China's CDFG targets duty free operation at Incheon Airport

China Duty Free Group Co. (CDFG), the only state-owned duty free business manager in China, has joined a bid alongside four South Korean retail giants to operate at Incheon International Airport.

The Chinese firm and the Korean companies, Lotte Duty Free Co., the Shilla Duty Free, Shinsegae Duty Free and Hyundai Department Store Duty Free Co., each submitted a bid on Feb. 27 for a 10-year operation, according to industry sources.

The five companies will complete the application process by filing business and price proposals on Feb. 28. 

Incheon Airport was the global top airport in 2019 in terms of duty free shop sales, pulling in 2.8 trillion won ($2.1 billion).

Market watchers are warning that if CDFG wins the bid, it will heavily influence the Korean duty free industry as more than 90% of the revenue earned by local duty free shops already comes from Chinese shoppers.

CDFG may expand its presence in downtown duty free shops across Korea as well as overseas markets, once its business operation is acknowledged for its contribution to the Korean economy, market watchers said.

“In a bid for duty free shop management, a participant’s potential contribution to the country's economy is assessed as a key qualitative factor. If CDFG carries out corporate social responsibility and shows a great management track record at Incheon Airport, it will probably get higher scores in bidding for other duty free shops in the future,” an industry source said.

CDFG is expected to propose the highest bid as it expanded its business during the pandemic, backed by China’s national policy to boost the duty free shop industry, while the Korean market was hard hit in the same period.

CDFG’s 2021 revenue rose by 28.7% year-on-year to €9.4 billion, according to global travel retail news outlet the Moodie Davitt Report. The figure is greater than the combined revenues of Korea’s No. 2 duty free operator Lotte and No. 3 Shilla, which together posted €4 billion in the same year.

The final winner will be selected after undergoing the first screening by Incheon International Airport Corp. in March and the second one by Korea Customs Service in April.

Write to Mi-Kyoung Lee at capital@hankyung.com

Jihyun Kim edited this article.