Analysis: Spirits in global travel retail
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.
Scotch dominates the spirits business in DF and TR, with a 38% market share of the wines and spirits segment based on value. To put this into perspective, the second-largest spirits category – Cognac – has only half of this market share.
The Scotch category did well in 2016, and single malts led the way. William Grant & Sons’ flagship brand Glenfiddich regained the number one single malt position in value and volume sales in 2016, according to IWSR figures. “We’re also seeing continued rapid growth for Monkey Shoulder with a 95% rise in value sales last year, and The Balvenie grew by 23.8% in 2016,” says Ed Cottrell, managing director of GTR at William Grant & Sons.
Scotch is also thriving for Pernod Ricard Global Travel Retail, strengthened by its popularity in Asia, specifically China, as well as in the US and Eastern Europe. Chivas Regal achieved good growth in markets such as India, Middle East, Turkey, US and Brazil, and the company anticipates this strength will continue.
New DF and TR-exclusive collections set to arrive this year, such as Spirit of Oak from Glengoyne, are also adding excitement. Travelling shoppers looking for variety are tempted by these different offers, while the move away from age statements has given Scotch producers more flexibility to be creative.
André de Almeida, managing director of GTR at Loch Lomond Group, says: “The category continues to grow because the global thirst for whisky remains unquenched. Scotch in particular deserves more attention from the trade, as consumers remain engaged in the category and its growing global appeal – unlike other categories that have a more limited reach.”
Mike Birch, managing director at Bacardi Global Travel Retail, adds: “We see travel retail as a specialist whisky environment, and we are launching several really special and rare single malts in 2017. The past three years have been incredibly exciting for us, and we are only just getting started on what we believe we can do with our single malts.”
Bacardi delivered its Dewar’s Emporium platform in 2017 as a disruptive pop-up experience in key airport locations including Heathrow, Singapore Changi, Madrid, and Beirut, with more airports still to come.
The Tequila segment is the smallest of the eight DF and TR spirits categories examined in this report. Its share of wine and spirits is less than 1%, but, nevertheless, the segment has good growth prospects.
A recent forecast to 2021 from IWSR names Tequila, whisky and gin as the biggest contributors to total global spirits growth in the next five years. IWSR also says that Tequila will make its largest gains in the US.
In DF and TR, brands such as Patrón and Jose Cuervo have embarked on a premiumisation mission for Tequila.“The category is showing positive trends, and at Patrón we are almost 13% up with our Tequila portfolio,” says John Kilmartin, vice president, GTR at Patrón Spirits International. He notes that the company’s Roca Patrón line is performing particularly well in the channel.
Tequila may be up against stiff competition from other white spirits, such as gin and vodka, but confidence abounds.
“In travel retail, we strongly believe the category will excel again in 2018, [helped by] growing interest and distribution in Asia Pacific and education about the agave category,” says Tina Ingwersen-Matthiesen, member of the Borco board, maker of Sierra Tequila.
Looking to the future, David Phelan, GTR director at Proximo, which handles Jose Cuervo, says: “We will be bringing some surprises for Cuervo in terms of new products and activations to key markets in the US, Spain, Germany, Italy and Australia, where we are seeing continued growth.”
American, Irish & world whisk(e)y
Led by Bourbon, whisk(e)y made outside of Scotland is taking greater shelf space among spirits – although supply has been a factor for some categories, particularly in-demand Japanese products. Indian and Nordic lines are also making a mark in TR, but from a small base.
According to Generation data, American whiskey and Bourbon have a combined 3.6% share of the wine and sprits market, while Irish whiskey makes up another 1.9%.
Nick Mogford, director of travel retail for Europe, Middle East and Africa at Brown-Forman, says: “The thirst for Jack Daniel’s and Woodford Reserve, along with other North American whiskeys, remains unabated in Europe. As a result, 2016 was a good year for Brown-Forman GTR, especially since 2015 was such a challenge.”
2016 was a banner year for Jack Daniel’s and Woodford Reserve around the world, as the brands celebrated the 150th and 20th anniversaries of their distilleries respectively. “From a European travel retail perspective, Germany was a core focus market for activations around these milestones,” says Mogford, who adds that Brown-Forman’s founding brand, Old Forester, will also soon have a greater presence in DF and TR.
The Irish whiskey sector is also on form. Pernod Ricard Global Travel Retail says the segment continues to rise in popularity, and points to craft and heritage as driving forces of consumer interest for brands such as Jameson, and its annual St Patrick’s Day limited edition. David Phelan, GTR director at Proximo, which distributes Bushmills, says: “The recent revival of Irish whiskey is a true success story as it remains the fastest-growing premium spirit in the world. Exports of Irish whiskey are anticipated to double to 144 million bottles by 2020.”
William Ovens, international commercial director at Quintessential Brands, adds: “Irish whiskey is on the rise in various markets worldwide so we are focusing on driving distribution and activating our Irish whiskey brands The Dubliner and The Dublin Liberties, and our Irish cream liqueur, Feeney’s.
“The Dubliner is officially the world’s fastest-growing Irish whiskey (according to the IWSR) and we are now seeing some very positive momentum for the brand in travel retail.”
In DF and TR, vodka rules the white spirits segment, and is led, in volume terms, by Absolut and Smirnoff. In the broader wine and spirits sector, vodka has a 6.5% share by value, and is seeing interesting development at the high end of the market.
One of the drivers here has been Bacardi-owned Grey Goose, which has witnessed good performances in the US, UAE, Germany and the UK. “We are also making significant strides in introducing Chinese and Indian travellers to the portfolio, many of whom are exploring the vodka category for the first time,” says Mike Birch, managing director at Bacardi Global Travel Retail.
John McDonnell, managing director of Tito’s Handmade Vodka, says that his brand has also built loyalty outside of the US thanks to the craft spirits trend. He says: “Right across the globe, the pattern is consistent: it’s all about craft spirits. Increasing craft offerings will help operators survive any upcoming storm.”
Vodka brands at the super-premium end of the market are trying to build positions in the key Asia Pacific domestic markets to take luxury leader status, especially on the domestic cocktail circuit, and secure higher DF and TR sales. They have a difficult task, given that this region skews heavily to whisky.
Differentiating products has, however, enabled greater segmentation throughout the category.
Cognac & brandy
Apart from whisky, the other key brown spirit in the DF and TR channel is Cognac. Its share of the market is just over 16%, with another 1.3% coming from Armagnac and ‘other’ brandies. This makes the segment significant, particularly at the high end, but it has encountered considerable difficulty in recent years, following curbs on ostentatious spending by Chinese travellers.
Key brands include LVMH’s Hennessy, Rémy Cointreau’s Rémy Martin, and Pernod Ricard’s Martell. In the first half of its 2017 fiscal year, LVMH confirmed recovery in China for all subcategories of Cognac, while Pernod Ricard is expected to leverage Martell’s strong performances in existing DF and TR markets by pushing into others. Most Cognac players consider DF and TR as being a vital channel for growth, visibility and education, and it is a strategic part of Pernod Ricard’s plans for Martell.
At Distell, GTR managing director Luke Maga says: “The global thirst for brown spirits gives every indication that it will provide a solid buffer against inevitable challenges that await the travel retail channel. This is promising for the brown spirits of Distell’s portfolio, such as Bisquit Cognac.”
Italian grappa producer Bottega has its eye on the craft side of the business. Managing director Sandro Bottega says: “I believe that craft spirits are the novelties to come because travel retail in general should show that it can also offer authenticity and be a channel for smaller brands too – not just the big corporations.”
The strength of the liqueurs segment in DF and TR principally lies with a small number of heavyweight players, such as Baileys from Diageo and Cointreau from Rémy Cointreau. While these brands are relatively active, the general focus on trendier spirits segments such as whisky and gin means that liqueurs have not kept pace.
Liqueurs’ value share of wine and spirits in DF and TR is about 4.4%. This represents one of the highest shares – outranked only by Scotch, Cognac and vodka among spirits categories – but it has slipped back from about 6.4% a decade ago.
One of the issues is that the category is highly fragmented. Nevertheless, Diageo committed to it in 2016 with the launch of a DF- and TR-exclusive line of Baileys called XC (exceptional cream) combining cream, Cognac and ‘fine spirit’. Cointreau also reported a 52% uplift in sales in June 2017 (compared with the same period in 2016) at Frankfurt Airport following a new activation, before rolling it out to Dubai, London Heathrow and Alicante airports.
Lyndea Dew, Rémy Cointreau’s GTR marketing and business development director, says the activation, which used orange trees, green walls and a Cointreau cocktail van, “targeted millennial travellers with a more meaningful and deeper connection to our brand”.
According to William Grant & Sons, its classic whisky liqueur, Drambuie, is also showing renewed momentum after the introduction of a new bottle and ‘serve activity’ last summer, which also targeted younger consumers. Sales for the brand are up by 30% in European DF and TR.
The craze for craft is most evident in the gin market, where a plethora of new brands and flavour variants in the DF and TR channel is boosting choice and consumer excitement. Gin has a relatively modest 2.3% share of the wine and spirits category in travel retail, but is expected to show some of the biggest growth.
“Gin’s popularity knows no bounds, as the category continues to grow in many markets across the world,” says William Ovens, international commercial director at Quintessential Brands. “Consequently, gin is a star performer in travel retail, and as both a leading producer and supplier of gin to many operators, we are benefiting from this trend.” Quintessential launched its first DF and TR-exclusive product – Greenall’s Extra Reserve – which is rolling out globally.
Ed Cottrell, managing director for GTR at William Grant & Sons, says: “Hendrick’s has been the success story that has set the template for modern gin brands to follow, spearheading gin’s resurgence. Our focus for Hendrick’s in travel retail has centred on cultivating the unusual and has included show-stopping promotions, fun packaging, and quirky theatre.”
This combination has worked well for the brand, so much so that it now has a 56% share of the super-premium segment in DF and TR, according to IWSR data. The premiumisation gin trend is set to continue, and could even help ‘turn’ regions such as the Middle East and Asia Pacific from their favoured brown spirits – with the right marketing and development of a wider cocktail culture.
Rum has long been the bridesmaid and never the bride in DF and TR, where its much-touted potential has not quite come to fruition. It has a 3% share of the wine and spirits market in the channel, with Bacardi the outright leader.
Mike Birch, managing director at Bacardi Global Travel Retail, says: “There’s no doubt the rum category still has tremendous opportunity for growth in DF and TR, and we are committed to leading this potential through the depth and breadth of our range.” Bacardí Ocho and Bacardí Reserva Limitada sipping rums have been part of the trading-up movement, as well as recruiting rum drinkers from whisky.
William Grant & Sons-owned Sailor Jerry holds its own in the spiced category and is seeing traction having grown by 18% in 2016 in DF and TR. Pernod Ricard Havana Club is also experiencing growth in the channel, strengthened by the easing of trade restrictions between the US and Cuba.
The arrival of newcomers is a welcome trend in the segment, and one of the most publicised has been Wild Tiger from India. Gautom Menon, founder and brand owner, says: “We believe rum is the category that will make the next big wave in DF and TR. One just has to look at the exhibitors that have popped up in recent DF and TR trade shows around the world.”