As the tribulations of the Covid-19 era slowly fade like the vapour trail of a Boeing 737, it’s tempting to believe business is back to normal for the global travel retail sector. However, according to the latest forecast from IWSR Drinks Market Analysis, a full recovery for the travel retail drinks business to pre-pandemic levels is proving elusive, blown off course by high global inflation, low consumer confidence and the impact of the war in Ukraine.
According to IATA data, a complete recovery in international air passengers is now not expected until 2025 or even 2026. The cost of living situation is impacting both business travel and tourism in terms of expenditure, frequency and the length of trips. Holidaymakers, for example, may be pivoting from hotel stays to self-catering vacations, a concept that might prove beneficial for ferries, land borders and airport arrivals duty free outlets in particular.
Consequently, IWSR chief operating officer market research Emily Neill believes brand owners are now switching from solely airport-focused approaches to more holistic travel retail strategies. “Brand activations will evolve to reinforce the halo effect from GTR to domestic channels. A renewed focus will fall on to sub-channels such as cruises and airline pour, and premium segments will regain market share as the channel increasingly embraces its role as a high-end product showcase,” she explains.
Neill goes on to suggest many drinks brands are increasingly jettisoning the old, siloed separation of travel retail and domestic markets to embrace strategies which target the travelling consumer across the entire span of their journey, from booking their flight to arriving at the airport, catching a flight and arriving at their final destination. This approach, she muses, might actually increase investment in travel retail and improve availability of high-end products.
The level of recovery of Chinese international travel will be crucial for the travel retail business in the remainder of 2023, the IWSR believes, but the latest figures are disappointing. According to aviation consultancy Cirium, China’s international ASKs– the number of available seats on an aircraft multiplied by the distance flown and a key metric for the airline industry–was down by more than 50% in June compared to pre-pandemic levels.
Performance factors
China’s stuttering economic performance, aircraft availability, route rights and consumer hesitancy are all factors that explain this less-than-stellar performance. Yet all the long-term indicators suggest that China will eventually reclaim its crown as the world’s most important aviation market. Indeed, Cirium believes China will need to double its fleet of aircraft over the next decade, about 3,800 new planes.
In the meantime, there is the complex question of the off-shore island of Hainan, a continued location for significant investment by multinational drinks brands over the past three years. The IWSR predicts that the sales declines experienced by the province last year due to Covid outbreaks will continue into 2023 as some Chinese travellers venture overseas, taking their shopping budgets with them.
However, the IWSR expects Hainan to bounce back in 2024 thanks to a resurgence in domestic traffic, but with less emphasis on the highest price segments. IWSR head of GTR insights Jairo Lopez Suarez comments: “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. There are also signs that Hainan is beginning to attract an international audience.”
Of all the spirits categories jostling for space on duty free shelves worldwide, the IWSR predicts that whisky is the one best placed to lead the post-pandemic recovery this year. Whisky volumes in GTR grew 77% last year and the category is expected to expand by a further 16% in 2023.
Both blends (-26%) and malts (-22%) still have a long way to go to catch up to pre-pandemic levels, however, but encouragingly, distillers are now re-engaging with travel retail, increasing the rate of NPD activity. Last month, for instance, Ian Macleod Distillers released the new Rosebank Vintage 1990 32 Years Old in partnership with World Duty Free in Europe and China Duty Free Group and Sunrise Duty Free in China. The launch of the whisky, priced at £3,900, coincides with the resumption of distilling at Rosebank Distillery after a 30-year break.
On a similarly rarefied level, William Grant & Sons recently introduced four bottles of The Balvenie Sixty, a tribute to long-serving The Balvenie malt master David C Stewart, into travel retail. Distilled in 1962 and limited to 71 pieces, bottles of the whisky have gone on sale at Amsterdam Schiphol, Taipei Taoyuan airport, Dubai International and, later in the year, Seoul Incheon.
Such ultra-premium launches are typical of the direction of the entire travel retail sector at present – an intensified focus on value rather than volume.
