Analysis: Spirits in travel retailBy 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.
SCOTCH WHISKY: A buoyant market for blends and malts alike
In travel retail, industry juggernauts Diageo and Pernod Ricard continue to be anchored by Scotch whisky. The category continues to benefit from long-standing links with duty free and its well-publicised appeal in emerging markets – but competition among the major players is fierce.
Pernod’s Chivas Regal blended whisky is a big part of this story. One in every five bottles of the brand is now sold in travel retail, after 15% growth for Chivas in Pernod Ricard’s last fiscal year saw it break through the 1m-case barrier in the channel.
“Every part of the world is in double-digit growth,” says Chivas Brothers CEO Christian Porta. Asia may be hot, but Dubai is the biggest-selling airport for Chivas. And many shoppers are salivating for luxury Scotch. “Royal Salute sells at US$110 and above, and 50% of its volumes are travel retail,” adds Porta.
Innovation is key to keeping passengers on board, and evidence from Diageo suggests that Asian flyers are swallowing new Scotch as fast as the distiller can make it. Following the success of Johnnie Walker Double Black, launches such as Johnnie Walker Platinum, Gold Reserve, XR21 and Blue Label Cask Edition drove Diageo’s 37% net sales growth in Asia travel retail in the year to the end of June.
“We anticipate that growth continuing throughout this year,” says Diageo’s marketing director for Global Travel & Middle East (GTME), Steve White. He promises more new blends at all price points in the near future, with John Walker & Sons Odyssey one to watch in the near term.
Beyond the big blends, single malt Scotch “punches above its weight”, according to James Bateman, global travel retail manager for International Beverage Holdings, owner of highland single malt Balblair, which celebrates its USP of being the only malt distillery to release exclusively vintage products – with the 1996 bottling launching to replace the 1995.
“It’s definitely a challenge getting the ear of the retailer when you’re a smaller supplier,” says Bateman. But the growth of specialist retailers at airports enables niche players to be more targeted. “We don’t do price promotions on products like Balblair,” emphasises Bateman, adding that “a little bit of knowledge from the travel retail staff goes a long way”.
Staying with malts, special praise should be reserved for Whyte & Mackay’s Dalmore. Its persistence in targeting luxury and exclusivity with a succession of limited edition products has led to the IWSR naming it the fastest-growing single malt Scotch in travel retail by value.
VODKA: Perennial underachiever growing in strength
Vodka has historically failed to wow in travel retail, and some retailers still fear being lumbered with white spirit stock that won’t sell. But things are hotting up in this category.
Bacardi’s Grey Goose is the clear example of a super-premium vodka enjoying large-scale success in travel retail. Grey Goose Cherry Noir, the first new flavour to be launched in five years, is currently entering select US airports, with Bacardi’s travel retail director for North and South Europe, Aude Rocourt, reporting that the brand’s sales are again up in 2012.
And, increasingly, Grey Goose has company. “The white spirits category will be a big focus for us this year,” says Diageo’s Steve White, reporting rising sales for Smirnoff Gold Collection, Cîroc and Ketel One in the channel.
Pernod Ricard’s Absolut remains the largest vodka by volume in travel retail, and is continuing to excite with its seemingly limitless ideas for limited editions. The latest, Absolut Unique, which includes four million uniquely designed bottles, is launching in travel retail before expanding into up to 100 markets worldwide. “It might pave the way for a new kind of product,” suggests Jérôme Goldberg, MD of JMG-Research.
Others are targeting provenance and affordability, including Belvédère Group’s Polish vodka Sobieski. Brown-Forman, meanwhile, is attempting the once unthinkable by marketing non-Russian vodka in Moscow Domodedovo airport. Finlandia 101 is finding fans among male travellers in Eastern Europe and the Nordic region, according to the firm’s marketing director for global travel retail, Tim Young. “The premium and super-premium vodka category in travel retail in recent years has shown very healthy double-digit growth,” Young reports.
Finlandia 101 will be landing in more airports this year and next, and Young adds that the company has high hopes for recently launched Finlandia Platinum in the super-premium segment. With vodka also starting to make inroads in emerging markets, particularly India, it’s a case of watch this space as the category plays an increasingly significant role in travel retail.
NON-SCOTCH WHISKY: Innovation and flavour the keys to increasing success
Non-Scotch whiskies have to be inventive in travel retail, given the kudos associated with Scotch at the luxury end of the market. But there remains a space for being fun, approachable and affordable – and it is here that the likes of Bourbon and Jameson are shining.
Big distillers have embraced flavoured American whiskies and 2012 has seen these burst onto the travel retail scene, as they have in key domestic markets over the past couple of years. “We have recently rolled out Jack Daniel’s Tennessee Honey to airports in the UK, Poland, New Zealand, Australia and Germany,” says Brown-Forman’s global travel retail marketing director, Tim Young.
Beam, meanwhile, is pushing black cherry-infused Jim Beam Red Stag. Distributor Maxxium Travel Retail has used a promotion called Red Stag Party Terminal to entice younger consumers. “It was designed to turn airport waiting time for the target 18- to 24-year-old audience into a more positive and entertaining experience,” says Maxxium Travel Retail managing director Glen Williams. Overall Jim Beam sales are growing in double-digit percentage points, he adds.
As for Irish whiskey, the hyperbole around its general performance continues. Travel retail is traditionally not a great stomping ground, but with Beam this year joining Diageo, Pernod and William Grant & Sons in the sector, we can expect competition in all channels to rise. Dublin Airport Authority’s Irish Whiskey Collection store, opened in late 2010, is an example of how specialist retailers can create buzz around a specific category.
Jameson, though, remains king. Its international brand director, Nick Blacknell, said in August that travel retail is a “significant focus”. Jameson’s Great Urban Escapes bottle, launched in the same month, offers an insider’s guide to the world’s great cities and where to find bars stocking the product. With a smartphone app available, this is an interesting example of a brand using travel retail to create value and engage consumers outside the luxury arena.
RUM: Breaking away from traditional markets in the Americas
Dark and golden rum has emerged from the shadows in the last few years. In 2009, when economic meltdown flattened several larger spirits brands, rum accounted for six of IWSR’s top 25 growth brands in the channel.
Zacapa and Cruzan, as well as spiced rum variant Captain Morgan, all made the list, although only six brands in the top 25 posted gains of more than 10,000 cases. It’s healthy, therefore, to maintain some perspective, but distillers’ enthusiasm for the sector has continued unabated. Patrón Spirits reported strong growth on its high-end rum Pyrat in 2011, while ThaiBev-owned International Beverage Holdings has this year brought its premium Phraya rum to the party.
Rum’s major issues are its relative lack of presence at the very top of the market, versus the likes of Cognac and Scotch, and its over-reliance on the Americas. Campari’s recently announced deal to acquire Lascelles deMercado & Co, parent company of the Jamaican Appleton Estate and Wray & Nephew rum brands, is likely to bring greater scale to golden and dark rum in a travel retail sector where big players tend to dominate.
Not that all smaller players are dissuaded. Guatemala’s Ron Botran will be at TFWA in Cannes for the first time this year, keen to expand from its base in the Americas. “We see more and more sophisticated and knowledgeable consumers wanting to upgrade their experience,” says Frank Quinones, global director for family-owned Botran aged rums. “We are the real deal,” adds Quinones, who wants consumers to be “impressed by the quality and not the price tag”.
The biggest white rum brand in travel retail, Bacardi, endured a difficult 12 months immediately following the collapse of Lehman Brothers, according to figures from the IWSR. However, since then, the firm has been using a combination of cocktail culture and technology such as QR codes to stay relevant, and has been exploiting airports as an education platform. “For example, a consumer can enjoy a freshly prepared Bacardí Mojito, then download the recipe and take it away with them,” says Aude Rocourt, Bacardi’s global travel retail director for North and South Europe.
Pernod Ricard has also embraced the cocktail culture around white rum by launching a permanent Havana Club bar on Swedish cruise ship Birka Paradise in August this year.
COGNAC: Luxury and Asia are twin drivers for continued success
Surely high-end Cognac is the one spirit outside luxury Scotch that you’d want to be involved in? China’s raging thirst for the French brown spirit offers Cognac a blistering opportunity in travel retail, given the growing influx of Chinese air passengers across Asia and beyond.
IWSR figures show Cognac travel retail volumes rose by 20% in 2010. It did not release precise figures for 2011, but it did name Cognac as one of the keys to a near-12% increase in travel retail spirits volumes in the Americas region.
The Americas, though, could turn out to be a sideshow. Rémy Cointreau has based its marketing and business development director for global travel retail, Matthew Hodges, in Singapore, and it’s no accident. “A high proportion of our sales are in this part of the world,” Hodges says. “There are many, many more Chinese people to start travelling.”
And they’re not just going to be travelling in Asia. Hodges sees more Chinese tourists paying first-time visits to top destinations such as Paris or the Maldives. This is one reason why there has been so much focus on Amsterdam’s Schiphol airport, one of the world’s key air hubs, which last year opened a new luxury shopping area exclusively for intercontinental passengers.
In 2012, travel retail Cognac leader Hennessy chose Schiphol to unveil a €150,000 “Beauté du Siècle” chest, containing a Cognac blended from some of the house’s rarest eaux-de-vie. Around the same time, Rémy Martin used Schiphol to pilot an all-singing, all-dancing 3D hologram installation, entitled Experience the Heart of Cognac. Confidence is high.
Courvoisier, meanwhile, has used the same airport for its Le Nez de Courvoisier experience. Further afield, Martell has spent the last year pushing its new Millésimes Collection across a range of key airports in South-East Asia. Pernod Ricard’s CFO, Gilles Bogaert, reports that travel retail now accounts for 8% of the group’s annual net sales. And, alongside Chivas Regal in the Scotch category, he highlights Martell as a key growth driver. “Travel retail is an important shop window for our luxury brands,” he adds. For Cognac, he may soon need a bigger shop.
GIN: Breaking the stranglehold of low margins
Gin’s strong ties to Western Europe – and to Spain and the UK in particular – leave it more exposed than most to the current economic turmoil. Reaching new consumers is the priority in travel retail and beyond.
IWSR has crowned Bombay Sapphire the leading gin in travel retail, with the Bacardi-owned brand overtaking Gordon’s after 9% rises in volume and value sales in 2011. Bacardi is spearheading efforts to expand gin’s reach with Bombay Sapphire East, its first new gin in 25 years. “Bombay Sapphire has very loyal consumers, but there are still consumers who to date haven’t been attracted by the gin category,” says Aude Rocourt, Bacardi’s global travel retail director for North and South Europe. “It’s still very early days, but our hope is that this is now set to change and that Bombay Sapphire East will effectively rejuvenate the gin category.”
Asian travellers are clearly a designated target, judging from the fact that Thai lemongrass and Vietnamese black peppercorn are among the new gin’s 10 botanicals, although the brand was initially launched in the US and Australia.
In addition to gin’s relatively small geographic reach, Paul Scanlon, international commercial director at Chivas Brothers, highlights low pricing as an issue. “There’s less margin on these products [versus Scotch],” he says. Travel retail is the fifth biggest market for Beefeater, but Scanlon admits that “we haven’t done as much as we’ve done in Scotch in terms of creativity”. Pernod is making moves to change this and Scanlon adds that luxury spin-off Beefeater 24 is “doing very, very well at a super-premium price”.
He also references the “interesting theatre” created by rivals Bombay Sapphire and Hendrick’s – think big-scale sampling campaigns for Bombay Sapphire, and croquet sets, Victorian bathtubs and a “takeover” of New York’s JFK airport for the quirky Hendrick’s.
“It’s something we need to do a little bit more around Beefeater,” Scanlon suggests. Following the launch of the Beefeater Inside London bottle this summer, expect more exclusive limited editions in the future.
TEQUILA: Engineering growth in the Americas and beyond
Few people might guess it, but Tequila is carving a sizeable groove for itself in travel retail. For two successive years, IWSR has flagged the sector as a key driver of travel retail spirits growth in the Americas.
There is growing activity close to key domestic markets. In August, Brown-Forman launched a Herradura display and sampling drive at Mexico’s Cancún airport, a first for the brand in Tequila’s home turf.
Competition for shelf space is set to intensify. In late 2011, Pernod Ricard borrowed a bit of Absolut thinking by launching a limited edition Olmeca Gold Tequila Supremo exclusively in travel retail.
At the time, the French firm spoke of its “long-term commitment” to increasing Tequila sales in the sector. Around the same period Jose Cuervo International, whose category-leading brand is distributed by Diageo, said it wanted to triple sales in travel retail over four years. Meanwhile, in September this year, Diageo advertised for a global brand ambassador for Don Julio, who will be expected to “implement sample programming” in travel retail, as one of many responsibilities.
There are also signs that travellers are willing to trade up in Tequila. “Through the first half of this year, our total duty free business has grown 26% versus last year,” says Greg Cohen, spokesperson for high-end Patrón, which is now available in 130 airports. “Travel retail operators are increasingly discovering the profit potential of Patrón.”
He also reports that travel retail is helping Tequila to expand globally. Patrón is making strong inroads in India, where it launched its namesake XO Café coffee liqueur in March this year, with plans to beef up super-premium offerings in Delhi with Gran Patrón Platinum and Grand Patrón Burdeos.
Cohen reports: “Consumers range from returning non-resident Indians who have business in the US, Europe and the Gulf, to younger consumers who want to differentiate themselves from the more traditional dark spirit.”
LIQUEURS AND SPECIALITY SPIRITS: A broad category carving out an expanding niche
The category of liqueurs and speciality spirits is largely as it sounds: a quirky, wide-ranging section of travel retail where almost anything goes. Here, the concept of novelty mementos from business trips and holidays sits alongside targeted marketing at specific nationalities and age groups.
A timely example is Chinese white spirit baijiu. Diageo is using its recently acquired premium brand, Shui Jing Fang, to ride the crest of Asia’s wave in travel retail. “Shui Jing Fang has strong appeal for the Chinese traveller, and is second only to Johnnie Walker in Asia-Pacific global travel,” says Diageo’s marketing director for Global Travel & Middle East (GTME), Steve White.
Baijiu, which is also represented by Moët Hennessy’s Wenjun brand, could well become a travel retail spirit category in its own right. But for other liqueurs and lesser known spirits, luxury is hard to achieve, and making a point of difference and passenger engagement is key.
Rémy Cointreau’s marketing and business development director for global travel retail, Matthew Hodges, believes passion fruit liqueur Passoã’s fun image makes it the one to watch in the company’s portfolio. “It’s becoming a favourite for consumers in their early 20s,” says Hodges. “It lives in that world. It’s not a brand we talk about much, but via social media it’s very involved in helping people to share their experiences.”
Others have concentrated on specific serves, such as Brown-Forman launching Chambord in World Duty Free stores with a sampling and promotion pack alongside Bottega Gold sparkling wine.
Liqueurs offer scope for experimentation because of relatively few rules governing the ingredients. Diageo proved as much this year when it launched Nuvo, a pink liqueur that combines French vodka, French sparkling wine and natural fruit flavouring. Packaged in a perfume-shaped bottle, it is intended to sit in the perfume and cosmetics sections of airport retailers.
The drinks giant believes women are under-represented in spirits, so watch out for more off-the-wall ideas like this one. Nuvo was recently rolled out to Auckland airport.
Elsewhere, Metaxa CEO Panos Sarantopoulos reports: “After a long lull, Metaxa is now enjoying double-digit growth in value and volume across travel retail.” He puts this down to greater marketing and innovation efforts in the sector. Metaxa 12 Stars launched at the start of 2012, initially in Greece before expanding to other major airports. It has also started the Metaxa Magnet initiative, which aims to make the grape-based liqueur brand more visible in travel retail stores. This initiative includes Metaxa Rising Sun – bottles of Metaxa 5 Stars with limited edition yellow sleeves. European holidaymakers are the hardcore buyers of Metaxa, but the brand reports growth in the Americas and Pacific, too.