China’s sudden abandonment of its zero-Covid policy, announced in December last year, is gathering pace to the delight of the duty-free business. After three years of largely being cut off from the world, Xi Jinping’s China has dropped quarantine requirements for all international arrivals, delivering a massive boost for the wider travel retail industry, which has been starved of high-spending Chinese travellers since the pandemic began.
This vast country is reopening at speed – last month the Chinese authorities allowed outbound international travel for leisure purposes and the border between the Chinese mainland and the island of Hong Kong, which previously recorded 236 million trips each year, finally reopened. Demand for international travel among the Chinese is understandably high – the hashtag ‘Where to travel abroad next year’ racked up nearly 80 million views in late December on the popular social media platform Weibo.
There’s no doubting the significance of these developments. Pre-pandemic, China was the largest outbound tourist market and the largest spender on tourism, according to data from the UN’s World Tourism Organization. In 2019, the Chinese were also the top-spending nationality for duty free purchases of over $200, ahead of the South Koreans and Emiratis in second and third place, according to the Swiss travel retail research firm M1nd-Set.
However, China’s recovery has some significant obstacles to overcome. A massive spike in Covid cases across China that could lead to as many as 1.5 million deaths, according to the Economist magazine, has already spooked several countries, including the US, Australia, the UK and Japan, into requiring mandatory Covid tests for passengers arriving from China, either directly or from a third country.
Yet there is still a growing sense of optimism about the Asia Pacific travel retail market, which has persistently lagged behind other regions in the post-pandemic era. Consider cognac, for instance, which was once a key pro t driver for duty free spirits brands in Asia. Sales have been hit hard there over the past three years with the notable exception of the duty free domestic island of Hainan.
Reinvestment begins
Now the big cognac houses are coming out of their shells and starting to reinvest in the channel outside of Hainan once again. For instance, Rémy Cointreau GTR has unveiled Louis XIII The Drop at prestige travel retail locations worldwide: a box of five 1cl bottles of the ultra-premium cognac with different colour lids to match different moods: Make It Loud, Make It Glow, Make It Bold, Make It Smooth, and Make It Bright.
Rémy Martin has created a series of accessories to support the launch, including a leather carry case that comes with a range of shoulder straps in the five colours of the bottle lid. According to Louis XIII Cognac global executive director Leonardo Ferracina, Louis XIII The Drop redefines the “boundaries of cognac consumption” and travel retail is the “perfect environment for this breakthrough innovation to be discovered”.
Meanwhile, at Singapore Changi airport, Hennessy Cognac has partnered with Lotte Duty Free to open a new Hennessy shop-in-shop. Located in Terminal 1, the new store offers passengers daily tastings of Hennessy VS, Hennessy VSOP, James Hennessy and Hennessy XO. The outlet also boasts a travel retail-exclusive version of Hennessy XO which features Singaporean landmarks on the packaging, such as Orchard Road, the Botanical Gardens and the Marina Bay Sands hotel.
While things are finally looking up for the return of high-spending Chinese travellers, Dubai’s duty free liquor market has taken a knock with the announcement by the sheikhdom’s two major liquor retailers last month that the country’s long-standing 30% domestic tax on alcohol sales had been cut to boost tourism. According to domestic press reports, the measure has been introduced for a trial one-year period as the country looks to recover after the pandemic.
The move is almost certain to have a negative impact on Dubai Duty Free (DDF) and fine wine and spirits retailer Le Clos, which both run arrivals shops at Dubai international airport. Liquor accounted for more than 16% of DDF’s total sales of $1.74bn last year, over 40% of which was generated in arrivals where passengers are allocated a generous duty free allowance of four litres of spirits and 24 cans of beer.
With cheaper alcohol now available downtown, the arrivals business of both retailers is likely to take a hit, although Le Clos also runs downtown stores.
DDF will likely have to renegotiate payment terms with suppliers and potentially focus on more exclusive and less price-sensitive liquor lines to cushion a blow which may also hopefully be mitigated by a rise in sun-seeking holidaymakers.
