At the recent ASUTIL conference held in Rio, m1ndset’s Peter Mohn raised more than a few eyebrows with his price comparison charts, based on like-for-like product costs in five South American countries. ”Duty Free” prices of a range of items from tobacco, beauty, fashion, confectionery, electronics/gifts and liquor were compared to their domestic high street store equivalents.
Key international airports and typical high street stores in Peru, Chile, Uruguay, Brazil and Argentina were used for m1ndset’s test.
So what do passenger’s expect to save at the airport overall when purchasing their ‘duty free’s’? In Brazil, Peru and Argentina, passengers expect a reasonable 15% on average. That increased to 20% in Uruguay and dropped to a modest 10% in Chile. Surely that should be the norm, a good discount? Not just in South America, but pretty much globally.
But what did they actually get, according to the research? The results were – to be candid – pretty shocking, with very few categories offering average savings anyway near the expectation. Argentina came out the winner, with four of six categories at least in the region of the expected minimum difference. Category-wise, tobacco offered the best savings at between 12% in Argentina and a massive 45% in Uruguay compared to local prices. But what is the excuse for tobacco being 18% MORE expensive in Brazil airports than domestic shops?
In fact, all airport prices showed some product categories to be more expensive than in domestic markets – in some cases significantly so.
Electronics/Gifts: 21% more expensive in Peru, for example. Equally, the savings that are being offered hardly present a great incentive for purchasing. In Peru passengers get just 2% benefit on beauty and liquor. In Chile (the worst performing of all with 4 out of 6 categories more expensive than on local markets), just 2% on beauty. In Argentina and Brazil just 1% on fashion. And in Uruguay just 4% on electronics.
But the real bad boy revealed by the survery was confectionery. 8% more expensive in Brazil and Uruguay airports; 23% more expensive in Argentinian airports; and a massive 37% more expensive in Chile. Only Peru scraped in with a 1% saving – yet not great when compared to passengers’ expectation of 5 – 10%. Apparently, in Chile passengers actually expect confectionery to be more expensive (between 5 and 10%), although I really cannot imagine why. In Argentina passengers expect 0% savings, while in Uruguay and Brazil there’ s a moderate expectation of 0 – 5 and 5 -10% saving. So, it’s clear that passengers do understand that generally on local markets there are not the same levels of tax/duty imposed on confectionery as other categories.
But 37% more expensive? What possible justification can there be to the passenger?
We know why, of course. It’s the usual margin issue – where duties/taxes are not high (or do not exist at all), it’s practically impossible for brands to sell into retailers enabling the expected and ludicrously high 70% plus margins without actually giving it away! But that is simply not a justifiable excuse for the consumer who, quite simply, feels they are being ripped off.
And they are.
So, number one recommendation in Peter Mohn’s summary was: Higher prices at duty free compared to downtown is risky, and will lead to decrease in footfall and conversion rates.
Really? Well there’s a surprise.