Analysis: Spirits in travel retail29th November, 2012 by Chris Mercer
If travel retail really is a barometer of the world’s financial state, then perhaps we should put the doomsaying on ice.
In 2011, Euromonitor International figures show overall travel retail sales (not just drinks, in other words) reached US$765bn, surpassing pre-crisis levels everywhere except Western Europe.
But even this crumbling seat of world power should leapfrog 2008 sales by 2013. And this year, the global sales figure is set to rise by 5% to $805.4bn. Meanwhile, the IWSR said 2011 volume sales for wines and spirits rose by 7% to 27.5 million cases, the highest point since the European Union abolished duty free sales in 1999. On their own, spirits volumes rose by 10% in 2011, slightly slower than growth of 13.5% a year earlier. The IWSR also reports premium spirits sales growing at twice the rate of standard spirits in 2011.
Asia is proving particularly fruitful, as shown by Diageo basing its new marketing director for Global Travel & Middle East (GTME), Steve White, in Singapore in 2011.
“The luxury market in Asia was a strong driver of growth for Diageo last year, with net sales of our Reserve Brands in Global Travel Asia increasing by 37%,” White reports. No surprise that Diageo is plotting more innovations in the deluxe and super-deluxe categories. Rémy Cointreau’s marketing and business development director for global travel retail, Matthew Hodges, reckons duty free spirits sales in Asia are on course to overtake Europe in the near future. “It’s growing so much faster at the moment,” he says.
But Asia’s impact is being felt well beyond the region itself, with travelling Asians actively inflating sales in other regions. Sunil Tuli, president of the Asia Pacific Travel Retail Association (Aptra), explains that a “void” created by the 2008 banking crisis “has been filled to a large extent by the growth in passenger traffic from, and to a lesser extent to, China, India and other parts of Asia”. And, given Asia’s population size and rising wealth, he sees this trend continuing for the foreseeable future.
Tuli’s point is backed up by Maxxium Travel Retail’s MD, Glen Williams, who sees more Asian travellers flashing their banknotes at Western airports. “Growth in European travel retail is being increasingly driven by non-EU countries and inbound traffic,” he says.
There is, however, life beyond Asia. Williams pinpoints Russia as a key focus for Maxxium, reporting that its business there is growing in double-digit percentage points.
And Dubai is the world’s second biggest airport for travel retail sales. But, in terms of general travel retail sales in US dollars, South America is growing at a faster pace than Asia, albeit off a much smaller base, according to Euromonitor International.
Retail group Dufry, which made 16% of its net sales from wine and spirits in 2011 versus 14% in 2009, says it is excited by Brazil’s rising middle class, “which likes to travel and is willing to spend money for luxury products”. Brazil is feeding into a healthy overall picture for the Americas, a region that saw travel retail spirits volumes jump by 11.8% last year, matching the pace of growth in Asia-Pacific.
All of which casts hard-up Western Europeans as the Scrooges in this travel retail tale. There may be the afterglow of an Olympic halo in the UK in 2012, but heavy price promotions suggest lean times in general. The EU plans to lift liquid limits on flights in 2014, which could help, but this is dependent on airports investing in new scanner technology.
Still, there are opportunities. Recession has forced distillers and retailers to be proactive. Retailers are tweaking store layouts and training staff to understand what they’re selling. Distillers are offering more limited editions, often created via exclusive deals with retailers.
There is also more engagement with consumers. “Technology and social media are helping us to reach the consumer at every point of their journey,” says Aude Rocourt, Bacardi’s travel retail director for North and South Europe. “Smartphone apps enable consumers to check prices, research products and compare suppliers on the spot,” adds Sunil Tuli.
Jérôme Goldberg, MD of JMG-Research, believes better engagement could unlock billions of dollars in potential revenue for the travel retail industry. “With more and more people travelling abroad all over the world, the whole travel retail industry has to find a proper answer to a kaleidoscope of behaviour patterns,” he argues. “Brands and operators have to fine-tune the way they engage the passengers. One of the top reasons for passengers remaining non-buyers is that they are bored, feeling they always see the same products,” adds Goldberg, citing a JMG survey which shows that one-fifth of US consumers never visit wine and spirit duty free shops. JMG is planning new research on Chinese consumers in November.
Rémy Cointreau’s Hodges believes distillers must put in more legwork. “If more people are travelling more frequently, you have to give them something different more often,” he says. There are several general threats to the travel retail spirits sector, from baggage restrictions and government curbs on duty free alcohol sales, to a more pronounced economic slowdown in Asia. For now, though, things look more promising than you might expect. Dufry anticipates a 4-5% rise in international air passengers over the medium to long term. Global economic pressure may be rising, but travel retail is staying cool.
Over the next few pages we analyse each spirit category’s development and future prospects in travel retail individually.