Main risks and uncertainties faced by the Autogrill Group

The Autogrill Group is exposed to external risks and uncertainties arising from general or specific conditions in the industries in which it works,  as well as to threats arising from strategic decisions and internal operational risks.

The Group  Risk  Management department ensures the uniform handling of risks across the different organizational units.

The updated risk matrix presents no new risks with respect to those reported in 2010.

Below we describe the main risks common to all of our business segments, whose common denominator is the traveler, followed by the specific risks faced by each one.

To avoid repetition, exposure to financial risks is discussed in the notes to the consolidated financial statements.

Risks common to all business segments

Decreased traffic

Operations in the Food & Beverage and Travel Retail & Duty-Free segments are influenced by traffic trends. Any factor with the potential to reduce traffic flows significantly in the countries and channels served by the Group constitutes a threat to the production of value.

Exogenous (hence uncontrollable) factors that may affect the flow of traffic and travelers’ inclination to spend include the general economy, the rising price of oil, and the increased cost of travel in general.

The impact of this risk is mainly economic, leading to a reduction in sales and profitability.

One strategic factor that helps mitigate this risk is the Group’s diversification in terms of:

  • channels (airports, motorways and railway stations);
  • geographical areas served.

The Group  also has the following tools available to counter recessions or soften the impact of any concentration of its businesses in channels or areas hit by a downturn:

  • constant revision of products and customer services, to keep them competitive in terms of quality and price and adapt to consumers’ different spending habits in difficult economic times;
  • focus on the profitability of sales, by cutting costs without sacrificing menus and catalogues or the quality of service;
  • modulation of investments in order to limit the impact on cash flow.

 Reputation

Loss of reputation with concession grantors, due to an inability to satisfy contractual commitments or to a tarnished image as a result of the perceived deterioration of service, is a significant risk for the maintenance of existing contracts and the acquisition of new ones.

To counter that risk, Autogrill constantly monitors the quality of the service it provides to customers (in terms of perceived satisfaction and product safety) and to the grantor (in light of the quantitative and qualitative standards defined in the concession contract), by way of:

  • the constant monitoring of procedures and processes, both internally and by outside firms;
  • training programmes to ensure high standards of service;
  • the systematic review of operating methods and procedures to keep service efficient and workers safe.

In Italy, the fact that many travelers use the Group’s name to refer to highway rest stops in general (“let’s stop at the next Autogrill”) exposes the Food & Beverage operations in this channel to reputation risk caused indirectly by any shortcomings on the part of competitors. Suitable brand protection measures are taken in Italy if unpleasant experiences are wrongly attributed to Autogrill.

 Change in consumption habits

A change in consumption habits can lead to customer dissatisfaction if the Group does not realize and react in time, leading to a loss of appeal and a shrinking clientele.

Autogrill’s extensive portfolio of brands and commercial formulas helps to mitigate this risk.

In developing its concepts and offerings, the Group puts a high premium on flexibility, so that it can quickly respond to changes in consumers’ purchasing habits and tastes. To that end it conducts specific market research and client satisfaction surveys.

Concession fees

Most Food & Beverage and Travel Retail & Duty-Free operations are conducted under long-term contracts awarded through competitive bidding by the holder of the infrastructure management concession (airport, motorway, etc.). Over time, in certain markets, concession fees have risen or more business risk has been transferred to the operator.

This is a major risk, as it can expose the Group to significant long-term declines in profitability if contracts are awarded under terms that later prove to be unfavourable due to a reduction in traffic or an erroneous estimate of business volumes.

In this respect, Autogrill has solid experience and follows best practices in appraising and negotiating contracts, which limits the risk of overestimating profitability and gives it control over the risks inherent to long-term concessions. This constant focus on the profitability of its contract portfolio means that the Group does not bid at all for contracts considered to offer poor returns.

In general, Autogrill mitigates this risk through an approach aimed at building and maintaining a long-term partnership arrangement with the concession grantor, based in part on the development of concepts and commercial solutions that maximize the overall gain.

Employee relations

Labor is a significant production factor, especially in the Food & Beverage segment. The need to maintain ser vice  standards acceptable  to customers and to the  concession  grantor,  and the  complexity  of international labor laws, limit the flexibility of HR management.

Major increases in the cost per employee or more stringent regulations can have a significant impact on the Group’s profitability.

One of Autogrill’s top priorities is to maintain a constructive dialogue with personnel and trade unions, to ensure that processes are effective and efficient.

This risk is also lessened through the constant updating of procedures in order to make efficient use of labor, increase flexibility and reduce occupational hazards.

Regulatory compliance

The Group’s business segments are highly regulated in terms of operating practices and customer and worker safety, which involves personal protections as well as product quality. Any violation of the norms for each segment would not only expose the Group to legal consequences but could diminish its reputation with concession grantors and customers, possibly leading to reduced sales, the loss of existing contracts or the failure to acquire new ones.

To mitigate this risk,  with the help of outside specialists, Autogrill stays constantly abreast of legal developments so it can adapt its processes and procedures to the new requirements and bring personnel up to date. It also relies on constant monitoring and frequent audits of service quality with respect to contractual and legal obligations.

Specific  risks for Food & Beverage 

Customer satisfaction

The  most significant  risk  specific  to the Food  &  Beverage  segment  is  the failure  to keep  ser vice standards and products in line with customers’ expectations. This has a direct impact on sales and reputation.

The constant innovation of concepts and products, efforts to thwart the risk of reputation loss and regulatory non-compliance (concerning the quality of Food & Beverage preparation and service), and quality controls on raw materials successfully mitigate this threat.

Specific  risks for Travel Retail  & Duty-Free

Shop  effectiveness

Customer satisfaction depends  on the Group’s ability to provide an assortment that is always modern and appealing. Effective and efficient supply chain management are therefore crucial for this segment: a well- balanced core assortment that captures the attention of consumers, along with effective sales personnel, are top priorities for achieving a profitable location while optimizing the investment in stocks.

Exchange rates and  price  setting

Impulse buying at an airport is strongly influenced by the exchange rate between the country of origin and the destination. To increase sales, it is therefore essential to monitor the price perceived by the customer as a result of exchange rate fluctuations.

The Group’s widespread operations around the globe mitigate the threat that unfavourable exchange rates may pose to sales in a given area. Meanwhile, its constant attention to product supply and demand in countries of origin and destination help it identify the advantage customers will perceive from favourable rates of exchange.