Why duty-free operators do not want an outsider at JKIA

THE high stakes and business exclusivity that characterises the duty free business in Kenya is fast emerging with the recently advertised international tender for the development and management of duty free retail master concessionare. The Kenya Airport Authority is caught between a rock and a hard place. KAA's aim is to take the airport to international standards which its says calls for the contracting a world class local or international operator to bring about the required standards.

According to the KAA plan, the retail master concessionare will offer proffessional duty free offering and upgrade standards and quality by introducing creatively designed stores. But the current 34 duty free operators, who have been accused of operating like a cartel by some quarters, are out to ensure that such an international operator is not allowed to set foot in Kenya. “The fear is that any local or international retail operator providing services at world class standards will expose their sloppy retail standards to the discerning travelling public,” says James Oloo, an economist working at Optimal resources.

Various customer and passenger reviews of the duty free experience at JKIA have in the past painted a lousy picture of quality of services. Complaints range from claims that the shops all sell the same items, which some customers equate to mean there is only one shop. “The airport features expensive and shabby duty free shops staffed by bored assistants selling mainly the same items,” said one customer in a review report. Another passenger interview said: “It's more of a middle class Jua Kali shopping centre rather than an airport.”

Other passengers felt that the shops occupy too much space at the expense of seating areas while others argued that the poor and small design of the shops makes it frustrating to find anything. “It is quite clear that many of our customers are dissatisfied with the current duty free offering in terms of the product offering, level of service, the ambience and the overall shopping experience,” KAA argues.

The operators argue that Kenyan companies have the capacity to run and operate the duty free shops and as such there is no need for a foreign firm to be contracted. “It is not that we don't have the capacity to do the job,” said one major operator. Among the duty free shops currently operating at Jomo Kenyatta International Airport include Maya Duty Free, Diplomatic Duty Free, Sia Manda Duty Free, Rono International, Siamanda Ltd, Zephyr House Ltd, Glamour House Ltd and Kenya Wine Agencies among others.

Some of the duty free shop operators have gone to the extent of seeking President Kibaki's intervention so that the tender is withdrawn and drawn afresh. This indicates the high stakes involved in the exclusive business that has always been run by powerful people. It is however not yet clear if the President has reacted yet to the demands of local operators who include a cabinet minister.

The operators argue that as it is structured, local operators are locked out from bidding for the tender which among other requires that a bidder must have been awarded similar contracts in at least three international airports with traffic of a minimum of seven million passengers. KAA however argues that the tender document was open to both local and international bidders and that out of the available commercial space for the entire unit 4, only 19 per cent was open to international bidders. The 19 per cent is also open to both local and foreign bidders, KAA says. The local operators are also complaining about a requirement that a bidder must provide a performance guarantee for over Sh420 million ($5 million).

Unit 4, where the international operator will be stationed, has been designed as international terminal with 50 per cent of the passengers expected to be transit passengers. JKIA has in the recent past experienced increased number of Far Eastern and other passangers with an affinity for high end products. It is anticipated that the proposed offering will adress this need. “It will ensure that we have a well though out experience,” says architectural consultant Mike Njaga adding that it will offer customers access to a wide range of products and services. “It is not something knew, it has been done before.”

Further according to KAA, the reason for introducing the master concessionare concept at JKIA was also informed by the need to comply with current worldwide standards. KAA argues the concept has been introduced in many international airports to facilitate the management of duty free shops. For instance, the Incheon Airport in South Korea has 70 shops managed by 2 master concessionare while O. R Tambo International Airport in South Africa has 50 stores managed by 3 master concessionares.

An Incheon Airport manager, Taeho-An, said the master concessionaire system is useful because airports are able to utilise each operator's developed management skill. "By public tender, we choose duty-free operators to make them directly manage duty-free business in our airport. Strong partnership with each other is one of the success factors," Taeho-An said in email responses to the Star. As to the challenges that Kenya should anticipate with the implementation of the concept, Taeho-An said this: "It is quite unexpectable because it is related to various environmental facts around nations such as duty-free trend, characteristic of customers, etc."

Locally, the master concessionare concept has been adopted by shopping malls such as Westgate and the Junction, where all the shops are managed by one master concessionare. As part of the wider unit 4 upgrade, the plan involves erecting such facilities such as landside, restaurant, juice and fruit bar which will include international fast food outlets such as KFC and MacDonalds. The unit is estimated to be ready for use in the first quarter of next year.