The TFWA Asia Pacific exhibition kicks off this weekend

The TFWA Asia Pacific exhibition kicks off this weekend

On Sunday (11 May), the Asia Pacific leg of Tax Free World Association's exhibition series kicks off. The event takes place against a backdrop of trading ills for international drinks companies in the domestic Chinese market. Joe Bates previews the exhibition and considers whether the China travails will seep into the region's broader Travel Retail channel.

The mood among many exhibitors heading to next week’s TFWA Asia Pacific Exhibition & Conference in Singapore is relatively upbeat, given all the gloom lurking elsewhere in the drinks industry caused by China’s crackdown on luxury gift giving. While sales of high-end wines and spirits have undoubtedly been affected in Asian duty-free stores as in many regional domestic markets, this high-profile channel of distribution appears to have escaped the worst of the downturn.

Airport passenger traffic in Asia continues to grow at a very healthy level. Even if some travellers are trading down or keeping their wallets firmly in their pockets, significantly more passengers passing through airports ultimately lead to higher sales.

According to the International Airport Transport Association (IATA), air traffic in Asia Pacific grew by around 4% last year. After the Middle East, this was the second highest rate of growth achieved by any region. Better still, IATA forecasts growth for 2014 will be considerably higher at between 6% and 8%. 

The full-year duty-free sales results for 2013 have yet to be released, but the early signs already look good. According to leading industry analyst Generation, duty-free sales in Asia Pacific were up by nearly 13% in the first 10 months of the year: That’s the fastest increase recorded anywhere.

As for China, despite the country’s economic slowdown, the number of Chinese passengers taking international flights last year surged by 11%. Much of this growth came from the provinces: Ten new regional Chinese airports opened last year, while airlines introduced 72 new international passenger routes. Overall passenger volumes at Chinese airports are forecast to rise by over 10% to 390m this year.

Pernod Ricard Asia Travel Retail managing director Con Constandis comments: “In China, where anti-extravagance campaigns and political pressures are affecting domestic market consumption across all categories (especially luxury), our duty-free business held strongly [in Q1 2014] for both Martell and our key Scotch brands like Chivas Regal, Royal Salute and The Glenlivet.

“And, despite negative consumption trends for imported Scotch in Korea’s domestic market, our duty-free business [there] grew at near double-digit levels and our market share strengthened,” he adds. “China and Korean reaffirm that despite domestic market dynamics the duty-free business is more resilient based on increased passenger traffic and emerging consumer pools.” 

“The Chinese have only just started to travel,” adds Anthony Budd, Asian travel-retail industry veteran and managing director of duty-free wine distributor Diverse Flavours. “Those that have travelled will want to travel again to new destinations and the millions who have not yet set foot outside China are waiting for their chance. So, although we may have a short- to mid-term downturn, the long-term picture is up.”

Even in the Cognac category, where sales of high-end prestige decanters have been hit and price discounts of 10% to 20% are now commonplace, there remains a degree of optimism around duty-free. In the case of some houses, the slowdown in domestic sales in Asia has freed up supplies to duty-free retailers, which were previously unable to meet the demand and experienced frequent stock-out situations.

“Although duty-free liquor sales growth in China has slowed, it remains a huge market for us with extraordinary potential,” says Rémy Cointreau Global Travel Retail's marketing & business development director, Matthew Hodges. “The most promising markets in Asia Pacific for Rémy Cointreau include Singapore, Malaysia, South Korea and Vietnam.

At next week’s show, Rémy Cointreau GTR will unveil this year’s limited edition to mark the annual Cannes Film Festival, which Rémy Martin has sponsored for the past 11 years. Priced at US$204, the new 70cl Rémy Martin XO Excellence Cannes Film Festival Limited Edition will star on Rémy’s stand along with the travel-retail exclusive Rémy Martin Coupe Shanghai 1903 and the new The Botanist gin from Bruichladdich.

Singapore’s impressive three-tower Marina Bay Sands Expo & Convention Centre is once again the venue for next week’s show, which is now in its 19th year. With its stunning rooftop SkyPark, the Marina Bay Sands was a last-minute stand-in for the exhibition’s usual venue, the Suntec Centre, last year, but proved so popular with visitors and exhibitors that show organiser TFWA decided to hire it again.

As usual, the organisation of the event and the facilities available there are top-notch. The main exhibition hall is nearly 20% larger this year, for instance. There are improved restaurant facilities and Monday’s opening conference boasts a keynote speech by former Australian PM Julia Gillard. A smartphone app has also been developed, giving visitors details of exhibitors, a show diary and floor plans.

Around 50 liquor companies will be at the show. All the big players will be there and among the new (or returning) exhibitors are several wine producers, including Freixenet, Accolade Wines, Treasury Wine Estates and Distell

Taiwanese single malt whisky Kavalan is one of a growing crop of Asian liquor firms exhibiting in Singapore, which also includes Japanese spirit producer Takara Shuzo, Philippines-based small-batch Don Papa Rum and Chinese baiju brand Yanghe.

If all the fancy display boxes and crystal decanters are anything to go by, many of new launches at the show suggest companies continue to have faith that Asian duty-free remains an ideal showcase of super- and ultra-premium releases. Among the many new high-end spirits on display are Glengoyne 35 Year Old at US$3,760 from Ian Macleod Distillers; the $1,350 Hankey Bannister 40 Year Old from International Beverage, and the $1,070 20cl L’Or de Jean Martell decanter. 

As one can see from the price tags, the premiumisation trend in Asia duty-free is in full swing. Yet, if the shift in Chinese purchasing patterns continues, the temptation to discount and focus on less expensive expressions will clearly grow. Pernod’s Constandis urges the industry not to lose it collective nerve: "The real challenge sits with us suppliers, he argues. “We must resist excessive tactical promotions and price discounting as a lever to purportedly protect/gain volume share because it is coming at the expense of strong value built up in the channel over recent years.” 

It will be interesting to see over the long-term if others in the trade will continue to share his view if sales begin to dry up.