Stewart Dryburgh, General Manager, Nestlé International Travel Retail.
Peter Marshall (PM). Stewart, you recently introduced VERSE to the travel retail community. It is set to reignite and delight the TR industry and consumers alike. What is the background to this ambitious project?
Stewart Dryburgh (SD). The last year was catastrophic for travel and the GTR industry – without doubt the most challenging and turbulent period that any of us have lived and worked through. This year has continued to be extremely challenging, but as Winston Churchill famously said: ‘Never let a crisis go to waste’.
One of the key principles of Nestlé, since its foundation in 1866, has always been to recognise, adapt and lead through periods of change. That is as true today as it ever was.
What we have seen, as we have studied consumer behaviour and monitored changing needs and expectations is that there are four clear opportunities to catapult growth within our industry.
Firstly, research has shown that moving forwards, retail and ‘ancillary revenue’ has never been more vital or important to airports’ economic survival and success. However, the old, accepted retail offering will no longer be fit for purpose – the last 20 months has seen exponential growth in online shopping and consumers’ awareness and use of digital social media across all ages and genders. To survive, then, airports, retailers and brands must think differently about the product categories on offer to travellers – and how they present them.
Aligned with this, we are seeing shifting consumer needs and their changing expectations of brands. Value has always been a significant driver of sales with consumers able to check prices and find the best deals with just a few keystrokes, but it’s more than just price, it’s about how the consumer feels post-purchase.
Social media has enabled brands to create real and meaningful engagement with consumers daily; a relationship that consumers have grown to expect in all aspects of their lives – and that includes travel. Increasingly, the strongest relationships are with those brands (and retailers) actively telling a credible sustainable story, either in their own practices and/or through CSR partnership.
Sustainability is so front of mind for shoppers these days that any brand without a relevant message has an extremely short shelf-life.
Combine this with a changing passenger mix that, whilst currently skewed towards the West, will see the Asian wave (dominated by the Chinese) return in ever larger numbers. We have the perfect opportunity to create a retail mix that can Reignite and Delight the shopper. Against this background, Nestlé has developed the VERSE model as a road map for the category that we believe can deliver all the new expectations of today’s traveller: FOOD.
PM: So how exactly can you move from the number 2 most purchased category to equal or exceed that of P & C, the most purchased category? Just how doable is this?
SD: Food was already the no 1 driver of cross category purchases in global travel retail and the second most purchased sub-sector found in 30% of baskets pre-Covid. We believe increasing food’s relevance and building in into the #1 position, at 50% plus of baskets, is totally doable. Of course, it requires the recruitment of a totally new group of shoppers – but that is totally possible, provided we adopt a relevant road map. That road map is represented by the VERSE model. Each letter within VERSE stands for the actions that need to be taken to achieve this goal.
V – stands for Value. Consumers are increasingly demanding value from brands, without compromising on quality. The food sector is well placed to deliver on Value – especially if we offer the relevant segments and brands to travellers. Currently, the sector is dominated in GTR by confectionery, which represents 77% of packaged food sales; yet on domestic markets it accounts for just 7%. While confectionery was, is, and will continue to be the beating heart of food sales within GTR, this number tells us that there are huge opportunities to exploit sales of other food offerings.
E – stands for Engagement. Consumers and brands are increasingly looking to engage with each other at every step of their journey. From the moment the consumer starts to research a trip, brands have an opportunity to interact with them on an increasingly personal basis. Travellers are arriving at airports armed with knowledge and expectation and we have a limited-time opportunity once they are in departures to effectively engage with them and create a compelling reason to enter the store. We have a captive audience at the airport that few other retailers enjoy – it’s up to us to maximise that opportunity.
R – stands for Regeneration. Companies and brands internationally are stepping up to consumers’ growing expectations of CSR, with sustainability at the top of the priority list. Nestle is going one step further, beyond sustainability; its mission is to protect, renew and restore the planet. We bring this to life through our ambitious and engaging “Generation Regeneration” program.
S – stands for Sense of Place. Travellers love to take home memories of their travels – both for self and as gifts. Local and regionally produced souvenirs and merchandise are certainly not new within the airport retail mix. Food – local and regional specialities and traditions – can play a really important role here in enticing customer spend. From Canadian maple syrup to Italian dried pasta to Scottish shortbread to Russian caviar – the list is endless. The opportunity is to merchandise this alongside other segments in the food category.
E – stands for Execution. We all understand that consumers don’t purchase based on strategy but as a result of the execution they see instore. Currently, where food is offered in airports, it’s merchandising can, in too many locations, lack focus – confectionery in one area, local food products merchandised with non-food items, and a missed opportunity with international food brands seen as not really fitting in anywhere. We need to take a much more holistic view of food as a total category, offered within three sub-sectors or pillars: confectionery, global brands, and local/regional foods.
PM: I would like to drill down into some of the elements, which of themselves ask a lot of questions of the business community. Nestlé, of course have always been a thought leader and market maker in the industry – whether producing Confectionery Reports, the Perfect Store and 10 in 10. But VERSE is altogether different because it invites the business to think holistically about the food category as a whole and, if moved on logically, would command significant reimagining of the existing category mix and layouts.
We know retailers are fairly conservative in this respect. The key question here is: how can you convince them to take up the baton to change their mix and give more space to build up the food category and, in so doing, potentially reduce their margins?
SD: Pre the crisis too many of us within the global travel industry were, to some degree, recycling what we had always done. Passenger traffic was increasing year on year; the Asian consumer – lead by the Chinese – had a seemingly insatiable desire to travel and purchase Western brands, and the value of our business, though not without challenges (primarily ecommerce) was continuing to grow. Many voices had been calling for change to drive conversion but, in reality, it was easier for brand owners and retailers to stick to tried and tested methods.
Now market dynamics have changed. Covid -19 has accelerated change in a way that none of us could have imagined and we can no longer ignore the ultimate dictator of our success or failure: the consumer. Airports, retailers and brands have had to wake up and ‘smell the coffee’.
I’ve always liked the quote from Peter Drucker: “The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic.” Well, it’s been the most turbulent two years our industry has ever known – and now is the time to recognize our new reality, listen to our consumers and use a new logic.
Collectively we must adopt new, more agile and adaptive thinking, more closely aligned to changing consumer needs/expectations and changing passenger profiles. The good news is that our partners realise this and consequently are more open and receptive to the VERSE model. What’s more, leading retailers are already, both internally and – in some cases – externally to consumers referring to food collectively as a shopping category.
Yes, it will mean that category mix and shop layouts will require review, but we have a compelling argument and case for food and its ability to Reignite and Delight the consumer.
Of course, the journey is not just about introducing food into stores, it’s about communicating the offer to the travelling consumer at every stage of their trip, from the initial planning and booking stage. This is where offline and online communication need to work better together, rather than in isolation. Retailers, airports and brands need to be far more in sync in this respect – bringing the retail/brand offer to passengers in a seamless way and generally becoming better connected to the consumer eco-system.
We strongly believe the VERSE model works for the new generation of travelling consumers post-Covid – and it is a model that has application across all product categories, not just food.
PM: Might Nestlé move to generating new store planning in collaboration with retailers as part of this?
SD: Whilst store planning is a core retail competence, we are indeed ready, willing and more than able to work directly with our retail partners to incorporate the VERSE model into the planning & layout of their airport stores.
PM: Let’s move onto regeneration, one of the core elements of VERSE. You’ve said that this goes beyond sustainability and it’s what excites you most. Can you expand?
SD: Sustainability is the word on everyone’s lips, but Nestlé is going a giant step further with a commitment to support and accelerate the transition to a regenerative food system – one that aims to protect and restore the environment, improve the livelihoods of farmers and enhance the well-being of farming communities.
Nestlé is investing CHF 1.2 billion over the next five years to spark regenerative agriculture across the company’s supply chain, working with its food system partners, including the company’s network of more than 500,000 farmers and 150,000 suppliers.
Key focus points are enhancement of biodiversity, soil conservation, regeneration of water cycles and integration of livestock.
Agriculture accounts for nearly two-thirds of Nestlé’s total greenhouse gas emissions, with methane from cows accounting for about half of that. In dairy, for example, Nestlé is assessing cutting edge science and technology to reduce emissions at farm level. The company will start working with 30 reference dairy farms in 12 countries to test scalable, climate-friendly and regenerative agricultural practices that help achieve net zero greenhouse gas emissions. Nestlé is also working with farmers to select and cultivate nutritious and tasty pulse varieties to be used as milk alternatives. This, of course, has a direct connection to our travel retail confectionery portfolio which relies heavily on our milk production.
Regenerative agriculture contributes to a regenerative food system, which should be fair and transparent for all participants. Nestlé is committed to supporting improved and diversified farmer incomes through its sustainability programs.
Nestlé’s regeneration efforts are launching under the umbrella title of ‘Generation Regeneration’ focused on farmers, youth, consumers and its own employees.
PM: So, what other opportunities are there? You’ve talked about brands like Oreo and Nutella adding to the overall product mix within the food category and where other products can also be sold where not otherwise available in the domestic market. Just how many examples are out there that can support your vision?
SD: There are so many brands out there with potential for sales within airport retail. Brands from big multi-nationals through to smaller family-run businesses, offering products with either international or local appeal. In terms of product types, the list really is as varied as the shoppers traveling through the airports!
I would think just about every airport in the world has the possibility to offer local specialities building on the important Sense of Place. The key, we believe, will be to offer a balance of international and local brands, alongside confectionery, which will remain the essential core.
PM: What about possible symbiosis with a travel retailer or directly with an airport who also manage f & b concessions?
SD: On paper this seems like a natural and obvious way to drive sales –enjoy the local cheese in an airport café or restaurant, or an After Eight mint with a post meal coffee and obtain a discount voucher to buy the same product in the retail shop. In practice that idea has merit where the retail and F&B is run by the same operator, but where these are different the complexities of pricing/voucher discounts may be too restrictive. However, it’s certainly something we would always be keen to discuss for appropriate products.
PM: It is fair to say that many airports and retailers operate at different speeds. I guess that’s what makes this target such a challenge. What’s your timeline to get to the magic 50% and to being the number 1 most purchased category?
Our ambition is to reach the 50% goal, with food the number one most purchased category, by 2030. We feel that’s a completely achievable goal, recognising that – as you say – airports and retailers are not all aligned in terms of growth and development. We also must consider the different rates of global recovery from Covid-19 and the repercussions on passenger traffic in areas which are still behind on the vaccination program.
Nevertheless, the opportunity is clearly there, and I’m delighted to say that initial response from key retail partners has been extremely positive. VERSE will help shape our future – the future that consumers expect from all of us operating within the global travel retail environment.
PM: So can VERSE morph in any way with METAVERSE over time?
SD: Who knows where interactive, immersive and collaborative engagement will take us over the next decade, but food does tend to live in the real world.
PM: One final question, Stewart. Bringing the strands together, if there were 3 things you wanted to say to the audience, what would they be?
SD: All ships climb on a rising tide and everyone can benefit from a holistic focus on the food category.
We can grow food to become the number one most purchased category in travel retail.
Nestlé is ready to work with its retailer partners to drive sales through implementation of the VERSE model.