On October 5, DUFRY AG, world's largest duty-free retailer, announced establishing a joint venture company with Alibaba to seek the development of duty-free retail business in China. DUFRY AG will hold 49% and Alibaba 51% of the joint venture. DUFRY is responsible for providing supply chain and operating technical support for the joint venture, while Alibaba is responsible for providing network and digital support.
DUFRY’s headquarter is located in Switzerland, and its business covers more than 65 countries and regions. It mainly operates duty-free shops in airports worldwide and accounts for a quarter of global airport duty-free retail market share.
This cooperation implies these two giants’ confidence for the Chinese duty-free market, which does take off in 2020 due to the special environment.
Chinese duty-free market
The prosperity of the duty-free market is closely related to the development of the traveling industry. In recent years, because the global traveling industry maintains rapid growth and with it, the global duty-free market also keeps thriving. According to Generation Research data, the global duty-free market’s CAGR reached 8.7% from 2002 to 2018 while that of the Asia-Pacific area exceeded even 14% during the same period. [1]
The data for the Chinese duty-free market is even more astonishing. In 2018, the Chinese duty-free market share amounted to 39.5 billion yuan, and it ramped up to 52 billion yuan in 2019, increasing by 30%. [1]
In 2020, the overseas pandemic of COVID19 stimulated this market’s further development. There are two factors for the positive development: the government’s favorable duty-free policies and Chinese’s demand for duty-free products due to the restricted cross-border travel
This year, the Chinese government revealed several favorable policies to promote the duty-free market to develop, including issuing new duty-free licenses and supporting the new Hainan Free Trade Port.
While China quickly contained the epidemic, the outspread of COVID19 worldwide has stopped Chinese people from traveling overseas. However, their demand for duty-free products still continues, so many turn to the Chinese duty-free market. The data also proves this trend: in the first half of 2020, the Hainan duty-free market grew by 36.7%; in the third quarter, Hainan’s sales reached 8.61 billion yuan, a year-on-year increase of 228%. [2]
Duty-Free Mall in Hainan
The competitive landscape
Despite the great potential of the Chinese duty-free market, it is not easy to enter this market. The first challenge is to get a duty-free operation license from the government. So far, the Chinese government has only issued ten duty-free licenses. These ten licenses’ operation ranges also differ. There are three main kinds of duty-free shops in the market: Port duty-free shop, mostly airport duty-free shop, is the most classic one and accounts for the largest market share; Offshore duty-free shop is the fastest-growing one; Downtown duty-free shop is in its initial period. Every license has its own operation range. Here is a table to show the operation range of these ten licenses.
Ten Duty-Free Licenses in China
From the above table, we can see that China Duty Free Group is a strong competitor in this market. This company owns three licenses, including the only one with a nationwide operation range. This company’s market share in China is expected to exceed 90% in 2020. [1] Globally, it will be likely to replace DUFRY to become the largest global duty-free retailer since its sales have exceeded DUFRY, which has been NO.1 for six consecutive years, in the first half-year of 2020. [3]
DUFRY’s cooperation with Alibaba is a signal of DUFRY’s dynamic response to the challenge brought by China Duty Free Group and Alibaba’s ambition for the duty-free market. We don’t know whether Alibaba will again revolutionize the duty-free eco-system, but we do know that this cooperation will undoubtedly bring new blood to the market.
