Beam Suntory was exhibiting at this years TFWA show in Cannes

Beam Suntory was exhibiting at this year's TFWA show in Cannes

The Global Travel Retail channel is evolving. Recent declines have highlighted problems that look set to dictate GTR's direction over the next few years. Earlier this year, just-drinks' news & insights editor, Andy Morton, sat down with David Wilson, Beam Suntory's MD for Global Travel Retail, to discuss what those problems are and what can be done to overcome them.

"When things are great and everything is growing double digit, you don't look for the cracks," says David Wilson. He should know. The spirits veteran - involved in Travel Retail since 2005 - has seen the channel's good times morph into today's more uncertain era.

Last year, industry figures showed that 2015 was the channel's first decline in six years. In wines & spirits, sales dipped 3% as spending among Chinese consumers slumped on a government crackdown on extravagance and global sanctions hit Russian passengers in the pocket. Most worrying of all has been a continuing drop in average passenger spend that is only currently being offset by rising passenger numbers.

The ensuing soul-searching has proved to be a wake-up call for the channel. At GTR's annual Tax Free World Association trade show in Cannes in October, visitors and exhibitors talked openly about the need for evolution as margins become increasingly threatened by a reliance on shopping sales by airport owners. Airport tenders for retailers are more expensive than ever before, which in turn is hiking supplier contract costs. As a result, the three points of the GTR landscape - airport, retailer and supplier - are locked in a seemingly unsustainable business model. Highlighting the dangers, TFWA head Erik Juul-Mortensen even warned in Cannes that major brands could exit the channel if these pressures prove insurmountable.

Wilson, a Scot whose long career has seen him work for no less than five of the eight working Islay distilleries, led sales & marketing for Beam Inc's Morrison Bowmore duty free unit before the US-headquartered group was swallowed up by Japanese firm Suntory. Now in charge of the whole Beam Suntory GTR portfolio, he believes the industry has yet to reach the level of crisis outlined by Juul-Mortensen, but admits that change is inevitable.

"The way the [Travel Retail] model has been evolving is challenging for the channel," Wilson tells just-drinks during Cannes week. "Ultimately, the cost of the tenders is getting really prohibitive. [The retailers] are having to pay for growing passenger numbers and we know that passenger numbers don't necessarily bring spend. We need to be careful because ultimately we want it to win for everybody.

Let's make sure we don't let the model drive us down to the lowest common denominator

"As far as the consumer is concerned, the consumer will win. But, let's make sure we don't let the model drive us down to the lowest common denominator. There needs to be some commercial maturity and thinking."

While Wilson is wary of suggestions that brands may be forced out of GTR, he does acknowledge that financial pressures within the channel may nudge some multinational spirits producers to funnel their liquid elsewhere. After all, demand for 25-year-old Scotch whisky is high across the globe and, if selling in Travel Retail doesn't make financial sense, there are plenty of other markets willing to pick up the slack.

But, he says, if that happens, brand owners could lose access to one of the few channels that has both the time and the space to connect to consumers.

"Let's not squeeze the life out of the financial value of the channel," Wilson warns. "If you take away P&L [profit and loss] totally, you have no resources left to brand-build. That would be like turning the tap off slowly - the plant withers and dies. I think we're a long way from that but there are enough signs now that the industry does need to seriously take note of it and work through a solution."

David Wilson has been Beam Suntory's MD for Global Travel Retail since 2014

The question of brand-building digs down to the root of the problems facing GTR. Is the channel merely a place for marketing, or is it first and foremost a business that needs to turn a useable profit? On the exhibitor stands in Cannes in October, there were arguments for both sides. For Wilson, the answer lies somewhere in the middle.

"Primarily, it is brand-building, a channel that is a showcase for your brands," he says. "It's a wonderful place for consumers to see the consistency of your brands and that feeds the domestic marketing. But, like any business, I would say it needs to pay for itself, otherwise it's sucking from elsewhere."

New technology is starting to make in-roads into GTR. This year's Cannes show was the first to host an exhibitors room for digital companies, and Wilson believes e-commerce is set to play a much bigger part in the industry. But, why has it taken so long for Travel Retail to get on board with technology that is already part of the furniture in the domestic market? For many, it's because Travel Retail spent too long trying to protect its closed-off market from outside influences. Wilson, however, says the issue is more complicated than that.

"The landscape [in Travel Retail] has always been slightly different," he says. "The challenges that Travel Retail deals with on a daily basis are multi-dimensional. It's not the case that fundamentally the Travel Retail channel will have to behave differently to a domestic market. Ultimately, it's just timing. You could say that it should have happened sooner, but what is important is that it is happening now."

Other changes are taking place, Wilson says. It has always been difficult to get good, accurate data in the GTR channel. But, according to Wilson, as margin pressures focus the minds of retailers and suppliers, the industry is learning to become "more comfortable" with data sharing.

There is a lot of data [in Travel Retail] but the data is not shared in portals like it is in domestic

"There is a lot of data [in Travel Retail] but the data is very specific and it is not shared in portals like it is in domestic, such as through Nielsen or IRI," Wilson says. "We don't have the luxury of that common sharing and that is for reasons that are specific to the way the Travel Retail model works, with tender processes and such. But, we are seeing ways to overcome that."

The data itself is becoming more accurate too, thanks to a wave of retailer consolidation, says Wilson. The Beam Suntory head is aware, though, that more co-operation will be needed to make Travel Retail thrive once more.

"We can't win at the expense of each other," he says. "We have to win together."

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