Erik-Juul Mortensen said brands play an important part in the development of travel-retail and duty-free in Eastern Europe

Tax Free World Association president Erik Juul-Mortensen was among the speakers after lunch on day one of the DFNI Eastern Europe and Emerging markets conference in Istanbul.

The session, entitled Supplier Issues in Eastern Europe, saw Juul-Mortensen emphasise the importance and value of brand equity and ask if Eastern European consumers crave the same luxury brands as those from the west. “Never underestimate the power of the brand,” he said. “brands have an important role to play in the development of travel-retail and duty-free in the region, but the biggest challenge is leveraging the power of these brands in our distribution model.”

Juul-Mortensen said retailers must do whatever possible to create the “best possible environment” for consumers and urged them to embrace social media and smartphone technology. “Tablet PCs are more popular in Eastern Europe as a medium than the west,” he added.

First to speak immediately after lunch was Gebr Heinemann director Russia/CIS Countries/Baltic Pierre Viarnaud, who predicted 5% GDP growth for the next five years in Russia and the CIS and GDP per capita to rise by more than 84% by 2015. Viarnaud said: “More and more Russian and CIS consumers have access to international brands and are increasingly looking for strong brands and modern retail outlets.”

He then evaluated the long-term prosperity in the region from a travel-retail perspective, pointing to a strong increase in commercial space following airport modernisations and the “establishment of regional hubs and airlines”. Despite the opportunities, however, he pinpointed various threats. “There are bureaucratic hurdles such as the threat to tobacco as a result of Customs union as well as constantly changing rules. This is why we need the duty-free association to address these common issues.”

Next to speak was Budapest airport director consumer business unit Alan Bork, who asked if Europe has “lost its duty-free roots” in the 10 years since the abolition of intra-EU duty-free. “Duty-free was a common platform for customer communication and the industry never really succeeded in creating consensus on a ‘successor concept’ or ‘replacement’ for the simple term ‘duty-free.’”

Bork then shared some results from market research undertaken by the Nordic Travel Retail Group shortly after abolition. “We realised that customer perception had changed a lot. It was clear that focus had shifted from cheap prices to the broader and less definable good bargains. We also found where [before] people had very rational reasons to buy, they now focus more on emotional buying materials.”

The final speaker before the Niederegger-sponsored coffee break was McG Consultants director Richard McGratty. Referring to brand-building and how this can be achieved, McGratty said. “Logic will get you from A to B but imagination will take you everywhere.”

He then referred to four key criteria for successfully launching products in duty-free—eye-catching, innovative, international and competitive pricing—and examined their significance. Regarding pricing he said: “If the product already exists can it be sold cheaper with sustainable profit margins?”

The final session of day one entitled Inflight Retail in Eastern Europe began with a presentation from SunExpress customer services director Stella Gönültaş. “More people can afford to fly than ever before,” she said, “and competition is tougher than ever before. Everyone wants a slice of the pie.”

Declining tobacco sales on board and in general is also a concern, according to Gönültaş. “In terms of tobacco sales their days look numbered. Turkey still has one of the highest consumption rates in Eastern Europe, but sales are declining.” The role of cabin crew must also not be underestimated, she said. “Cabin crew being sensitive to cultural subtleties has a key impact on sales and the role of sales staff in general is extremely important.”

airBaltic managing partner and CEO Janas Vargas then took to the stage and immediately revealed a spend per head increase of 20% this summer compared with 2010, with cigarettes accounting for 27% of total sales and alcohol 21%. He also explained how the airline became the world’s first to sell flowers and first in Europe to “commit to the Apple iPad”.

Day one closed with Iris Ekspres managing partner and CEO Levent Sanay acknowledging strong cigarette sales and expressing a willingness to improve performance in other segments. “We are happy with cigarette sales but want to increase share of other categories and are heavily working on this. Updating the product mix, introducing a pre-order system and seasonal promotions are also on our agenda,” he concluded.

Andrew Pentol