In travel retail at least there can be no doubt of the impact of September 11th. In this week's full members feature Martin Moodie gives a fascinating insight into the affects on the beverage industry in this sector and looks for hope in the future.
The global duty-free industry is reeling from the commercial impact of the September 11th terrorist attacks in the US and the subsequent retaliations. Already many believe it is the greatest threat the US$22bn business has ever faced - worse than the Gulf War, the late 1990s Asian economic crisis or even the 1999 abolition of intra-European duty free.
Airlines and therefore airport traffic have been devastated, with the US and many other countries suffering severe downturns. And most critically affected is Japanese traffic, long the linchpin of the industry.
The Japanese have been cancelling trips, both group and free independent travel, in waves. Duty free industry giant, DFS Group reports traffic down by as much as 80% in its US West Coast heartland of San Francisco, Las Vegas and Los Angeles with little hope of any imminent improvement. Hawaii is equally dire and Guam and Saipan, big destinations for Japanese women and honeymooners, are also hurting badly.
Duty free wines and spirits currently account for around 20% of the global market. But the category's exposure to the current crisis is accentuated because Asian-related markets and consumers account for a high percentage of sales of top-grade Cognacs and blended whiskies in particular.
The Japanese traveller, for example, has historically been a big buyer of Old Parr deluxe qualities, Hennessy XO and other super-premium labels. And everywhere, falling passenger numbers translates inevitably into falling spend.
The big question for the industry is how long will it all last. For liquor companies the full impact is only really beginning to bite as retailers use up existing stock and either cancel or freeze future orders.
After laying off hundreds of staff in the US, DFS is seeking extended credit terms from its suppliers, up from the standard 45 days to 90. Rivals, such as Switzerland's Weitnauer are following suit. Many liquor companies, hard-pressed themselves, are unhappy about being cast in the role of industry bankers.
Many posts have been lost within the duty free sector at both retail and supply level, reflecting the 200,000-plus lost jobs within the travel business.
British Airways has scrapped 7,000 jobs, Spain's Iberia 3000 and stricken Swissair between 9000 and 17,000. A similar depressing picture is being mirrored on airlines all over Europe and the US. Completing the picture of commercial carnage, some tour companies in the UK, Japan and US are on the point of collapse and the hospitality industry in many countries has been ravaged by the tourism decline.
In the US, the International Association of Airport Duty Free Stores (IAADFS) lobbied Congress for financial relief in the wake of September 11th. Although the initiative (tagged on to the Airline Relief bill) was unsuccessful, it illustrates just how dire the situation is for US concessionaires.
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British Airways has scrapped 7,000 jobs; Spain's Iberia 3000 and stricken Swissair between 9000 and 17,000.
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Airports Council International-North America estimates that concessionaires could lose US$300m during the next year. Some 9,600 employees are being laid off, a third of the workforce. Paradies Shops president Dick Dickson pleaded: "Someone has got to help the airports. You can't operate airlines without airports and airports simply have to get relief."
UK airport authority BAA has warned of a 20% (US$150m) profits fall this year, largely due to a 38% fall in inbound and outbound North American traffic since September 11th. Its major airports, London Heathrow, Gatwick and Stansted, recorded half a million fewer North Atlantic passengers in September. Against such a backdrop, the company's sale of its loss-making US retail subsidiary World Duty Free Americas last week (bought for US$674m in 1996, sold for US$121m) hardly registered in the financial press.
Elsewhere, anecdotal evidence suggests a consistent pattern of 20% sales decreases since September 11th in many international locations, even those unrelated to the current turmoil. Even New Zealand, a long way away for the Japanese but even further away for terrorists, has taken a 10% hit. Scandinavian retailers report a 10% downturn in business, sometimes more, as charter passengers cancel their trips to the Mediterranean sun.
Important liquor and travel markets such as Malaysia and Indonesia (both mainly Muslim states) are also suffering. Ashraff Ali, merchandising manager of Malaysia's biggest airport retailer says: "There has been an almost 30% drop in our transactions since the US crisis began. We foresee the situation becoming even worse with the war now on."
There has been some positive news though. In the US, several airport landlords have restructured their concession agreements with retailers to compensate for the passenger fall. San Francisco's airport authority, for example, has suspended minimum rental guarantees during the crisis and replaced them with a percentage of revenue formula.
Drinks companies have long bemoaned the minimum guarantee system that encourages competitive overbids and usually ends with the liquor suppliers being squeezed on margin to pay for it all. Don't get your hopes too high, but this crisis just may inject some long overdue commercial reality into the business.
Some travel destinations, too, look likely to be relatively immune. Intra-Asian travel is holding up well and will pick up further as the nervy Japanese begin to accept they are not at risk on shorter-haul routes.
In gauging the extent and speed of any recovery, most analysts are basing their projections on what happened during and after the Gulf War. That would indicate that the market would take a 15-20% fall at worst and recover fully in about a year, once hostilities cease.
But this is different. In this case the travel and aviation industry has itself been at the heart of the crisis and of future threatened action. Osama Bin Laden's continued threats to hit more planes are hardly likely to encourage travel.
This weekend, the global duty free trade will gather in the slightly incongruous setting of the French Riviera for the annual industry extravaganza, the TFWA World Exhibition in Cannes. Instead of the usual fireworks and Champagne, the mood is likely to be sombre, the party flat.
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