Pernods Chivas Scotch brand has faced difficulties in Travel Retail in the past 12 months

Pernod's Chivas Scotch brand has faced difficulties in Travel Retail in the past 12 months

Pernod Ricard's CFO has forecast another difficult year for global Travel Retail as the channel continues to face pressure from all sides.

Gilles Bogaert said Travel Retail was one of Pernod's most volatile units because of foreign exchange fluctuations, and in the past year has been hit by the Russian Rouble's devaluation and a weak Brazilian Real. He also said increased passenger numbers in China had so far failed to translate into stronger sales.

"2017 should still be a tough year, but we remain confident for mid-term and long term," Bogaert said today

However, as the global Travel Retail industry gears up for the annual Tax Free World Association exhibition in Cannes, France next month, Bogaert highlighted other pressures that risk squeezing margins in a channel that accounts for 10% of Pernod's sales.

"It is fair to say it is a very competitive channel with some commercial pressure from some of the clients," Bogaert said. "There is more concentration from retailers than we see in some of the domestic markets. There is a lot of price aggressiveness in that channel that we have to deal with."

He said the company's recent move to consolidate its regional Travel Retail units into a global division based in Hong Kong intends to combat the headwinds and increase efficiency.

Bogaert's comments chime with those from other spirits producers with a large presence in Travel Retail. After Brown-Forman's underlying GTR net sales in its most recent full-year decreased by 18%, the company blamed "a reduction in the historic price gap between Travel Retail and the local economy".

Overall, Travel Retail appears to be in trouble. According to IWSR figures for the channel last year, spirits declined by 3.3% to 21.8m cases, wine dropped 2.9% to 7.5m cases and mixed drinks fell 11.4% to dip below 250,000 cases.

Meanwhile, Pernod today reaffirmed that pressure in Travel Retail was affecting its flagship Scotch brand, Chivas, which in fiscal FY2016 results released last week posted a sales and volumes drop. The head of Pernod's Scotch and gin unit Chivas Brothers, Laurent Lacassagne, also blamed a drop in premium Scotch sales in China's domestic market as consumers moved to "more affordable brands".

However, Lacassagne said Chivas's 60% market share in China remained stable, and even called for more competition from rival brands, saying it would help Pernod to invest in the category.

"We would like more competitors," Lacassagne said.

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Global travel retail insights - market forecasts, product innovation and consumer trends

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