Seizing the Brexit opportunity

12 June, 2017

A year ago I tentatively suggested the upcoming UK referendum on EU membership might have enormous ramifications for the European travel retail business.

Penned a few weeks before that nation-splitting vote, the prospect of the UK cutting its ties to the EU after more than 40 years seemed unlikely and few in the industry were seriously contemplating it.

Twelve months on and Article 50 has been triggered. Two years of bitter wrangling between the UK government and Brussels about who gets to keep what and who owes what to whom are about to begin. Whatever your wider views about the wisdom of last year’s historic decision, what is clear is that the European travel retail business could be about to benefit from a much-needed boost.

Duty free shopping for travellers flying, sailing, or even catching the Eurostar from the UK to EU countries (and vice versa) could be back as early as March 2019. The European Travel Retail Council has confirmed that no new legislation will be required at an EU level to reinstate duty free sales, but the UK will need to amend some of its excise and tax regulations. The ETRC has been at pains to point out that duty free will make its return regardless of whether the UK manages to secure a ‘soft’ or ‘hard’ Brexit. What matters from a legislative point of view is that the UK will no longer be an EU member. The scale of the opportunity is huge— an annual 130m air travellers and 27m sea ferry passengers. Overnight, the liquor category will become far more profitable for every stakeholder in the business.

One of the worries is that the relatively minor issue of duty free shopping will get buried under the mountain of bureaucratic paperwork that will need to be worked through if the UK is to cut its ties with the EU within the two-year timeframe. Everyone wants to see duty free return as soon as possible.

Another concern is that the EU might amend its current legislation regarding sales of duty free to third-party countries – an unlikely eventuality perhaps, but in these crazy times every scenario needs to be planned for.

A much-needed industry lobbying campaign of key associations such as the ETRC, the Duty Free World Council and the Tax Free World Association is already underway. The campaign is going to be a simple, positive, behind-the-scenes effort to persuade the British government and the EU that the return of duty free will be good for jobs, struggling regional airports and vital ferry links, as well as a popular move for travellers. Such a campaign is not going to be cheap. The multinational travel retailers and big liquor brands that increasingly dominate duty free in airports around the world are going to have dip into their pockets to fund it. Otherwise, a once-in-a-lifetime opportunity could be missed.

Once duty free shopping between the UK and EU has returned, some serious thinking will have to be done about the make-up and positioning of the liquor offer. Price will be front and central. If it says ‘duty free’ on the price tag, then we need to ensure real savings are passed on to travellers.

There are other considerations. Will so much space be devoted to ultra-premium products if cheaper, volume-driven lines can be sold more profitably? Will we need so many travel retail exclusive products, especially in the scotch whisky category, where non-age statement exclusives have sometimes been used as a way of filling the shelves with younger whiskies, which can’t be price benchmarked against the domestic market?

These are all valid questions, but perhaps ones best asked another day. For now, the challenge for the industry should be to unite and fight for duty free’s swift return.

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