Key factors shaping global travel retail

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The global travel retail market is in a unique position to capture the attention of billions of consumers. As well as opportunities, the sector also faces challenges, as we highlight in this report.

Success in global travel retail (GTR) is inextricably tied to people’s ability to both travel and spend, and is therefore at the mercy of volatile external factors – whether Brexit, political riots or the spread of infectious disease. At the same time, there are internal challenges in the channel that risk stymying progress, from pricing pressures to legislative hurdles, the latter of which has a real bearing on spirits.

As the former Tax Free World Association (TFWA) president Erik Juul-Mortensen explained during the group’s World Exhibition & Conference last year, the travel retail industry has “never before faced so many challenges to its operating environment on a global scale”.

His successor, Alain Maingreaud, dissects the predicament further: “The global duty free and travel retail market is in a strong position, with passenger numbers and sales continuing to rise. However, we are facing a number of threats from different quarters, including the continuing debate around restrictions on hand baggage and increasingly draconian policies around the sale of alcohol and tobacco products.

“Rising geopolitical tensions, such as the looming threat of worsening trade relations between the US and China, as well as ongoing uncertainty over Brexit in the UK and rising concerns about sustainability among consumers, are also having an impact on the market. It is only by working together as a unified industry that we will be able to meet and overcome these challenges.”

Indeed, there is movement for change, and despite the turbulence, optimists will tell you that no market in the world holds as much potential as GTR.

“It’s rare to find so many opportunities for growth in a marketplace, and that’s what makes [GTR] such a dynamic and exciting industry to be part of,” enthuses Dafydd Williams, head of marketing and innovation at Diageo Global Travel Retail, whose sales increased by 5% in 2017/18, according to IWSR. “It’s a big market already and growth is being fuelled by more passengers entering various parts of the channel.”

In 2018, air passenger traffic increased by 6% year on year to 8.8 billion, exceeding the CAGR of 4.3% for 2007-2017, according to preliminary figures released by Airports Council International (ACI). Passenger traffic at the world’s 20 busiest airports – which represent 17% of all global passenger traffic – grew by 4.7% in 2018 to 1.5bn.

Increasing air traffic has had a direct effect on spirits sales, notes Williams. Citing IWSR research, he says that between 2014 and 2018, 400 million more international departing passengers came into the channel, helping to “fuel the alcohol category by about 3% over that period”. He adds that GTR is the biggest market for Diageo in terms of people, with a bigger ‘population’ than both India and China. “And the vast majority are legal-purchase age, giving us a really unique opportunity to interact with consumers across the globe,” says Williams. “[GTR is] really important to Diageo, and it’s set to become even more so in future years.”

Spirits sales ‘softening’

The entire GTR sector received a boost in 2018, according to preliminary Generation Research figures provided by the TFWA – up by 9.3% in 2018 to US$75.7bn. Wine and spirits is the second-largest GTR category, after fragrances and cosmetics, and saw sales increase by 7.2% last year to US$12.2bn. With premiumisation sweeping all segments in GTR, drinks brands are well placed to capitalise on shoppers’ move upmarket, having practised in domestic territories.

“The market is continuing to perform strongly,” notes Maingreaud, “with growing numbers of millennial travellers and middle-class consumers from China leading to an increase in demand for premium spirits. Domestic trends, such as the rising popularity of gin in Europe and Tequila in the US, are also moving across to the duty free and travel retail market, with customers now expecting to find their brand of choice at the airport.”

The IWSR separates the performance of wine and spirits in its own volume data, and identifies a “softening” of sales for spirits in 2018 (up 2.5% to 24.5m cases), the result of a “slight decline” in Europe. Johnnie Walker remains the best-performing spirit brand in the channel (see table, overleaf) and reported the highest volume sales growth last year, followed by Aperol and Jägermeister respectively. The IWSR predicts that burgeoning categories such as gin,

Japanese whisky and cane spirits will lead volume growth for spirits in GTR over the next five years.

This would be good news for Venezuelan rum brand Diplomático. The brand’s biggest travel markets are in Europe, but it has been “very active” in the Americas and has recently “opened up new opportunities” in the Middle East, Australia, New Zealand, Hong Kong and Singapore. However, the brand’s global managing director, Patrick Rabion, wants to see retailers offer more shelf space to super-premium rum in the future. “In this complex and highly concentrated business, it is important for Diplomático to increase its exposure to deliver premium brand experiences,” he says. “Operators need to dedicate more space to this fast-growing category so it can compete with other premium dark spirits and offer the variety consumers are looking for in GTR.”

As the old adage goes, with challenge comes opportunity – and GTR has both in spades. Over the following pages we take an in-depth look at some of the key themes affecting spirits in duty free and travel retail – for better or for worse.


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