Analysis: Spirits in global travel retail

30th January, 2018 by admin

Despite worldwide volatility, especially in Asia, savvy companies are making their mark in global travel retail with exciting activations and channel-specific releases. Kevin Rozario analyses the performance of spirits in GTR.

While resilience is a hallmark of duty free and travel retail (DF/TR), the channel has taken a battering over the past couple of years. Currency volatility, the 2015 Middle East respiratory syndrome epidemic in South Korea – a key market for DF and TR sales – and a decline in spending among Chinese travellers because of government austerity measures and a tightening of checks on DF allowances all played their part in creating a perfect storm of challenges for the sector, particularly in Asia.

Also, 2017 has seen political instability in Asia reach new heights, with North Korea’s testing of long­-range ballistic missiles and the counter­-deployment of a US defence-­missile system in South Korea, which has angered the Chinese government. The result has been a severe decline in Chinese travellers – the lifeblood of Korean downtown duty free and travel retail stores – to Seoul and beyond. Numbers are catastrophically down, by ­46.5% to 2.53m in the seven months to July 2017. This has caused total tourism receipts to contract in every month in the first half of the year, with June showing a collapse of ­32.5% (source: Korea Tourism Organisation, KNTO).

The positive thing is that Chinese travellers will be going to other places. Andy Lane, travel retail director at family-­owned Ian Macleod Distillers, says: “Those Chinese travellers are moving to other locations – Malaysia, for example, is going particularly well. In travel retail there are always other markets that can benefit.”

Worldwide, the news has generally been good – especially for spirits and wine. After a dip in 2015, the channel returned to growth of 2.5% in 2016, reaching sales of US$63.56 billion, according to data from Generation Research. Wines and spirits did better than average, growing by 3.5% and generating sales of US$10.5bn.

THE ONLY GROWTH REGION

From a geographical perspective, the DF and TR channel is skewed to Asia Pacific. The 2016 preliminary data gives the region a 43.4% share of the global market, with sales of US$27.6bn. It was also the only region to grow, at 9.1%, and single­handedly pulled the rest of the world out of what would have been another year of contraction.

With Europe – the other powerhouse region, with a 29.6% share – experiencing a flat 2016, all eyes have been on Asia. Despite the stagnation seen in most regions, and the volatile political climate in north Asia, spirits producers are generally hopeful about travel retail.

Ed Cottrell, managing director for global travel retail (GTR) at William Grant & Sons, says: “For us it has been a very dynamic year, following a strong year in 2016. We continue to gain traction. We enjoyed retail sales growth of 21% last year against overall strong value growth for total spirits in GTR.”

The company’s Hendrick’s Gin World Cucumber Day activations, strong distribution gains for Glenfiddich 21 Year Old, and the roll-out of its Cask Collection packaging have propelled it to become the sixth­-largest spirits brand­-owner in DF and TR. Pernod Ricard Travel Retail also saw “good signs of recovery” in 2016 after a soft 2015. Its trailblazing Irish whiskey, Jameson, has seen growth in most markets, especially the Americas and Europe. Martell Cognac, a strategic brand for Pernod Ricard, also had a strong 2016, in Asia and the Americas in particular.

For Loch Lomond Group, Europe, Middle East and Asia continue to perform well “while the Americas is still below expectation”, according to André de Almeida, managing director of GTR. “The premium mainstream spirits sector continues to do well, while the performance of super-­premium and luxury is directly correlated to the ability of passenger groups, such as the Chinese, to spend.”

At Quintessential Brands, producer of gins such as Greenall’s, Ophir and Bloom, DF and TR has become one of its fastest­-growing markets. International commercial director William Ovens says: “This is all the more impressive when you consider that three years ago we had only four ferry listings.” Today, its brands are listed in leading European airports, including in stores run by Dufry, Heinemann, IFS, Lagardère and Aer Rianta. “This growth has enabled us to recruit a dedicated TR team, which is allowing us to make further progress and activate our brands to a greater extent,” adds Ovens. Smaller companies often find it harder to make their presence felt in an increasingly consolidated market, dominated by the giant brand­-owners such as LVMH, Diageo, Pernod Ricard and Bacardi. However, that has not stopped Quintessential, Ian Macleod and Loch Lomond from investing in the channel, be it in special travel retail packaging or exclusives.

Irish whiskey Bushmills has had success with The Steamship, a rare range of cask­-matured single malts inspired by the 125th anniversary of the maiden voyage of the SS Bushmills, exclusive to DF and TR. In August 2017, Ian Macleod showcased a Glengoyne collection of four bottles called Spirit of Oak, which will launch this spring. Ian Macleod’s Lane says: “It’s a big investment for a small family company – it’s a statement that the company values the travel retail business.”

DF and TR may be a small part of the business for many brands, but as a shop window for high­-spending travelling consumers it is unbeatable, even more so at a time of prolific online shopping. Experience­-based retailing and exclusivity is coming to the fore as a way to counter the threat of commoditisation, so expect to see even more channel exclusives and activations.

Market share data stated over the following pages refers to the 2015 calendar year and has been provided by Generation Research.

Scroll through for a category-by-category analysis of spirits in the global travel retail market. 

Leave a Reply