Research in Focus - BRIC Travellers Swell Travel Retail Coffers
By Ben Cooper | 11 April 2013
Drinks companies stand to benefit as the global travel retail market continues to expand, buoyed by millions of new passengers from developing economies, according to a new just-drinks/IWSR report.
Much has been written about the growth of the BRICs as consumer markets, but the economic growth of these countries and other emerging markets is also having a positive impact on the travel retail sector.
The links between passenger traffic and travel retail sales are self-evident. However, the recent growth in the sector recorded in a new just-drinks/IWSR report attributes progress in no small measure to increasing passenger numbers from emerging economies, notably Russia and China.
The report, entitled 'Global Market Review of the Travel Retail Drinks Sector', cites data from the World Tourism Organization (UNWTO) showing double-digit growth in spending by Russian and Chinese tourists overseas in 2012, and adds that increased spending by travellers from other emerging markets, notably Indians and Brazilians, is also having a "significant impact" on travel retail purchasing trends.
"As more consumers in emerging markets attain middle-class status, a greater proportion of them is travelling or is likely to begin travelling in the coming years," the report states. "Moreover, they are more inclined to purchase deluxe and prestige products as a confirmation of their new social status and have a tendency to purchase for image."
Roland Abella, Diageo's Global Travel & Middle East managing director, describes the increasing international travel from emerging markets as a "massive opportunity" for the sector. "The travel retail channel will continue to get the focus and investment from Diageo because the potential for growth is just enormous," she says.
The number of outbound and domestic travellers from China continued to grow in 2012, reaching 80m, although most Chinese travellers are still visiting Hong Kong or Macau, special administrative regions of China. However, other Southeast Asian countries figure prominently, notably those with significant Chinese communities such as Singapore and Vietnam.
As IWSR reports, Asia Pacific has been growing its share of the travel retail sector steadily for a decade, from 13.9% in 2002 to 16.8% in 2011. And, in part reflecting the traffic patterns among Chinese travellers, most of that growth came from East Asia which saw its share increase from 7.5% to 10.2% in volume terms, according to IWSR data. The region's share in value terms "greatly exceeds that", the IWSR report adds.
Between 2007 and 2011, the East Asia spirits sector added some 680,000 cases. In 2011, Asia Pacific was the fastest-growing regional market in the travel retail sector, growing by 11.8% to 5.1m cases.
Beyond Asia, the most visited destinations for Chinese travellers are Russia and France but Chinese customers are also becoming increasingly important for the sector in North America. "These travelling Chinese are becoming highly influential purchasers both in Asia and beyond," IWSR states.
While Chinese visitors are playing a part in travel retail growth in the US and Canada, in Europe growing numbers of Chinese travellers are helping to hold up spend per passenger, in spite of the fact that overall passenger traffic growth is slowing.
It is not just Chinese travellers that are providing growth for travel retailers. Along with the Chinese, Russian passengers are among the most targeted by retailers as big spenders in travel retail, says IWSR.
According to the Association of Tour Operators of Russia (ATOR), the number of outbound tourists from Russia grew by 25% in 2012 to around 11m, with China, Thailand, Turkey, Finland and Egypt the most popular destinations. In fact, according to Bacardi, Russians are the largest buyers in Turkish airports.
"As with the Chinese, the Russians have a reputation for luxury purchasing and are being targeted by the leading liquor suppliers," the report states.
The view travel retail marketers now have towards big-spending travellers from Russia echoes how Japanese passengers were viewed for many years. Although the Japanese remain an important segment - total outbound Japanese travellers increased by 8.8% in 2012 to 18.49m, breaking the 18m mark for the first time - the growth in the BRIC economies has clearly given travel retail alternative targets to aim at.
As the IWSR report concludes: "Tourist expenditure by the Japanese has returned to growth in 2012 after contracting last year, when outbound travel declined following the tsunami in Japan in March 2011. But other nationalities, including the Chinese and Russians, have overtaken the Japanese in UNWTO’s ranking of top tourism spenders and are now more sought after by duty free liquor suppliers and retailers."
Moreover, the volume of passengers that China and Russia can bring to travel retail makes for some exciting projections for the travel retail sector..
Jim Beighly, senior VP strategy and market development at DFS Group, says: "We think that, by 2020, there will be about 400m travellers in Asia Pacific, but it won’t just be Chinese; you’ll have all of the emerging countries. You have the BRIC countries – India and Russia are going to contribute to that – and you have Vietnam and Cambodia."
However, it is once again the sheer scale of China which provides the most staggering numbers.
According to a recent report from Goldman Sachs, China now has the largest number of luxury consumers in the world, while the same report forecasts that the People's Republic will become the top global luxury market by 2015. The report put the number of luxury consumers in China at 1m in 1995. This had risen to 37m by 2012 and is forecast to reach some 256m by 2025.
The International Air Transport Association (IATA) forecasts that total passenger numbers will increase by around 800m from the 2.8bn recorded in 2011 to 3.6bn in 2016. And around one in four of those 800m additional passengers will be Chinese.
For full details of the report, click here.
Changing demographics, growing economies, increased disposable income and the rise in international and business travel have all contributed to the burgeoning travel retail sector.
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Research in Focus - BRIC Travellers Swell Travel Retail Coffers