Preview - Tax Free World Association World Exhibition 2009

By | 15 October 2009

The duty-free industry's most important annual trade show, the Tax Free World Association (TFWA) World Exhibition, celebrates its 25th anniversary in Cannes next week. This US$37bn global business has always prided itself on knowing how to throw a good party. But few heading to this year's show will be in the mood to celebrate the silver jubilee, despite the lavish dinner and rock concert which organiser TFWA has planned. Joe Bates reports.

A number of external forces are combining to give the travel retail industry its most difficult year since the abolition of intra-European Union duty-free back in 1999. The aviation industry is shedding jobs and axing routes, while the continuing economic crisis and the threat of swine flu have hit passenger numbers. Security legislation concerning liquids and gels imposed worldwide after the foiled transatlantic bomb plot of 2006 is also still a source of confusion for passengers. Tonnes of bottles of liquids are being confiscated by airports every month.

According to recent figures from industry analyst Generation, the $6.3bn duty-free liquor category has been particularly hard hit. Liquor sales slumped by 16.6% (about $300m) in the first quarter of 2009, compared to a slightly less steep drop of 14.2% for all product categories. Retailers from every continent report travellers trading down from premium to standard brands or cheaper local alternatives. Meanwhile, suppliers complain that many duty-free operators have cut back on their range assortments and let inventory levels on remaining lines run low.

It's not all bad news, however. In isolated markets where the local economy is weathering the storm well, such as Australia, duty-free liquor sales are holding steady. Exchange rates can often play a bolstering role too. In the UK, for example, the weak pound versus the euro has led to many British travellers deciding to purchase wines and spirits at UK airports and onboard cross-Channel ferries rather than on mainland Europe.

The Middle East is clearly the liquor category's star regional performer, however. Driven by ex-pats from the Indian subcontinent, who work in the region, and an unprecedented level of new airport infrastructure, sales there have grown strongly. At Dubai Duty Free, now the world's largest duty-free location with annual sales of US1.1bn, liquor has now overtaken fragrances and cosmetics to become the airport retailer's largest product category.

Another crumb of comfort is that demand for ultra-premium wines and spirits have held up quite well, suggesting that there remains a sizable group of high net worth travellers crisscrossing the globe, who are still spending. Diageo Global Travel & Middle East, for example, felt bullish enough about conditions at the high end of the market in July to launch a new US$3,000 permanent addition to the Johnnie Walker range, The John Walker, with Singapore Changi airport retailer DFS Group.

Earlier this month, UK airport retailer World Duty Free unveiled a new website for its chain of eight World of Whiskies stores. www.worldofwhiskies.com showcases the retailer's range of over 300 malt whiskies, including many exclusive and rare expressions such as the recently-released The Dalmore 1951 Sirius Vintage priced at GBP10,000 ($15,953), and Balvenie 50 Year Old (GBP6,000/US$9737).

This year's TFWA World Exhibition will also see a surprising number of ultra-premium launches. For example, William Grant & Sons will be unveiling a new Grant's 25 Year Old blended whisky, while Drambuie is introducing a new line travel-retail exclusive line extension, Royal Legacy 1745, costing US$229 a bottle.

Not to be outdone, the major Cognac houses are also pulling out all the stops. Beam Global Spirits & Wine is to release the US$2,800 L'Essence de Courvoisier, while Rémy Cointreau is to present a new Rémy Martin Louis XIII coffret - a blend of 1,200 eaux-de-vie aged up to 100 years.

The flurry of Cannes product launches is a strong indication that suppliers still see the duty-free channel as an important shop window for their brands, and an ideal testing ground for new products. Indeed, market leader Diageo, which enjoyed nearly a 26% share of the global duty-free spirits last year, according to the International Wine & Spirit Record (IWSR), has shown its commitment to the business by pledging to double the value of the entire duty-free liquor category to US$12bn within five years.

Despite reporting falling duty-free volumes and net sales in its financial year to June, Diageo GTME has pressed on regardless, announcing a number of new initiatives aimed at strengthening its - and the category's - duty-free fortunes such as a set of standardised trading terms for all duty-free operators with built-in incentives for effective promotions, as well as new promotional programmes for underdeveloped channels such as the in-flight and cruise line sectors.

Suppliers' reassurances that they won't walk away from the business are all very well, but what the many duty-free buyers visiting Cannes this week desperately want to see are higher passenger numbers and higher sales in the run up to the key Christmas and New Year periods .

TFWA president Erik Juul-Mortensen believes the "first green shoots of global recovery" could be discerned in marginally improved Q3 passenger and sales figures.

"We can hope that the slightly improved situation we have seen in the past couple of months will continue," he says. "It certainly gives reason for cautious optimism, but in reality I expect that we will have to go to the summer of 2010 before we will really be back on track again and can see the recovery bringing us the growth we have seen in the past."

Sectors: Beer & cider, Soft drinks, Spirits, Water, Wine

Companies: Diageo, Johnnie Walker, William Grant, Beam Global, Cointreau

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Preview - TFWA 2009

The duty-free industry’s most important annual trade show, the Tax Free World Association (TFWA) World Exhibition, celebrates its 25th anniversary in Cannes next week. This US$37bn global business has always prided itself on knowing how to throw a good party. But few heading to this year’s show will be in the mood to celebrate the silver jubilee, despite the lavish dinner and rock concert which organiser TFWA has planned. Joe Bates reports.

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