Juul-Mortensen: TR will weather terrorism impact

Though the global travel retail channel has been damaged by terrorist atrocities, president of the Tax Free World Association, Erik Juul-Mortensen, maintains that “the future of the industry is bright”.

It is impossible to ignore the impact of the recent spate of terrorist attacks on global industries

EU member states faced 211 terrorist attacks in 2015, either planned, foiled or completed – the highest number of such incidents since official records began almost a decade earlier. The European Union law enforcement agency Europol says 151 people died and more than 360 were injured as a result of terror atrocities last year alone, with 1,077 people arrested across the region for terrorism-related offences. These figures do not take into account those killed in the name of political and religious idealism beyond the bloc.

Public safety is, of course, the primary concern of governments and public bodies, but it is impossible to ignore the impact of the recent spate of terrorist attacks on global industries, spirits being no exception. Amid reports of dwindling traveller numbers and public cautiousness, it seems two of the industry’s key channels have taken a hit – travel retail and the on-trade.

Erik Juul-Mortensen, president of the Tax Free World Association (TFWA), is certain last year’s terror attacks have had a direct impact on travel retail sales. “Last year, for the first time since 2009, we saw negative sales growth, which has continued in the first half of 2016,” he says. “The latest figures from the research organisation Generation Research confirm that total duty free and travel retail sales fell to US$62 billion, down 2.3% on the previous year [2014]. Fear of terrorism has undoubtedly affected people’s willingness to travel, and this will, of course, have a knock-on effect on travel retail sales.”

The downturn of wine and spirits in travel retail last year mirrored the performance of the wider channel: sales slipped 2.7% to US$10.2bn, compared to US$10.4bn in 2014. “The downturn in 2015 was global, and only the Asian market saw growth, with an increase of 2.3% in duty free and travel retail sales,” Juul-Mortensen says. “Africa was the worst affected, and saw sales stumble by 10.2%, followed by Europe with a drop of 8.4%. America fell by 3.8% and the Middle East by 1%.”

Public nervousness

Investigation from CGA Strategy, a global analyst and consultancy for the ‘out of home’ leisure market, shows that immediately after the attacks in Paris last November, when 129 people lost their lives, London’s bar and restaurant trade registered significant declines. This shows that “public nervousness” stretches beyond the individual country or city that has suffered an attack, the firm says. The day after the coordinated attacks, which occurred on Friday 13 November, restaurant and bar sales plummeted by 14.4% in London, the worst performance of any day during the month. Wet-led pubs (those with dominant beverage departments) were hit hardest, with sales dropping 17.8% compared to the same day in 2014.

Charles Duckworth, an account manager at CGA Peach, says that while the impact was short-lived and drinks sales normalised the following weekend, the figures are indicative of the potential impact a terrorist incident could have on London’s on-trade. He says: “The attacks in Paris have had significant long-term impact on the city’s eating and drinking-out market, with a sustained decline in footfall numbers. And in the unfortunate circumstance that a similar attack should happen closer to home, it is very likely that we would see a comparable long-term impact on London’s licensed trade.

“At a time when profit margins are already squeezed by soaring rents and overheads, it is unlikely that many London operators would be able to cope if 14% declines became the norm, rather than an exception, and large-scale outlet closures and job losses would certainly become a reality.”

Erik Juul-Mortensen is certain last year’s terror attacks have had a direct impact on travel retail sales

But what of spirits producers themselves – have they seen such events translate into sales losses? Diageo’s chief executive, Ivan Menezes, speaking at a roundtable earlier this year, said: “We are in a tragic environment right now and it is too early to say how it will impact [our business].”

Pernod Ricard also believes effects are difficult to ascertain at the moment. However, Corneliu Vilsan, operational marketing director for Pernod Ricard EMEA, says the group experienced a “substantial negative impact” on sales in airports – Istanbul Ataturk for example – almost immediately after particular attacks “due to the highly emotional impact of media coverage, which is followed by booking cancellations”.

Vislan says the real impact “is too early to quantify at this stage” due to stock in trade, but it is expected to be low double-digit decline overall. He continues: “From an EMEA perspective [excluding France], overall we have seen both a negative impact in some countries and a positive one in other countries. Tourism destination countries with terrorist attacks on their territory have been impacted by a reduced number of incoming tourists, driving down sales. While other countries that are perceived as safer, benefited from an influx of tourists.”

The travel retail data provider Air4casts also claims that fewer travellers in a select number of airports does not provide a full picture of the industry, since total international passenger numbers to European airports are actually on the rise.

Collectively, more than 150 European airports registered a 2.2% increase in passenger numbers in July 2016, while Paris Charles de Gaulle, Frankfurt, Brussels and airports across Turkey saw declines. “There have been instances of airports still experiencing difficulties in July, but they are very much the exception,” an Air4Casts spokesperson says. A total of 17 Spanish airports experienced double-digit growth in the month as resort destinations “benefited directly from consumer aversions to holidaying in Turkey”. Greece, Denmark, the UK, Sweden and Germany (even with Frankfurt’s 2.2% decline) also witnessed passenger number growth.

Looking ahead

Despite clear challenges, Juul-Mortensen is confident about the future of travel retail. “It’s a short-term problem and not a long-term concern,” he says. “In spite of recent temporary set-backs, the number of international travellers – which is, of course, the bedrock of our industry – will continue to grow, and the latest forecasts from Generation Research predict that total global sales could well reach US$120bn
by 2025. This has got to be cause 
for optimism.”

Juul-Mortensen expects sales to increase next year, citing Generation Research’s forecast that the travel retail industry will hit US$66.3bn. “Passenger numbers may fluctuate but most countries will see more passengers flying every year and, in addition, international travel from newer markets such as India and Africa will continue to increase growth at a remarkable rate,” he says.

“Our industry is known for its resilience and the mood among our members is positive. We have weathered challenges in the past and this is no different – the future of the industry is bright.”