New Zealand's largest independent duty free shopping company has been sold to French giant Lagardere, after the family-owned group concluded it did not have the firepower to expand into larger airports.
Duty Free Stores Wellington was founded after former Lion Nathan executive Don Archibald purchased the right to sell duty free at Wellington Airport in 1986.
Although the company lost the right to retail in its home city's airport in 2009, DFSW operates in regional airports in Hamilton, Rotorua, Queenstown and Dunedin, as well as Gold Coast and Adelaide across the Tasman.
The price of the sale was not disclosed, but the company said it was generating annual revenue of about $35 million at the time of the sale.
Chief executive Grant Archibald, the founder's son, said DFSW sales had been growing, but it had missed its two latest tenders to operate at new airports.
By the time Lagardere approached the company late in 2011 about a possible purchase, the family had already concluded it would need substantial financial backing to move to the next tier of airports in New Zealand and Australia.
"It's a big step up from some of the regional airports we operate in New Zealand and Australia to the next level up," Archibald said, citing the likes of Perth, Cairns and Christchurch airports.
"It's a giant leap up in turnover, and we would require a lot of backing and it would be a lot more risky if we were to have a serious go."
As well as paying to rent the space in which they occupy within airports, duty-free operators at larger airports typically surrender a percentage of their sales to the airport owner.
As the airline industry struggles worldwide, airport operators have placed much greater emphasis on retail activities to generate profits.
Where once airports derived two-thirds of their income from aeronautical activities and one-third from commercial operations, those ratios had effectively reversed over the last decade, one airport executive said yesterday.
"Smaller operators are just not going to have the buying power to make the margins work."
Archibald said the tender to offer duty-free services at Perth Airport would come up soon and he anticipated Lagardere would compete "aggressively" for the business. The company had already given a "firm commitment" to all of DFSW's existing airports.
Based in Paris, Lagardere had revenues of 7.7 billion (NZ$11.9b) in 2011, with operations ranging from media to a 7.5 per cent shareholding in EADS, an aeronautics and defence contractor.
Through its LS travel retail business, the company already operates in about 120 airports, selling duty-free and luxury goods, as well as being a leading player in the news and convenience category.
The company said it was "business as usual" for DFSW's existing operations.
Matt Mercier, LS travel retail's Pacific chief executive, said the deal was a platform for expansion.
"We are determined to build a strong, innovative duty-free business in the Pacific and the purchase of DFSW gives us a fantastic foundation for this."
DFSW operates at four regional New Zealand airports, as well as Gold Coast and Adelaide. Founded in Wellington in 1986, it developed into a regional player following the introduction of low-cost trans-Tasman flights.
Lagardere already owns the Relay news and confectionary stores in New Zealand, buying and rebranding 10 airport-based Whitcoulls stores last year out of administration.
All up it operates out of 120 airports worldwide, as well as 700 train stations. JR/Duty Free, an Australian company, operates duty-free stores in Christchurch and Wellington, and shares the concession with US-owned DFS Galleria at Auckland Airport
- © Fairfax NZ News
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