A new partnership between the Chinese e-commerce giant Alibaba Group and Dufry, the world’s largest operator of airport duty-free shops, points to a massive, fast-growing market in China accelerated by the Covid-19 pandemic, analysts say.

The two companies have agreed to form a joint venture in China, while Alibaba will buy a stake of up to 10 per cent in the cash-strapped, Switzerland-listed Dufry for 250 million Swiss francs (US$273 million), according to a statement by Dufry on Monday. Alibaba owns the South China Morning Post.

The move underscores the burgeoning opportunities in duty-free shopping in China, as consumers shift at least some of the US$258 billion in annual overseas travelling expenses back home, amid global travel restrictions as a result of the coronavirus outbreak, according to analysts.

It could also introduce a strong contender into a market that has been dominated by a single firm – the state-owned China Duty Free Group.

The collaboration “will have a big impact on the duty-free market in China, given Alibaba’s strong digital capabilities and Dufry’s expertise in running duty-free business,” said Veronica Wang, partner at retail industry consultancy OC&C Strategy Consultants.

“From the supply side, the Chinese government is also encouraging the market’s development by issuing more licences” to operators and increasing competition, she said.

China’s duty-free retail market – which encompasses shops located in city centres and airports, as well as offshore islands such as the Hainan province
– expanded by 31 per cent to 51.6 billion yuan (US$7.6 billion) last year from 2018, according to estimates by Li Dan, analyst at Zheshang Securities.

China Duty Free Group, owned by Shanghai-listed China Tourism Group Duty Free, enjoys a de facto monopoly over the market, according to Li, who forecast the company would occupy over 90 per cent of the market this year in a report published last month.

Dufry so far has had limited success in breaking into the China market.

Asia, the Middle East and Australia accounted for just 13 per cent of its revenue last year, even though some 45 per cent of the travel retail industry’s sales come from Asia, according to a report by Morningstar Equity Research analyst Jelena Sokolova on Monday. Chinese consumers globally made up 6 to 7 per cent of Dufry’s revenue.

“[A] partnership with Alibaba could help Dufry increase its presence in the fast-growing Chinese travel retail market, where it has a limited presence and where local players such as state-owned China Duty Free are strong,” said Sokolova.