TRAVEL RETAIL – TRENDS: Window of opportunity
Despite difficult conditions travel retail has enjoyed another bumper year, and there are signs that wine has finally found its niche at the airport. By Ben Grant
Without travel retail, the global aviation sector simply wouldn’t be financially viable. Considering the enormous sums involved, airports and airlines have always been pretty marginal industries – and today it is harder than ever to turn a profit. Non-aeronautical revenue used to be a rather nice “bit on the side” for airports, but today it is pivotal to their success – and, indeed, survival. Take away the shops and landing fees alone wouldn’t be sufficient to keep the airports in business.
The result has been a total sea change in the way that airport retail is presented. Once upon a time flying was the be-all and end-all of the airport experience. Shops were present, but tended to be stuffed into any free corner, which usually meant poor space located away from the main passenger flow. Nowadays flying may still be the raison d’être and heightened threat means that security facilities take up even more space but, with the growing reliance on alternative revenue streams, when new airports are designed retail is now near the top of the list of priorities.
Heathrow is a case in point. The airport is struggling under the weight of ever-increasing traffic, so its shops are squeezed anywhere – and everywhere – possible. T3, the principle long haul terminal, is jam-packed with so many boutiques that it’s a struggle to find somewhere to sit down. The congestion will finally be eased in March 2008 when the long-awaited T5 finally opens for business. Passengers will be treated to acres of spacious world-class shopping facilities in a building that will bear more similarity to a luxury shopping mall than to the existing four terminals.
Up, up and away
With unparalleled global reach and a captive audience of high spending travellers, travel retail has long been described as the “window to the world” for international brands. And thanks to the new commercial realities of the airport business, the window is looking better than ever. For luxury brands aiming to improve their image this is great news. The exposure conveys enormous benefits in terms of brand building. And sales are pretty significant, too, rising 7.4% to US$29 billion (£14.4bn) last year, according to Generation Databank figures.
As well as being granted bigger shops in more prominent areas of terminal buildings, the increasing sales can also be attributed to operators raising the bar in terms of retail standards. As Mark Davies, Diageo global travel consumer planning manager, explains: “Retailers are becoming more creative in their store design and including more consumer interaction areas, both in and outside of their stores. The future of travel retail is not just about great space and category management, it’s also about delivering memorable shopping experiences.” It’s true to say that there is still much work to be done in raising standards – particularly in the liquor aisles – but as Camus president Cyril Camus says, “airport retail looks a hundred times better than it did a decade ago”.
Turning flyers into buyers is the top priority for everyone in the channel. Globally, penetration into the stores lags at below 30%, an unacceptably low figure given the luxury of a captive audience. “Getting more people in the shop is where the biggest opportunity is. We need to energise travellers with our product offer and create the kind of theatre that draws people into the store,” says Martin Petchey, head of liquor and tobacco for Alpha, the UK’s second largest travel retailer. “Walkthrough will be a feature of our stores in future,” he continues, referring to the concept – pioneered by the UK’s number one, World Duty Free (WDF) at Heathrow – whereby the passenger flow is directed straight through the heart of the shop. As well as this, there is a growing tendency to allow retailers to conduct promotional activity elsewhere in the terminal in a bid to draw more passengers in. Jameson’s quirky “beyond the obvious” strategy, which saw an “unconventional” harpist performing in various terminals was a particularly impactful example.
The quality of retailing has improved dramatically across the board – but the drinks industry has not managed quite as well as some of the rival product groups when it comes to raising standards. There is much to be learned from elsewhere instore, nowhere more so than the fragrance and cosmetics area. While the liquor aisles of some airport stores can still feel uncomfortably similar to the “pile ‘em high, flog ‘em cheap” supermarket mentality, the beauty and confectionery industries have done a phenomenal job of creating a truly luxurious environment that encourages both penetration and trade up.
“In liquor and tobacco there’s still often either a floor to ceiling approach or just an abundance of personalised wall bays,” says Camus. “We’re still not as luxurious as other categories, but it’s definitely getting better.” Champagne and Cognac both do a good job in terms of presentation, and there are a number of examples of excellent specialist whisky stores – WDF’s World of Whiskies being a prime example. However, generally speaking, many in the drinks business could benefit from spending a couple of hours cruising the beauty aisles next time they’re stuck in the airport.
Alongside superb presentation, one of the principle drivers behind the success of the beauty category has been lines that are exclusively available in the channel. Passengers demand a point of difference, so offering exclusive products is one of the most sure fire ways to secure a sought after listing. Whisky suppliers were quick off the mark in terms of recognising this opportunity, and a number of suppliers have been releasing a stream of limited edition lines for a number of years. Other drinks categories have been slower off to catch on. However, with Absolut launching two travel retail exclusives in the last year (the first such offer from a vodka brand), perhaps the trade has finally woken up to this potential. However, the offer should be carefully considered before it’s released, as a Pernod Ricard representative points out. “Exclusives certainly have a role to play, however we believe they must still be relevant to the mother brand and add value, rather than just be an exclusive in itself.” This caution is echoed by Diageo’s Davies, who warns that the exclusive must not “dilute the brand equity”.
While there’s a very valid debate about the pros and cons of travel retail exclusives, there is no doubting the imperative for innovation in the channel. As head of category for liquor, food and tax-free items for WDF, Fraser Dunlop wields a pretty significant sway over what drinks brands appear on the UK’s airport shop shelves. “Our customer is always expecting to see something different in our stores. It is really key in a mature market to drive the ‘new’ agenda, not just in product, but in packaging, display and supply.” It comes as little surprise, therefore, that the brand that he mentions first is Absolut.
Given the relatively high value and margins, spirits have always dominated the mix at the airport, while beer and wine have struggled to establish themselves. But as the industry evolves there are signs that – for wine at least – travel retail is becoming a more viable sales channel. For beer, however, it’s still difficult to make a compelling case for airport listings given its high volume and low value.
Kate Morrison, travel retail commercial development manager for Scottish & Newcastle, explains that the company has a strong travel retail business in terms of border stores and ferries, with these locations generating strong case sales. But it’s a struggle to convince airport retailers to set aside valuable shelf space for beer. “We’re always looking to expand our reach globally … there could be opportunities if we get the offer and portability right … but at the moment airport retail is not a priority.”
The only brand that has managed to make an impact at the airport is Heineken – and it’s no coincidence that the Dutch giant is able to focus all of its energy on a single brand rather than a broader portfolio. Heineken has scored some significant sales with a range of exclusive travel-themed products, and the latest airport initiative for the brand was the opening of a fully-branded Heineken bar at Hong Kong International in March. Heineken global travel retail account manager Melvin Broekaart reports, “interest has already been expressed by other airports, there are currently negotiations for future openings of Heineken bars taking place on three continents. We have the ambition to scale up fast”. It’s questionable whether Heineken is actually making much money from its airport presence, but it’s certainly gaining excellent exposure. A strong commitment to the “window to the world” requires heavy investment, but it’s an important factor in the brand maintaining its status as one of the only truly global beer brands.
And wine not?
While beer remains on the periphery, there are encouraging signs that – finally – wine may have carved out a niche in travel retail. With such a broad spectrum of products and significant volume/price ratio (compared to perfume, for example) wine has always struggled to find its place in an airport environment, and when Berry Brothers & Rudd decided to close its four shop-in-shops at Heathrow two years ago the signs were ominous. Since then, however, sales have been on the up, and it appears that wine looms large in the future plans of the UK’s two top travel retailers. “Wine is performing extremely well, year on year the category is going from strength to strength,” says WDF’s Dunlop. “It definitely has a place in travel retail and we are working closely with a number of suppliers to take wine to the next level in our stores.” The retailer is currently tralling an exclusive range from Justerini & Brooks.
And there are even more encouraging words from Petchey. “Strategically, wine is the top priority for us at the moment, it’s the great untapped potential of travel retail … the sleeping giant of the business. We’ve seen a 50% sales increase without even trying that hard.” Discussing the drive to “position ourselves as a serious wine retailer”, he confirms that every time a shop is refitted the space allocated to wine has been increased, recognising that a relatively significant amount of shelf space is necessary in order to “get it right”. Already the retailer commands average spend of £7, not far off the “two for £16-20” mechanic that generates most if its spirits sales.
The reasons for wine’s buoyant travel retail performance are twofold. Firstly, as Petchey points out, “it’s reflective of what’s going on in the wider domestic market”, but, more tellingly, there has been a dedicated focus from several big brand owners. Foremost among these is Pernod Ricard. The French giant combines a powerful stable of big name wine brands with a high level of travel retail experience gained with its impressive spirits portfolio. It’s a heady combination that has played a significant role in making wine a valid proposition for the international traveller.
“Wine is the perfect product for duty free as consumers buy it for a variety of reasons: personal consumption, as a souvenir or impulse purchase,” says John Smailes, marketing manager Pernod Ricard Travel Retail Europe. “The channel is the ideal place for showcasing already established, strong brands. It’s primarily a premium channel which allows brands to build on existing ranges.” The premium Jacob’s Creek Winemakers Selection, for example, is exclusively available in travel retail, giving consumers a compelling reason to trade up when they’re travelling.
Alpha is currently in the process of finalising its offer – gradual changes have been made over time, but the first manifestation of the retailer’s new vinous offer will debut in Manchester T1 next spring. Petchey confirms that the list will be expanded to include over 100 SKUs, with accessories and wine books merchandised adjacent. “Wine ticks all the boxes. It’s a difficult category to get right, but it’s definitely the right direction for our business.” Premium spirits have always been the main driver in travel retail “but they have a glass ceiling” and there’s not that much more room for growth. Wine, on the other hand, has traditionally underperformed. But with growing demand from consumers, a more targeted and exclusive approach from a handful of leading brand owners and the backing of the top travel retailers, wine could finally be poised to realise its massive potential.
© db October 2007
The last 12 months have, once again, seen the travel retail industry come up against some pretty torrid trading conditions. During the second half of last year, knee jerk anti-terrorism measures were implemented, banning the carriage of liquids and causing chaos for retailers, particularly those trying to sell liquor and fragrance. But in spite of this serious set back, the trade still managed to generate solid 7.4% growth, taking total sales above the US$29bn mark. As the industry gathers in the south of France for its annual pow-wow, Erik Juul-Mortensen, president of both the Tax Free World Association and Maxxium Travel Retail, delivers his verdict on a testing but encouraging year.
Describing 2006 sales figures as “satisfactory”, he states that the strict restrictions “decimated the thriving business overnight”, resulting in a “very tough year, particularly for the liquor and fragrance suppliers … in view of this upheaval it’s remarkable that the figures for 2006 are as good”. While the immediate ban on taking liquid onboard resulted in a massive short-term impact on trading, the long-term implications were far more worrying. “Faced by confusing rules [travellers] were disinclined to purchase any duty free items at all. [The various industry associations] swung into action and got a workable interim solution in place in a very short space of time … but unfortunately not all countries follow the exact same rules.” The new International Civil Aviation Organisation rules have now been approved by the EU, and Juul-Mortensen is confident that a consistent agreement will ultimately be adopted by all countries. The main question is when.
While this has been a particularly difficult year, the travel retail trade is no stranger to adversity, and this latest episode is just the latest chapter in a catalogue of trials and tribulations that it has had to overcome. In spite (or in fact, in many ways, because) of these constant challenges, the trade is in great shape and is in the process of making great strides forward in terms of the overall offer. “The whole approach to airport construction has changed radically with the decline of state control and the injection of state capital. Airport retail is increasingly mirroring the high street with vast retail spaces offering a huge array of international luxury brands, contemporary catering facilities, stunning merchandising and promotion.”
Europe continues to top the sales charts, though this historical domination is gradually being chipped away as retailers in Asia-Pacific and the Middle East generate increasingly impressive bottom lines. Russia and the Eastern EU-accession countries are providing the catalyst for growth in Europe, but it is the “powerhouse” of Asia – in particular China and India – “that will dominate the scene within the next 10 to 20 years”.
Juul-Mortensen points out that fragrance and cosmetics and (the catch-all category of) luxury goods “are booming” while liquor sales have been rather more modest. “The beauty companies are extremely imaginative in their product promotion and invest heavily in advertising and merchandising instore, which stimulates demand. Some liquor companies have become equally imaginative, but others have allowed their product offer to stagnate.” He is clear in his assessment that it is the brands that innovate – that offer added value through instore theatre, tastings, travel retail exclusives – that will increasingly come to dominate the shelves.
While 7% growth during a tempestuous year may be cause for celebration in some quarters, Juul-Mortensen is not content to rest on his laurels, and suggests that neither should the industry. “My message to the trade is simple: sales are growing, but at a slower rate than passenger traffic. This implies that the industry needs to be even more proactive, more innovative, offer more choice, better value and more exclusivity – in short, a more attractive offer. Gone are the days when price was the main purchase trigger.”