The TFWA Asia Pacific Exhibition runs from 15 to 19 May in Singapore

The stage is set for a particularly busy Tax Free World Association (TFWA) Asia Pacific exhibition in Singapore next week. Ahead of the show, Joe Bates considers the lay of the land for travel retail in the region.

Exhibitor numbers at this year's event are up by a fifth over last year with wine and spirit suppliers accounting for nearly 20% of the 212 companies attending. The Asia/Pacific travel-retail business is back in rude health and outstripping its regional counterparts in Europe and North America, where airport passenger traffic growth has been sluggish in comparison.

Unsurprisingly, big hitters such as Diageo, Pernod Ricard, Bacardi and Rémy Cointreau will have a strong presence in the Singapore Suntec Centre next week. Alongside them will be around 20 new exhibitors, each vying to gain a foothold in the world’s fastest-growing duty-free market. Among this year’s newcomers are Islay single malt whisky Bruichladdich, Stolichnaya vodka owner SPI Group, Cognac Godet and Vranken Pommery Monopole.

Above all, what is fuelling the excitement surrounding the Asian duty-free market is the high rate of regional traffic growth. According to Airports Council International (ACI), passenger traffic across Asia/Pacific grew by 14.5% last year, mainly as a result of the rocketing numbers of Chinese travellers venturing abroad. In stark contrast, only one of the world’s 30 largest airports outside of Asia and the Middle East managed to post double-digit growth.

Some Asian travellers have huge amounts of cash to spend on luxury goods. This was amply demonstrated in March this year when the world’s largest duty-free retailer, DFS, hosted a unique sale of rare wines and spirits at Singapore Changi airport. The lavish, invitation-only ‘Master of Spirits’ event featured a series of private branded dinners hosted by suppliers, and a gala event with musical entertainment.

The well-heeled guests could take their pick from a selection of rare wines and spirits that included The Balvenie 40 Year Old, The Royal Salute 50 Year Old, the world’s most expensive Jeroboam of Champagne, Dom Pérignon White Gold Wedding Jeroboam 1995, and the limited-edition Hennessy XO Mathusalem, which is presented in a bespoke leather trunk created by famed shoemaker Olga Berluti.

“We were fortunate that all our lots – Louis XIII Grande Champagne Carafe 718, Louis XIII Rare Cask and Louis XIII Black Pearl magnum— were sold to collectors and connoisseurs,” says Peter Sant, Rémy Cointreau Global Travel Retail managing director.

“That a sale of such super-premium spirits and wines should be conducted in Singapore Changi by DFS, a premier travel retailer, is testament not only to the fact that Asia is the most important market for high-end spirits, and that the recession is over in Asia, but that travel retail has become one of the pre-eminent and most respected marketplaces in the world.”

Of course, not every Asian travelling consumer has such an advanced knowledge of Western spirits. Consequently, multinationals such as Pernod Ricard are investing heavily into the Asian travel-retail channel in an effort to educate this newly wealthy group of consumers about the heritage and craftsmanship behind many of their premium brands.

Last year, the French wine and spirits group opened a Martell Experience Boutique at Hong Kong airport, which sought to educate Mainland Chinese consumers about the history and production of Martell. According to Pernod Ricard Asia Duty Free marketing director John O’Sullivan, the outlet has surpassed the company’s expectations leading to the opening of a second boutique at Kuala Lumpur airport in January this year.

“It is still early days for the boutique in Kuala Lumpur, but the initial feedback has been very positive,” says O’Sullivan. “Martell’s sales in Kuala Lumpur and throughout the broader Asian region have continued to grow strongly since we opened both boutiques and, while this growth is not specifically linked to them, we have no doubt that they play an important role.”

Diageo Global Travel and Middle East (GTME) has also been investing heavily in the region. It has been assisting duty-free retailers with store makeovers and range reviews, conducting consumer research on attitudes to gifting, and opening a new store at Taiwan international airport in partnership with duty-free concessionaire Tasa Meng, which showcases Diageo’s Reserve Brands collection.

Last year, Diageo GTME saw its duty-free sales in Asia rise by over a third. This rapid momentum has continued into 2011 with every Asian market - except Japan - posting double-digit growth. However, Diageo GTME is convinced the region has only just begun to fulfill its potential. In Singapore next week, the company will be trying to persuade more Asian airport authorities to become involved in helping fund ambitious on-concourse liquor promotions, which Diageo believes helps drive footfall into the stores, and raise spend per passenger.

No drinks market is without its challenges, and Asian duty-free is no exception. March’s tsunami and nuclear reactor crisis in Japan, for example, have already had an impact on regional travel patterns. According to ACI, passenger numbers at Japanese hub airports Tokyo Narita and Tokyo Haneda were down by 29% and 19%, respectively, over the first quarter of 2010. Similarly, Japanese Airlines has reported that flights to popular vacation destinations such as Guam and Hawaii during the key 'Golden Week' holiday period (28 April to May 8) saw passenger numbers plummet by over 40%.

“The Japanese are a very important customer and, of course, we expect a reduction in [duty-free] sales in that country,” says Sandro Bottega, owner of Italian wine and spirits producer Distilleria Bottega, whose decorative, hand-blown bottles of grappa are a popular purchase on-board Asian airlines. “We are absolutely worried about the situation and hope, as everyone does, for a fast return to normal life.”

Another challenge for regional duty-free retailers to cope with is yet again a looming shortage of some aged Scotch whiskies, Cognacs and vintage Champagne— a problem that first raised its head before the global economic downturn struck.

Business is undoubtedly booming for many Asian duty-free retailers at present, but nonetheless there are likely to be some anxious meetings with suppliers next week in Singapore about future allocations of the most stock-constrained brands.