Spirits in travel retail bounce back

The global travel retail industry has come back to life after the dormant period of Covid-19 lockdowns.

*This feature was originally published in the September 2023 issue of The Spirits Business magazine.

The global travel retail (GTR) industry has seen a strong bounceback from years of pandemic-affected restrictions. However, the sector has dealt with new challenges, such as rising inflation and costs, and staff shortages.

Tax Free World Association (TFWA) president Erik Juul-Mortensen says wine and spirits have been “at the forefront of the recovery in duty free and travel retail, and we’ve seen significant growth in sales across the world. The reopening of Asia has meant that affluent consumers from that region are now back in our stores, and their return has had a clear and beneficial effect on duty free and travel retail sales, particularly in the wines and spirits category.”

He adds: “While there is still some frustration around airline capacity and the costs of travel, European airports are having a very busy summer season, which, of course, bodes well for the future.”

Despite the challenges, the spirits sector has seen some healthy growth in the channel, particularly for categories such as agave spirits and whisky.

Data from IWSR Drinks Market Analysis reveals that the spirits sector saw its volume increase by 67% in 2022. It is expected to post a compound annual growth rate (CAGR) of 9% in the five years to 2027.

Tequila recovers

The IWSR said Tequila has been the only spirits segment to recover to pre-pandemic levels in volume terms. Last year the category grew by 95% in volume, and is expected to post a 9% CAGR increase (2022-2027).

In its latest key trends report for GTR in 2023, the IWSR said whisky and Champagne would “spearhead” the channel’s resurgence in the years ahead. Sales of whisky in GTR rose by 77% by volume last year, and are expected to increase by 16% in 2023. A 9% increase for the whisky sector is also expected in the five years to 2027.

Looking at individual whisky subcategories, Irish rose by 66% in 2022, Scotch by 77%, and US whiskey by 93%. The segments are expected to post a 7%, 10%, and 9% increase, respectively (CAGR 2022-2027).

Gin and rum saw triple-digit volume increases last year, up by 112% and by 100% respectively. Gin is forecast to grow by 5% over the next five years, while rum is predicted to increase by 7% (CAGR 2022-2027).

Citing International Air Transport Association data, the IWSR says a full recovery in international air passenger numbers is now not forecast before 2025/2026. It also notes a potential move towards self-catering holidays as consumers deal with cost-of-living challenges. “The global travel retail channel is transforming as beverage alcohol brand owners reshape their strategies and adopt a more holistic approach across all global travel retail channels,” says Emily Neill, chief operating officer, market research, IWSR, in its GTR report. “Brand activations will evolve to reinforce the halo effect from GTR to domestic channels.”

She says there will be renewed focus on sub-channels such as cruises and drinks poured on airlines, and premium segments will regain market share as the channel increasingly embraces its role as a high-end product showcase.

Juul-Mortensen also singles out the cruise and ferry business as “performing very well in various windows, and providing a great shop window for beer, wines and spirits brands”.

General recovery in the channel is reliant on the return of Chinese travellers, the IWSR points out. The GTR channel has been waiting for international travel to pick up since pandemic restrictions on Chinese consumers were relaxed in early 2023, notes Jairo López Suárez, head of GTR insights, IWSR.

After recording a decline in 2022, duty free shopping destination Hainan is expected to bounce back in 2024, but with less focus on higher-priced segments. “The sheer size and growth of China’s burgeoning middle class, who will be adopting Hainan as a travel destination, is believed to be fuel enough to compensate for those Chinese nationals who are now ready to rejoin the international travel circuit,” Suárez explains. “There are also signs that Hainan is beginning to attract an international audience.”

The rise of sustainability

In the wider travel retail sector, Juul-Mortensen notes that sustainability is “rising up the agenda” as brands commit to minimising their impact on the environment. “These moves are particularly popular with younger consumers, and more retailers are looking to engage with brands with a sustainable approach to business,” he says.

More than half of alcohol duty free shoppers expect sustainability in the alcohol section of the duty free shop, especially when it comes to ingredients and packaging, according to M1nd-set data for the second quarter of 2023.

Furthermore, M1nd-set says value for money is the main driver for people buying alcohol in duty free, with shoppers opting to buy in the channel because of lower prices than in local stores or online. The average spend on alcohol in the channel in the second quarter was US$87.

Meanwhile, 61% of alcohol purchases in the channel were for people’s own consumption, with 18% buying for gifting and 18% sharing with others. Only a minority of duty free alcohol shoppers is aware of online advance ordering services, contrasting with the high number of people that would be interested in using them, M1nd-set says, which highlights “strong potential” for growth in this area.

In terms of what influences buyers in the channel, 56% choose purchases based on promotions, 58% select items they’ve never bought before, and 52% buy travel retail-exclusive bottles. Higher prices (compared with destinations or at home) are among the top alcohol-purchase barriers in all regions, except for the Americas, where other aspects, such as preference for other channels, airline regulations, and lack of unique products are more influential. IWSR’s Suárez also highlights a rise in “standalone boutiques, shop-in-shop concepts, pop-ups and tie-ins with non-beverage luxury brands” as indications that brands are seeking to target general luxury shoppers.