Trump’s travel ban ‘inevitably negative’ for US TR

How will the Trump administration’s clampdown on foreign travellers to the US affect the Americas’ duty free and travel retail sector? The Spirits Business investigates.

The Americas duty free channel has not been immune from the challenges facing global travel retail

*This article was first published in the March 2017 edition of The Spirits Business

While multifaceted in its make-up, the Americas duty free channel has not been immune from the challenges facing global travel retail in recent years. In 2015, sales in the region – from Canada, through the Caribbean to the tip of Chile – fell by 3.8% to US$11.3bn, according to Generation Research.

From the stagnancy there had been signs of growth – until now. A number of policies implemented by US president Donald Trump have the potential to rock the travel retail and duty free industry in the region further still. One of the most divisive of the Trump administration so far was the implementation of a ban on travellers from seven mainly Muslim countries from entering the US. According to ForwardKeys, a travel transaction analyst, during the eight days before the ban was blocked by a Seattle federal judge, global bookings to the US fell by 6.5% year-on-year.

From 28 January to 4 February, there were marginal declines from southern Europe, and even gains from the wider Americas and Eastern Europe. Yet these were more than offset by 6.1% falls from Africa, a 6.6% contraction from Northern Europe, and then significant declines from Western Europe (-13.6%), Asia Pacific (-14%) and the Middle East (-37.5%).

While ForwardKeys notes it monitors the origins of traffic rather than nationalities of the travellers, it’s clear the impact of such a policy has ramifications beyond any mooted security concerns.

“The data forces a compelling conclusion that Donald Trump’s travel ban immediately caused a significant drop in bookings to the US and an immediate impact on future travel,” said Olivier Jager, CEO of ForwardKeys in a statement. “As inbound travel is an export industry (it earns foreign currency), this is not good news for the US economy.” However he stressed that the data was only an eight-day snapshot and the situation will continue to be monitored.

Uncertainty about disruptions

But some in travel retail are already concerned by the impact a tightening of US immigration will have on travel retail. “Inevitably and unfortunately, it will be negative,” says Kevin Baker, global travel retail director at Marie Brizard. “It will take time to alleviate tourists’ uncertainty about immigration disruptions and delays.”

A second Trump policy of apprehension to the spirits and travel retail communities is the so called ‘Tequila tax’ – a suggested import duty levied on Mexican goods heading into the US to pay for the proposed border wall. However, while the initial impact suggests suppressed spend as an outcome, William Grant & Sons’ GTR managing director Ed Cottrell thinks there could be a positive spin.

“In the event that new taxes are levied on imports from Mexico – or other countries – this could represent a short-term opportunity for travel retail by offering US consumers greater savings over domestic retail prices,” he reckons. “In this scenario, we would expect an upturn in travel retail sales to US residents returning home from abroad.”

Mexican peso slumps

Pricing has been a key refrain throughout the past few years of challenges in the region – and one that reached a crescendo as the Mexican peso slumped on the election of Donald Trump in November.

“Currency volatility is affecting purchasing patterns, with consumers becoming increasingly uncertain of the value proposition because of rapidly shifting exchange rates,” says Marcos Bibas, regional director Americas at Diageo Global Travel. “We need to work harder than ever to deal with unpredictable movements in categories and geographies, as well as working closely with our retail partners to build this positive value proposition.”

It’s the resulting squeezing of margins that Dayna Dennington, Stoli Group’s regional director North and Central America, Caribbean and duty free, sees as one of the most pressing implications of the strengthening US dollar. The company is seeing limited purchasing power most on the Northern and Southern US borders “where this strength is leading to increased pricing pressure as retailers struggle to offer value,” she says. But “through strong relationships and mutual support we are able to offer value while remaining sensitive currency fluctuations”.

But for Brown-Forman, the challenges are neither new nor insurmountable. Monte Wilson, director of Americas and global key accounts, ranks the strength of the US dollar, the weakened peso and geopolitical issues in the likes of Brazil and other Latin American countries as substantial issues.

But, Wilson says: “It is important to note that even with these continuing challenges, we are starting to see a stabilisation in the Americas as suppliers, retailers and even consumers adjust to how they behave in this channel to meet their needs.”

So where do the opportunities lie? William Grant’s Cottrell is betting on growth in malt whisky over blends and an uptick in premium gin in Latin America, while John Kilmartin, Patrón Spirits International’s vice president, global travel retail, is hopeful of a continued recovery in Brazil and Argentina. Meanwhile, Geoff Biggs, Bacardi GTR’s regional director Americas, says the Bombay Sapphire programme is seeing “strong growth” in the region thanks to the growing trend for at-home cocktail making and the strength of the Brazilian real. In addition, the resilience of the greenback is actually opening up some pockets of potential on the US/Canada border.

“In recent months, our business in border stores, including Blue Water and Peace Bridge, has benefited from the exchange rate,” Biggs says. This is possible because of a “sustained categor y management programme” to best elevate operations. “The result is optimised range visibility and ease of shopping, which are helping to drive curiosity, interaction and sales.”

Brown-Forman’s Wilson agrees: “The US/Canada border has been strong,” he reports. “It is important in challenging times to maintain a strong brand presence in border stores to both reinforce our brands today and build promise for brand growth in the future.”
Better engagement

Ultimately it’s about more effective engagement with consumers – the more squeezed they are, the better tuned-in brands need to be. “As technology becomes increasingly important in everyday life, it is vital to use this medium to engage and interact with customers,” says Stoli’s Dennington. “We are focused on integrating technology into our activations to provide consumers with a unique, personal, interactive experience.”

How politics – and therefore economics – will play out in the Americas is anybody’s guess. But the best chance brands and retailers have to tap into the increasingly limited consumer spend is by remaining flexible and insightful – surely the only way to make sure brands are around in the region for the future.