The Travel Retail Industry Knows MAGs Are A Problem. So Why Not Fix It,Then?
By: Peter Marshall
The Travel Retail Industry Knows MAGs Are A Problem. So Why Not Fix It,Then?
3 minutes read
Last week’s ETRC Business Forum in Amsterdam was excellent across all its sessions, arguably setting a new benchmark for what the industry needs and wants. It was very well attended and augurs well for any future forums ETRC organises in support of the industry. Many came to see one of the key sessions, our focus for today’s blog, where some of the biggest names in travel retail took to the stage to address the industry’s future. The key theme? Adaptation, agility and the urgent need to change.
Yet, despite the rhetoric about evolution, one of the most pressing industry challenges – the Minimum Annual Guarantee (MAG) model – was met with strong criticism but zero solutions.
We know the consensus, that the MAG system is broken. There is no mistaking the industry’s frustration with the MAG structure, where retailers mainly commit to paying airports a fixed sum, regardless of performance. Xavier Rossinyol, CEO of Avolta, did not hold back, calling MAGs “a cancer” that must be eliminated. Max Heinemann, Co-CEO of Gebr. Heinemann stretched the point, stating that the industry isn’t “trend-setting” and has been slow to innovate its commercial agreements. Frédéric Chevalier, Deputy CEO, Lagardère Travel Retail, said that today’s contracts are probably the biggest risk that retailers take on. Ray Hernan, CEO of Aer Rianta International, acknowledged some progress in moving from rigid MAGs to per-passenger guarantees post COVID, but stressed that real change is still lacking.
The room largely agreed: the MAG model is outdated, stifles investment and limits flexibility. But here’s where the conversation stalled.
There was a clear blind spot – no one proposed an alternative. For all the frustration over MAGs, not one of the four CEO’s put forward a viable alternative. This was a glaring, if predictable, omission. The industry leaders were quick to dismantle the current system, but fell shy of suggesting anything suitable for its replacement.
We all know the history of MAGs and the business, and solving the problem has been the industry’s single most difficult nut to crack. But if airports and retailers are serious about reform, what comes next?
* Should the industry shift to a hybrid revenue-share model, where retailers pay a percentage of sales with a lower base rent?
* Could airports and retailers experiment with performance-based contracts that incentivise sales growth rather than penalise fluctuations in passenger traffic?
* Should collaborative partnerships replace rigid systems, where full data sharing and joint investments drive footfall and spend?
There was another missed opportunity – airports were simply left out of the conversation and their inclusion could well have enhanced the session. Sure, the retailers framed MAGs as an outdated burden, but there was little attempt to consider the airport perspective. A number of airports were in the audience, but nothing came from the floor. The plain fact is that airports rely on MAGs for financial predictability and infrastructure investment. If retailers want a fairer deal, they need to propose structures that de-risk revenue for airports, too. And we know that’s not simple at all. Whilst we know there are a few examples of JV’s, nothing has emerged as a working model for all.
Arguably, this Forum could have been the moment for a bold, industry-wide initiative to develop new contract models – the creation of a working group, a pilot programme, a commitment to innovation. Instead, it felt like an airing of well-known grievances without a roadmap going forward. But maybe, just maybe, this ETRC Forum was a new starting point.
So where do we go from here? The industry widely acknowledges that travel retail needs a reset. The question is: who’s going to lead it? The message from Amsterdam was clear: evolve or become irrelevant. The challenge is now whether the industry will actually take its own advice.
All images: Richard Theemling Photography
