Travel Markets Insider / April 2005
By Larry Luxner
For most of its history, Asunción's Silvio Pettrossi International Airport had no real duty-free shopping to speak of.
That changed in March 2001, when Brazilian entrepreneur Marcos Rothenberg launched Bright Star Duty Free S.A. in Paraguay.
Headquartered in Asunción, Bright Star Duty Free consists of three distinct business units: duty-free sales, in-flight sales and food distribution. Last year, the duty-free unit alone generated sales of $5 million, or about 45% of total company revenues. The company has no relation to Brightstar Corp., an $800 million telecom equipment supplier that also has operations in Paraguay.
Since Rothenberg, president of São Paulo-based RR Perfumes as well as Brazil's Association of Perfumes and Cosmetics Importers (Adipec), hired Uruguayan duty-free executive Nicolas Urioste to manage the new Paraguayan venture, the company has pioneered new ground in airport shopping in the South American country best-known for its free-wheeling border trading.
At Silvio Pettrossi International Airport — known as Alfredo Stroessner International Airport until the Stroessner dictatorship was overthrown in 1989 — Bright Star has two outlets. One is a 170-sq-meter store for departing passengers, the other a 120-sq-meter shop for arrivals.
"We were the only ones who bid, and everybody here thought we were crazy," Urioste told Travel Markets Insider. Bright Star has a five-year concession with the Paraguayan government, with an option to renew for five more years.
Terms of the concession are confidential, though Urioste did say Rothenberg has invested at least $2 million in the project. At the moment, Bright Star employs 71 people, 24 of them in duty-free sales.
Last year, around 15.2% of the 700,000 passengers flying in and out of Silvio Pettrossi visited Bright Star's two stores, with the average purchase amounting to $57.
"The 15.2% is average, but the ticket is a low compared to the rest of the region, so we're focusing our marketing activities toward increasing that ticket, and trying to generate purchases of over $50 or $100," he said.
Urioste, 36, began working with UDV in 1996. Three years later, he moved to IOSC, the purchasing division of Interbaires, which was formerly owned by the Exxel Group. Urioste was working for Exxel when Rothenberg asked him to start up his company in Paraguay and develop the brands.
At the end of 2001 — Bright Star's first year of operations — company sales consisted of fragrances (38.0%), spirits (11.6%); electronics (11.2%); accessories (11.0%); tobacco (10.6%) foods (9.1%), apparel (5.5%) and cosmetics (3%).
In 2004, fragrances had jumped to 59.7% of total sales, followed by tobacco (14.9%) and spirits (9%), with negligible sales in the other categories.
Urioste explained that "in the beginning, Paraguayan consumers really didn't understand how the duty-free system worked. They purchased in foreign duty-free stores like Brasif, because they believed they were not allowed to buy duty-free in Asunción. We had to educate the people that they could purchase in those stores."
Urioste said duty-free prices on fragrances are 20-30% cheaper than regular store prices, "because it's one of the most protected industries in Paraguay — especially in Asunción.
"Around 80% of sales from local importers is concentrated in Ciudad del Este, and the other 20% in Asunción. But marketing expenses are exactly the opposite, with 85% of marketing costs spent in Asunción and only 15% in Ciudad del Este. As a result, the Asunción market is overprotected, which is a good thing for us, because tourists don't usually go to Ciudad del Este."
He added: "People in this industry tend to think that Ciudad del Este is a duty-free city. That's completely crap. Paraguay has the same taxation and duty system as the rest of Latin America. The difference is that all the importers in this country tend to avoid paying duties. That's why a place like Ciudad del Este exists, with such incredibly low prices."
Urioste said 65% of his customers are executives who fly into Asunción on a Monday and leave on a Friday. By nationality, Bright Star's customers are from Argentina (27%), Paraguay (24%), Brazil (22%), Chile (9%), Bolivia (5%), Uruguay (5%) and the United States (2%).
"This is a poor country, where all the wealth is concentrated in 10% of the population, where the minimum wage is around $140 a month, and where the economy depends on agricutlure, especially soybeans and grains. But those who have the ability to travel spend a lot of money. They tend to buy three or four fragrances every time they fly."
Top-selling fragrance brands include Calvin Klein, Tommy Hilfiger and Issey Miyake. Best-selling liquor brands are Johnnie Walker Black Label, Chivas Regal and Old Paar.
"Tobacco is also a very important category for us," he said. "Until 2002, anywhere in Paraguay you could buy Marlboro cigarettes made in the U.S., so people were really used to smoking American cigarettes. In 2002, Philip Morris decided to change the sourcing of their products, and they started bringing in Marlboros made in Uruguay."
Paraguayan smokers apparently noticed the difference, which Urioste claims has translated into a 300% jump in tobacco sales at his duty-free stores, which still offer the American-made cigarettes.
Besides the two stores at Asunción's international airport, Bright Star also has permission to open an outlet at Ciudad del Este's Guaraní International Airport. "But we're not interested, at least for now, because there aren't enough international passengers," said Urioste. "That airport is basically for cargo and domestic flights."
Another small but growing part of Bright Star's revenues come from inflight sales.
Bright Star enjoys an exclusive contract to supply luxury products to passengers aboard TAM Mercosur, a regional airline based in Brazil that connects Buenos Aires, Montevideo, São Paulo, Rio de Janeiro, Curitiba (Brazil), and the Bolivian cities of Santa Cruz and Cochabamba.
Fragrances accounted for 37% of inflight sales in 2004, led by Polo Blue (125ml), Armani Mania (100ml), CK One (50ml), Very Irresistable Givenchy (50ml) and Presence Montblanc (75ml). Other leading products were cigarettes (22%), chocolates (17.6%); spirits (13.4%) and cosmetics (10%).
All told, Bright Star's inflight revenues came to $800,000, with 4% of passengers making duty-free purchases. The average spend per transaction was $36 each. That's higher than the industry average, said Urioste, thanks to aggressive marketing by TAM's flight attendants. Their incentive: a generous 15% sales commission that often exceeds their monthly salaries.
In January, Paraguay assumed the six-month rotating presidency of Mercosur — a trade bloc that also includes Argentina, Brazil and Uruguay, with Bolivia and Chile as associate members. In addition, Mercosur and the five-nation Andean Pact are talking about merging.
Asked if eventual economic integration among South America's 12 countries would be fatal to the airport duty-free business, Urioste said definitely not.
"Often, the only time our customers have to decide on purchasing a luxury item is when they're at the airport, and they don't find these kinds of products on the domestic market," he said. "Therefore, I don't think South America's duty-free market will go out of business, and anyway, I don't see a common market happening anytime in the near future."