Preview - Tax Free World Association Asia Pacific Exhibition & Conference
This year's TFWA Asia Pacific Exhibition & Conference kicks off this weekend
Ahead of next week's TFWA Asia Pacific Exhibition & Conference in Singapore, which starts on Sunday, Joe Bates surveys the Travel Retail landscape in the region.
As drinks executives pack their bags for Singapore, they can reflect on a particularly turbulent year for the world’s second largest duty-free liquor market. A catalogue of malign external forces, most notably the Chinese Government’s crackdown on corruption and luxury gift-giving, but also the devaluation of key currencies and political unrest in Thailand, Vietnam and Hong Kong, have hit sales hard.
Cognac’s role as a luxury gift - and a required toast to cap official banquets among the Chinese elite - has meant it has been affected worse than most. "The past year has indeed been challenging with a marked change in the buying patterns of Chinese passengers impacting the whole Asia region and their destination airports around the world," confirms Matthew Hodges, marketing director at Rémy Cointreau Global Travel Retail (GTR). "We have not gone back to previous spending patterns, but the market has stabilised and is showing signs of growth.
"Generally Chinese New Year [in January/February] causes a frenzy of shopping and we have certainly seen an uptick in sales again this year, but I would not say we are back where we were two years ago. It seems that it is the official gift-giving of very high-value items that has been decimated. In its place, we have luxury and premium spending by consumers for their own enjoyment."
This switch towards younger Chinese travellers in their 20s and 30s purchasing for themselves is an important trend picked up by other suppliers. According to Beam Suntory's head of GTR APAC, Nick Detmold: "Whilst there has been a decline in higher-priced, exclusive and rare products, we are seeing a younger Chinese demographic seeking out new and exciting premium brands to take home and share within their social circles. They enjoy the discovery of premium products and brands rich in provenance and heritage.
"To capitalise on this, the duty-free drinks trade must bring these brand stories to life within the shopping environment, making them interesting and enjoyable to discover from the Chinese shopper’s perspective," he adds. "This should include trained sales staff fluent in Mandarin and Cantonese and take-home literature in these languages."
Single malt whisky appears to be a particular beneficiary of this trend. "For single malt, these are very exciting times in Asia," says Ryan Hill, MD of Asia Travel Retail at Edrington. "Some of the key nationalities in Asian duty-free, which have traditionally been Cognac consumers are showing a trend towards whisky consumption, while other traditionally strong whisky markets - Taiwan being a good example - continue to perform well."
Taipei Taoyuan enjoyed healthy international passenger growth of 11% last year and the strength of the domestic market makes the island’s only international airport an attractive location for investment by Scotch whisky brands. In April, for instance, Diageo GTME officially opened a new The Johnnie Walker store there (other branches are located in mainland China, Korea and at Mumbai airport). Among the luxury products showcased in the outlet are whiskies from the John Walker & Sons Master Blenders Collection such the 600-bottle Alexander Walker and Sir Alexander Walker releases, and Johnnie Walker Commemorative 1949 Edition, which celebrates the year the blend arrived in South Korea.
Airport stores dedicated to just one drinks brand, whether permanent or of the pop-up variety, seem to be an increasingly popular retail format in Asia and elsewhere. Airport shops are expensive places to run and dedicating space to value drivers is a no-brainer from a retailer’s perspective. Another recent example is Pernod Ricard Travel Retail Asia’s opening of a pop-up store earlier this year at Hong Kong airport to mark the tercentenary of Martell, stocking rare releases such as the commemorative Martell Premier Voyage.
Such high-profile investments are clear proof that Western companies believe that, despite its current travails, the Asian duty-free market still has long-term potential. "Despite government austerity measures resulting in a dip in demand for high-value products, the PRC traveller is still king," maintains Beam Suntory’s Detmold. "With a population of 1.35bn, they are a demographic which cannot be ignored.
"Even with impressive growth forecasts, they are not close to reaching peak outbound trips," he continues. "The number of Chinese outbound travellers continues to grow at four times faster than the world outbound average: In 2015, the forecast is for a growth rate of 12% to 15% in the current climate. They are travelling principally within the Asia Pacific region and to the neighbouring Greater China areas."
It’s not just the multinationals that are still eager to crack the Asian duty-free liquor market. Among the first-time exhibitors at next week’s exhibition is Italian firm Rossi D’Asiago, the producer of Antica Sambuca. "Most spirits that you find in Travel Retail are considered to be a luxury item in China and therefore would be seen as an investment product," says export director Nicola dal Toso. "We cannot describe the Chinese market as being anywhere near mature, so we believe that this is just the beginning and that spend will recover and more likely increase to more than it was before."
For all its many troubles, then, it seems that the industry mood ahead of the 20th TFWA Asia Pacific Exhibition is still bullish. Recent research forecasts global duty-free sales will grow at a CAGR of 8.6% to hit US$73.6bn in 2019. The $37.6bn Asian duty-free market will be driving this growth and liquor is set to be one of the highest-spend product categories.
The boom years of the early 2000s may never be recaptured, but the sort of collapse seen in the late -1990s when the Japanese traveller stopped buying is clearly not on the cards either.
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