base, and the local partner in Richardson. It was a goodmodel, we believe. We want to be involved on the retailside, not just in supply or as a sleeping partner. It’s HDS[Hachette Distribution Services is Aelia’s parent company,part of the Lagardère Group –Ed] strategy to take part inoperations, because that’s where our expertise lies: in areassuch as IT, training, and developing the product range.”

Perol adds: “We have huge ambitions to expand interna-tionally. We were in the running for Sydney and Copen-hagen. And we have a big commitment from our ownersto support that strategy of expansion, whether that isthrough partnership, tender or even acquisition.”

Being involved in the shake-up at Sydney and Copen-hagen has added a layer of precious experience too. “Wehave entered many tenders in recent times, and it hasmade us much more solid as a company and forced us toadapt our organisation. We have improved our tools tocompete better in future.”

It has also prompted a restructure in Aelia’s businessdevelopment arm. One of the results was a new memberof the team, ex-Duty-Free News International Editor JohnRimmer. Aelia hopes his insights into the trade can opennew doors and deliver a fresh eye on the company’splanned expansion.

Five years ago Aelia created thefirst in a long line of own-brandproducts, notably in the liquorsector, designed as novelty giftsfor visitors to Paris. Brands suchas Vod.K, flavoured vodka BigBang, 1789 Gin and 3yo Scotchwhiskies For Men and ForWomen will forever have theirown small corner in industryhistory. Even today, the fewremaining items in the range,such as Aelia’s Travel Vodka, have

their place, says Chairman andCEO Michel Perol, but when thecompany talks about housebrands today, the emphasis isvery much on the word ‘brand’.

He says: “We still use items likethe vodka to penetrate some pricesegments, but you could say wehave reversed the trend. We stillbelieve in having products specificto us, but why not get help fromthe world’s best brands to do it?”

Aelia has done justthat, with fragrancessuch as JetLag byAzzaro and, fromGuerlain, Vetiver pourElle and, more recent-ly, Lights of Champs-Élysées, createdexclusively for Aelia.In a major break-through last year,cosmetics too joinedthis small but grow-ing portfolio of exclu-sive Aelia products.Lancôme created a

special make-up item, the FrenchRiviera palette – a limited edition– which was rolled out to theretailer’s outlets in April 2005.

Perol says: “We’re proud that thesecompanies have decided to workwith us on these projects. Theyhave to be confident their brandname will be protected. Althoughthis sector isn’t a huge part of oursales it’s important in how wecommunicate with consumers, andit is a way for us to remain differ-ent from the domestic market.”

Another way to retain that air ofexclusivity is to command asmany new launches as possible,and it’s a strategy to which Aeliais committed. “At the airport weneed to create an environmentthat is exceptional,” says Perol. “Ifwe can tell travellers that theycan get the latest Lolita Lempickafragrance here, or a Veuve Clic-quot travel pack, as we have donerecently, then it strikes a chord,and gives them the opportunityto buy a great one-off gift.”

An air of exclusivity

Towering ambition: Aelia’s own-brand noveltyproducts are giving way to exclusives developedby the world’s top brands

Majoring on men: Aelia’s Men’s Lounge at CDG 2Dshows how the retailer is reacting to market niches

Untitled-1 2 27/9/06 09:22:16

Asia Pacific is at the heart of those expansion ambitions,with big tenders at Singapore Changi and at SeoulIncheon due in 2007. But the most valuable contracts,such as these, will also be the most hotly contested. Perolsays: “That’s true, and in our business we have also suf-fered from what one might call speculative bidding insome places. We can’t afford to take unbearable risks, butthat doesn’t mean we shouldn’t be confident. We have astrong international network through HDS, and theexperience and know-how to make it happen.”

The emerging markets of Eastern Europe also offeropportunity, while to the west Aelia has made a statementof intent by its dramatic entrance into the UK, where itnow operates at London Luton and Belfast Internationalairports.

“Both have been rich experiences,” says Perol. “Operat-ing at Luton, we had to adapt to a very dynamic market.It’s a very reactive business, one that’s hugely promotion-driven. We learned a lot in a short time. The UK is aninteresting market with the rate of traffic growth and theturnover available as a retailer, even if margins aren’t ashigh as in classic duty free markets. We’d like to domore there.”

With the expansion of space at its Paris terminals, and

improvements to its existing retail operations, Perol isconfident the company will grow airport sales by +10%this year, and predicts at least a further +10% next year.Allied to sales at the company’s Eurotunnel and inflightarms, that would take the company to around €550 mil-lion in sales – a big leap forward from the 2005 figure of€432 million.

And it is the Paris base that gives Aelia the confidence toexpand overseas. Perol says: “When Aelia was createdthrough the merger of Aéroboutique and Duty FreeAssociates in 2000, the primary aim was to consolidate inFrance. Now we have that solid base. And the AdP part-nership gives us the opportunity to innovate and increaseturnover per passenger [currently at €15–17 in CDG–Ed]. So we are turning our attentions to the interna-tional marketplace.”

Should Aelia management need a reminder of how asmall to mid-sized retail company can expand into aglobal force, it only needs to look at sister HDS brandRelay. It’s the division where Perol himself started in thegroup in 1985. “Relay started out without even a brandname, but from a small France-based company it’s nowpresent in 75 countries, and it’s recognised by travellersthe world over,” he says. “We recognise what a great trackrecord Relay has, and at Aelia we want to emulate it.” �

Dynamic market:Aelia’s experienceat London LutonAirport has been a“rich experience”says Michel Perol



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October/November 2006 INTERVIEW • Aelia Paris partnership · October/November 2006 INTERVIEW • Aelia J oint investment. ... operations at Paris Charles de Gaulle (CDG) Airport