Gebr. Heineman Outperforms Travel Retail Rivals With 81% Growth To $4.2 Billion In 2022

Hamburg-based global travel retailer Gebr. Heinemann outdid its key European competitors last year by delivering revenue growth of 81%, against 76% at Dufry, the world’s biggest airport retailer; and 65.4% at France’s Lagardère Travel Retail.

Heinemann achieved group turnover of €3.8 billion in 2022 ($4.2 billion) and said, at a press conference on Thursday, that it had returned to pre-crisis profitability even though 2022’s turnover was only at 79% of 2019. The profit rebound is largely down to prudent cost savings but also inevitable job cuts at the height of Covid. However, last year, the employee count rose again to 7,344, up from 2021’s 6,700, as more operations were ramped up.

Co-CEO Max Heinemann commented: “Our business model proved resilient. Now we are challenged by the speed of the industry’s recovery…. all of a sudden we are dealing with growing pains.” This was a reference to the staffing, and materials and product supply, issues afflicting retail businesses everywhere.

The 2022 profit hike came despite Heinemann extracting itself from its fairly extensive retail joint venture operations in Russia—which is still ongoing—and being forced to shut much of its Ukraine business, though 10 out of 13 of its border stores in the war-torn country (mainly EU-facing) remain open.

The Russian business was worth an estimated €250 million a year according to CFO Kai Deneke who described both Ukraine and Russia as “two of our core markets.” He added: “Our strong business mix with a global approach and across different sales channels makes us more adaptable to crises. In particular, the border shops and our diversified wholesale business, with niche segments such as the diplomatic business, helped us a lot during the period of low air traffic.”

While that is true, what possibly helped family-owned Heinemann the most last year was its lack of geographical diversity: it still has quite a hefty reliance on Europe (at 58% of turnover) and the Middle East and Africa (36% of turnover), 94% in total. For comparison, Lagardère Travel Retail has 63% exposure to these regions and Dufry, 54%.

In terms of international travelers, the two geographies have come back strongly from the pandemic, particularly towards the end of 2022 (see IATA’s November and December data for international traffic). Revenue-wise for Heinemann, Europe and Middle East/Africa reached 75% and 108% of their 2019 turnover respectively, whereas Asia Pacific, was still only at 33%.

Turkey was Heinemann’s trump card

Heinemann also had another trump card up its sleeve; it’s extensive retail operations at Istanbul International Airport, which it described as “by far the strongest growth driver.” The Turkish hub had a stellar 2022 with traffic at 65.5 million, leading the European market, and was almost back to 2019 passenger levels. Moreover, the hub, along with Dubai International, has been one of the few that has allowed Russian travelers to connect through it, with resulting high store sales especially in luxury.

Possibly reflecting Istanbul’s performance, the airport channel increased its share of Heinemann’s revenue to 77% last year (from 73% in 2021), followed by the border shop business at 9% (down from 13%). The rest was made up of cruise ships and ferries at 5%, airlines with 3%, and 6% derived from other duty-free channels such as diplomatic business, free-trade zones, or military bases.

These channels are underpinned by Heinemann’s experience in both the business of travel retailing and distribution/logistics, which respectively accounted for 80% and 18% of total turnover. The remaining 2% was referenced as ‘rendered services’.

On a more sustainable footing

Heinemann has integrated green efforts into its 2021 mission statement of “turning travel time into valuable time” with, for example, the company’s ‘future-friendly’ concept that has now been expanded outside Germany to Sydney. The program selects products that adhere to clear criteria: certified organic; vegan and cruelty-free, certified fair manufacturing; high proportion of recycled material; and plastic-free.

Heinemann has also switched to green electricity and 94% of the energy it used in 2022 came from renewable sources. In addition, the company opened Norway HUB, its first regional warehouse near Oslo, in November. The warehouse will save around 300,000 transport kilometers per year between Germany and Norway, equivalent to around 570 tons of carbon dioxide.

Novel startups will also be a target for passive or active investment from Heinemann through its Gharage venture which recently set up an Asia arm in Singapore. Max Heinemann said: “Gharage has built up a diverse portfolio of ventures. What is common to all of them is the aim to open up new target groups and use new technologies for the benefit of travelers.”

This year, sales are again looking up for Heinemann. The first quarter started with 51% year-over-year growth which was “better than budgeted” said Deneke. “We’re very optimistic that we’ll reach an organic growth target of 30%, and we’ll be doubling our investments in systems and digital capabilities.”

However, uncertainties remain. The return of the Chinese in Europe is one of them as well as the impacts of inflation and supply chain disruption, and also managing the ramp-up that Max Heinemann referred to in as painless a way as possible.

On the crucial Chinese factor, the company’s other co-CEO, Raoul Spanger, said: “We are expecting more Chinese in the second half. Our locations in Malaysia and Sydney depend on them.” Meanwhile, the retailer has pivoted to domestic retail at the Australian airport to mitigate the lack of Chinese and international travelers.

In the United States, Spanger noted that there would be a three-year consolidation to focus solely on the cruise retail and distribution business. In March 2022, the Royal Caribbean
RCL
cruise ship Wonder of the Seas set sail on her maiden voyage. Heinemann has seven shops on board the 6,680 passengers vessel, currently the world’s largest cruise ship. In addition, the company has been awarded the concession for another new-build by Royal Caribbean, Icon of the Seas, which is scheduled to be launched in 2024 and will then become the largest cruise ship in the world.