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InterDuty Free Takes Off in Santo Domingo
Travel Markets Insider / March 2002

By Larry Luxner

An airport construction and expansion boom in the Dominican Republic -- one of the Caribbean's leading tourist destinations -- has sparked a corresponding boom in duty-free, with one company, InterDuty Free Dominicana S.A., planning to invest $4.5 million in new stores and renovations this year alone.

Aerodom, the private operator of Santo Domingo's Aeropuerto Internacional Las Américas, recently announced it would begin building a $73 million north satellite terminal. The new terminal, to be operational by year-end 2003, will double present capacity at Las Américas, which serves nearly three million passengers a year and is already the country's largest airport.

In December, Aerodom completed a $45 million remodeling and modernization project at the airport, which included a major facelift of the existing terminal and retail areas.

The Dominican Republic now has four international airports -- in Santo Domingo, La Romana, Punta Cana and Puerto Plata -- and will get a fifth later this year, when a new airport in Santiago, the country's second-largest city, is inaugurated in July.

Between January and November 2001, some 2.12 million tourists visited the country, which shares the island of Hispaniola with Haiti. That was a sharp drop from the 2.25 million who visited over the same period in 2000 -- largely a consequence of falling air arrivals after the Sept. 11 terrorist attacks.

Yet Dominican tourism officials are hopeful the numbers will bounce back, as are the folks at InterDuty Free.

"This company won the bid to manage all the airport duty-free concessions," said InterDuty Free's purchasing manager, Aimée Pablo. She noted that InterDuty Free has 33 stores throughout the country -- 24 at Santo Domingo's Aeropuerto Internacional Las Américas, six in Puerto Plata, two in Punta Cana, and one in La Romana -- but that the company is now trying to consolidate its operations into fewer, but bigger, outlets.

"We don't want to have so many small stores," she said. "For example, instead of having five or six fragrance stores in Santo Domingo, we'll just have three."

When the consolidation process is completed, InterDuty Free will operate 15 to 20 airport shops in the Dominican Republic, of which nine will be located at Las Américas. The largest of those nine, a 500-square-meter fragrance shop, already opened in September, followed in November with the opening of a 300-square-meter liquor and tobacco store.

"We want to have a cleaner airport, not a market," said Pablo. "We're also expanding into other categories."

Within the next two months, InterDuty Free expects to inaugurate five additional outlets at Las Américas, including a leather-goods store (60 square meters); a delicatessen (106 square meters); an over-the-counter pharmacy (40 square meters); a shop selling Dominican souvenirs (15 square meters) and an arrivals shop of 80 square meters.

During the first 11 months of 2001, some 1.3 million passengers flew out of Las Américas International Airport. Residents of the Dominican Republic as well as Dominicans living abroad accounted for 47% of the total, followed by North Americans (27%); Europeans (17.6%), South Americans (4.5%) and citizens of Caribbean and Central American countries (1.4%).

"Business is doing very well" despite the dropoff in passenger arrivals that followed Sept. 11, said Pablo. "If we used to have 50-60% of business at the airport, now we have 90%. And we should have 100% within three years."

InterDuty Free's only real competitor is Parcos Zona Franca, which operates 33 duty-free stores at Las Américas and Puerto Plata International Airport. Pedro Mejia, the company's manager in Santo Domingo, refused to discuss his business in detail, and Louis Snelders, whose Puerto Rico-based company, Duty Free Shop Inc., owns the Parcos chain, did not return phone calls or e-mails seeking comment.

InterDuty Free is a wholly owned subsidiary of Grupo Intercontinental S.A., a Santo Domingo-based conglomerate that owns banks, insurance companies, a liquor distribution firm, TV stations and one of the country's leading daily newspapers, Listin Diario.

InterDuty Free's roots go back to 1991, when Grupo Intercontinental formed a venture with Spanish duty-free giant Aldeasa. From the beginning, Aldeasa executive Miguel Angel García Moriones managed the venture, which was 51% owned by Grupo Intercontinental and 49% by Aldeasa.

In 1994, Intercontinental bought Aldeasa's share for an undisclosed amount, and established InterDuty Free as a separate division in 1995, naming García vice-president.

Last year, InterDuty Free recorded sales of $33.6 million; projected revenues for 2002, said Pablo, are in the neighborhood of $40 million. The company currently has 286 employees, 90% of them store managers and salespeople.

The company's rapid growth has not been blemish-free, however.

Last summer, InterDuty Free and Panama-based Waked Internacional S.A. became involved in a very bitter and public feud over bidding for duty-free concessions at Las Américas, and unfounded allegations in the Santo Domingo newspaper Ultima Hora that Waked was part of a "Lebanese mafia" involved in money-laundering and international terrorism.

The dispute was eventually settled, and Waked closed its Dominican operations.

"We never made any accusations against Waked. We reached an agreement with Waked and offered him a quantity of money, and he left the Dominican Republic," said García, refusing to specify how much his company paid Waked. "We have a very friendly relationship with him. We did not have to publish a retraction, and there was no reason to apologize for anything."

Walter Aguilar, duty-free director at Waked, said his company "came to a very satisfactory agreement [with InterDuty Free] over our stores in the Dominican Republic, luckily before Sept. 11, because that obviously would have affected the negotiations."

"We decided to consolidate our business in places where our investment was more secure," said Aguilar, who estimated that Waked spent nearly $7 million in the Dominican Republic before "losing faith" in the country.

Asked if Waked has any plans to return there, Aguilar said "it's not in our agenda right now."

According to Pablo, "we've already bought Waked's duty-free stores at the airport. Other than Snelders, the people who are left -- Tienda Merengue, Tienda Bolero and some others -- are trying to sell their stocks and stores to us."

Besides its stores in the Dominican Republic, InterDuty Free also operates retail outlets at the cargo area of Panama's Tocumen International Airport, as well ship chandling operations at the cruise-ship ports of Coco Solo and Manzanillo.

In Ecuador, the company has duty-free shops at the international airports of Quito and Guayaquíl -- the country's two largest cities -- as well as an 800-square-meter border shop at Tulcan, on Ecuador's frontier with Colombia.

InterDuty Free says that within the Dominican Republic, it has so far invested $7 million in new store construction, remodeling and other expenses. That doesn't include $4.5 million in expenditures planned for 2002.

"We are already seeing the fruits of our investment. Our sales have gone up rapidly," said Pablo. "Apart from having a bigger store, we are modernizing our operations. Now we have an area to do launches. Before, with the exception of one store, they were all over-the-counter stores. These two new stores are walk-in stores."

Pablo said the penetration rate varies from one airport to another, and from one season to the next, but that during 2001, only 4-8% of passengers using Puerto Plata International Airport visited the company's duty-free shop. That compares to 10-28% of passengers using La Romana International Airport, where InterDuty Free operates a 270-square-meter duty-free shop, and 11-15% of passengers flying in and out of Punta Cana, where InterDuty Free has two stores, one covering 110 square meters and the other 200 square meters.

For Santo Domingo's Las Américas, the duty-free penetration rate figure ranges from 6% to 21%, though Pablo says "hopefully we're not going to see those low numbers again, because that was before we built the new stores."

In Santiago, InterDuty Free's planned 120-square-meter shop will have no competition when that city's international airport opens in July.

Despite a drop in passenger arrivals sparked by Sept. 11, the company is banking on a revival of the Dominican tourist industry, which provides up to 75% of the foreign exchange in some areas of the country.

Tourism Minister Rafael Bonilla said that even with the downturn in air arrivals, the Dominican Republic -- with over 30,000 hotel rooms -- still fared better in 2001 than either Cuba or Jamaica. According to Bonilla, the government is studying 97 petitions for new hotel construction worth hundreds of millions of dollars. The new resorts would go rise in Boca Chica, San Pedro de Macoris, Bayahibe, Puerto Plata, Punta Cana, Samana, Jarabacoa, Barahona and Río San Juan.

"The overall number of tourists has fallen," said García. "Nevertheless, many Argentines, Venezuelans and Brazilians have decided not to fly to Florida but to the Dominican Republic instead, and we've maintained the flow of tourists from Europe. In the last few months, we're also receiving passengers from the United States who have never traveled here before."

All those passengers, of course, translates into business for InterDuty Free.

At the moment, duty-free shoppers entering or leaving the Dominican Republic spend an average $40-50 apiece. That money is spent on fragrance and cosmetics (40%); tobacco (25%); liquor (14%); watches (9%), and electronics, jewelry and other luxury goods (12%).

Otilia Solano, InterDuty Free's purchasing director for liquor and tobacco, says whisky comprises 50% and rum 20% of all alcohol sales; the remaining 30% consists of vodka, liqueurs and other spirits.

Best-selling liquor products, she said, are Johnnie Walker Black ($30.50 per liter) and 12-Year Chivas Regal ($28.00 per liter). In the rum category, locally produced Brugal is the most important, accounting for 35% of rum sales; that's followed by another local brand, Barceló, with 30%. Other popular rums offered by InterDuty Free include Bacardi, local rum Bermudez and two Cuban brands, Ron Varadero and Havana Club.

InterDuty Free also carries 50 brands of Dominican cigars -- not surprising, considering that the Dominican Republic now supplies 62% of the U.S. cigar market and has recently emerged as the world's largest cigar exporter.

What is surprising is that more of those cigars are not being sold by InterDuty Free. "We do sell a lot of cigars, but it's not our No. 1 tobacco item. Marlboro is," said Solano, noting that the popular U.S. cigarette brand sells for $14 a carton in her stores.

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