Global travel retailer Gebr. Heinemann made an important acquisition at the end of January at Tel Aviv’s Ben Gurion Airport, named after Israel’s first prime minister. The Hamburg-based company bought the shares of James Richardson in the duty-free joint venture retail business JR/Duty Free, which was established in 2017.
From a 50:50 JV, JR/Duty Free Israel and all its businesses are now a 100% subsidiary of fifth-generation-run Gebr. Heinemann. The timing was surprising given the continuing bloody war in Gaza, triggered by a deadly Hamas attack in southern Israel on October 7.
The optics were fuzzy, which prompted Heinemann to point out that the transaction was first contemplated during Covid times and “is not connected to current events.” But what of the business case which looks questionable right now?
Ben Gurion Airport is, by far, Israel’s busiest gateway (among only three civil airports with international flights) where JR/Duty Free’s shops cover 48,440 square feet (4,500 square meters). However, traffic collapsed in the fourth quarter of 2023 as a direct consequence of the war.
Recently released figures from airports association, Airports Council International Europe, indicate that air traffic in Israel was down 62% in those three months, which has had a severe knock-on effect on JR/D Duty Free’s revenue. On the plus side, fully-year 2023 traffic at Ben Gurion was up 10%, despite the Q4 downturn, with international travelers reaching just over 21 million according to the Israel Airports Authority (IAA).
A case of unfortunate timing
Sharing the consequences of the current dramatic fall in passengers equally with James Richardson—part of Australia’s James Richardson Group led by the Danos family—would have dulled the pain somewhat. Now that Heinemann has bought out the entire business, the travel retailer will have to shoulder further revenue shortfalls on its own.
As well as the Tel Aviv airport business, Heinemann is also taking on James Richardson’s stores at Ramon airport, the gateway to the Red Sea resort of Eilat, plus two border duty-free shops; one at the Taba crossing with Egypt at Israel’s southernmost point, and the Jordan River crossing to the north of the West Bank.
So why did Heinemann choose now to fully acquire a JV that is under pressure—and is likely to remain so while warfare persists? A lot of it appears to be bad timing.
Bernard Schlafstein, Gebr. Heinemann’s sales director for Middle East Asia, told me: “We entered the Israeli market with a long-term view, which we always have as a family-owned business. From the beginning, Tel Aviv played a key role in the development of our company; it is one of our top-selling locations and has made a significant contribution to our company’s turnover.”
Peaking at $1.5 million a day?
In 2022, that turnover reached $4.2 billion, with a bigger rebound than some of its global competitors. A significant slice comes from Israel. In 2018, the first full year of the Tel Aviv JV, sales hit $400 million making it Heinemann’s third biggest location behind Istanbul and Olso. In 2019, it is possible that sales were nearer the $550 million mark given that traffic rose to almost 25 million versus 22.9 million the year before. That would mean potential daily sales of $1.5 million.
Schlafstein added: “Before the October 7 terrorist attack by Hamas we had already decided to start negotiations for taking over the shares of JR after we had learned that the Danos family decided to withdraw totally from the travel retail business.” The James Richardson legacy in Israel has extended over 35 years, and over 50 years in Australia.
JR/Duty Free shops sales in the first nine months of 2023 at Tel Aviv Ben Gurion had also been strong which supported Heinemann’s decision to pursue a full takeover, though the timeline was dependent on necessary approvals by the authorities (which have been obtained).
“Of course, the attacks by Hamas and everything that followed since then have had a major impact on our business,” said Schlafstein. “But we are committed to the market. We hope for the sake of those affected, and especially our employees, that the violent conflict will end soon and that people in the region can live in peace.”
Under Heinemann, the business in Israel will remain in the hands of current chairman Garry Stock and CEO Amnon Tagori with the same staffing, but the retailer is closely monitoring the situation. Schlafstein commented: “Previous crises have shown that after they end, travel picks up quickly. We are convinced that Israelis will travel again in big numbers in the future. Since December we are already seeing slight increases in passenger traffic.”
Raoul Spanger, co-CEO of Gebr. Heinemann, said: “We will do everything we can to further expand the business as soon as possible.” That may be a while away. Only Israeli carriers El Al, Arkia and Israir were still operating services to Ben Gurion Airport immediately after the Gaza conflict began.
However, there has been a gradual return of some airlines, and in mid-January a flurry of carriers announced the partial resumption of services, though the situation remains volatile. For example, the second biggest international carrier at Ben Gurion, Wizzair, announced a restart and then abruptly canceled.
James Richardson in the departure lounge
James Richardson had been gradually moving out of duty-free. At the end of 2018, the company sold its Australia and New Zealand travel retail businesses to South Korea’s Lotte Duty Free. Negotiations then started with Heinemann for the Israeli business during Covid.
The James Richardson Group (JR/Group) still has three divisions according to its website: James Richardson Furniture (JRF) an advisory and procurement service, for the architecture and design community; James Richardson Property which holds a significant portfolio of Australian real estate; and James Richardson Investments, said to be a venture capital fund which operates both nationally and internationally.
Ctech, a tech news site that is part of Israel’s financial daily, Calcalist, reported that James Richardson’s duty-free exit is because the Danos family is now focusing on investments in Israel’s fast-growing high-tech sector. The site said that despite the high revenue at Tel Aviv, a big chunk (reported to be about $200 million a year) was being paid out in royalties which meant the company was loss-making.
Heinemann must now contend with a similar scenario on a solo basis, although it has a global business to offset any regional losses, in particular its strong position at Istanbul Airport. It is also absorbing the impact of pulling out of retailing at Russian airports following the war in Ukraine, another major market, although it is understood that the blow may be softened there by still having supply agreements in place with some former JV partners.
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