High flyers - single malts in travel retail

18 July, 2014

“We make a profit [in travel retail],” Tegner says. “Now we have products which are differentiated from the domestic market, that gives us more of an opportunity to work with the operators to find a price point where everyone’s a winner. That helps enormously.

“It didn’t work when we were selling The Glenrothes Select Reserve in both duty free and in domestic because margins in travel retail are diluted significantly.

“Is travel retail as profitable as domestic? No. Do we justify it by talking about the shop window effect and being able to offer products to new consumers? Yes, to some extent… but we need to make sure we make profit on every bottle of The Glenrothes we sell otherwise there’s no point in making it.”

The bigger a company’s coffers, the easier it is to make a splash in this high-cost sales environment. A case in point is South African multinational Distell, which bought Burn Stewart Distillers for £160m last April. The deal marked Distell’s entry into the booming single malt category.

Burn Stewart has three malt distilleries – its flagship Islay malt Bunnahabhain, Tobermory, the only distillery on the Isle of Mull, and Deanston, a small Highland distillery located near Stirling.

Burn Stewart chief executive Fraser Thornton says Bunnahabhain and Deanston will be the two key focus malt brands for Distell moving forward.

“Both are small-batch production whiskies, internationally awarded and bottled at 46.3% abv,” he explains. “They appeal to consumers venturing into the single malt category, seeking authentic, artisanal whiskies beyond the mainstream.

“In recent years Bunnahabhain has been growing by double digits in both volume and value, while Deanston has been growing in volume by single digits, but in value by double digits. While both distilleries have increased production in anticipation of growth in demand, they are constrained to some extent by limits to stock availability.”

Over the next 12 months both Deanston and Bunnahabhain are to be repackaged and have their ranges extended with new expressions. “Deanston is being slightly repositioned to accentuate its craftsmanship and the pack upgrade will reflect this,” explains Thornton. “In the case of Bunnahabhain, the packaging update is intended to strengthen the brand’s visibility and celebrate the remote and rugged beauty of its location.”

Along with the US and Russian domestic markets, travel retail will be a key focus going forward, Thornton insists. “Travel retail is a big focus for new brand owners Distell, who are aggressively investing in building duty free marketing infrastructure, skills and distribution in a variety of markets. Bunnahabhain is a priority travel retail brand, with new duty free exclusives being developed. Deanston whiskies will also be represented in this channel, but on a more modest scale, given stock constraints.”

What does the future hold for the single malt category in travel retail category? Notwithstanding the current problems in China, I believe the future is bright as demand is growing globally, from Latin America and the US to Africa and south east Asia. Given the current squeeze on stocks, NAS exclusive whiskies will continue to grow in number, but at the other end of the price spectrum the launch of rare, collectible, limited-edition malts will also continue.

Travel retail exclusives have been around for more than two decades and one trend I see developing is for single retailers to demand exclusive bottlings in an effort to make their malt selection stand out from other airport locations. For instance, in February William Grant & Sons released a small-batch Strathspey Reserve 21 Year Old collection with World Duty Free Group in the UK, Spain and Mexico, which contained different, exclusive bottlings for specific airports.

Single malt whiskies are, of course, being produced all over the world these days, but the craft distilling boom has yet to reach the brand-driven world of travel retail. Leading Japanese brands such as Yamazaki have made a tentative foray into key overseas international airports and award-winning Taiwanese malt brand Kavalan is keen to follow suit. But, for the moment at least, I predict single malt Scotch whisky will continue to rule the roost.

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