Travel retail wine analysis

While airport store are not widely known for retailing fine wines, this is gradually changing.

Rupert Millar reports in the October issue of the drinks business how fine wines are starting to gain ground on the staple spirits, sunglasses, scent and cartons of cigarettes that usually dominate duty free sales.

Champagnes have their place but who would think to look for 1982 Pétrus or 1959 Latour while idling through the purgatory of the departure lounge in London Heathrow or Singapore Changi?

Yet fine wines do have their place on the international duty-free market. As seen by the recent record-breaking sale at Le Clos in Dubai International, fine and rare wines are available and people do spend money on them.

The sale in question saw a customer buy several rare vintages of Pétrus, including the 1947, 1961 and a magnum of 1959 for a total of US$107,000 (£68,657).

The still wine category is ranked 11th in the top 25 product categories in duty free, according to travel retail analyst Generation Research. Last year, still wine sales reached $1 billion worldwide, which equated to a 2.9% market share.

In US dollars this was a -5.5% decrease on 2008; however, when local currency units (LCU) were taken into account the decrease was only -1.7%. In this respect fine wine performed better than its counterparts in the alcohol category. Champagne, incidentally at number 22 in the product hit parade and  worth $415 million, had a -2.9%  decrease in sales by LCU and the biggest alcoholic competitor Scotch whisky a -3% drop.

Limitations

However, travel retail has its impracticalities. Namely, unless one can call upon dozens of minions to carry bags and other accessories, consumers cannot buy cases of wines as they might in the high street. Weight limitations and other laws governing the amount of liquids permitted when entering another country also restrict the amount of purchases one is able to make.

As Phillip Juniper, key account director for travel retail at Moët Hennessy Europe, explains, there are several key problems with buying any kind of luxury product in the travel-retail sector: “Unless there is a home delivery facility offered, the practicalities of travel retail negate buying in bulk. The one-bag hand luggage rule on lower-cost airlines is also having a detrimental effect.”

While someone flying from outside the European Union to a member state is allowed to bring in four litres of still wine, 16 litres of beer and a litre of stronger alcohol over 22%, or two litres of fortified or sparkling wine, the United Arab Emirates has a four-litre limit in total for those entering the nation, and for all those going to the US it’s only one litre.

However, Juniper continues, while it is a limited market, the scope for greater sales of fine wine in the duty-free domain is high, if approached with a degree of imagination and attention to detail. Indeed, Cognac producer Camus has recently created its own range of fine wines from certain regions in France and New Zealand to capitalise on.

Juniper comments: “Fine wines and Champagne will never be about large stocks wherever they are kept. Most business in the channel is by the bottle albeit 100cl with spirits and of course magnums are an opportunity for wines and Champagnes.

“What is essential is the correct conditions and that staff are able to give the consumer the information they require in support of the sale. This will probably lead to more specialised selling areas and shops.”

Specialist shops with trained staff may be hard to find in European or American airports but in the Middle and Far East where petrol and industrial dollars are being poured into luxury goods outlets it is a very different story. These two markets showed the strongest growth in travel retail last year according to Generation Research and Dubai International is now equal to Heathrow in sales in all retail categories, with a $1bn turnover last year and Seoul Incheon not far behind on $900m. At Le Clos’ three stores in Dubai International, sales of 1982 Bordeaux average one bottle a week.

Le Clos is very clearly focused on providing the burgeoning number of wealthy, wine-drinking businessmen from new markets with the very best products it can source and, tellingly, apart from English, Chinese and Russian are the foremost languages its wine lists are printed in.

Gap in the market

Ben Odgers, retail operations manager at Maritime & Mercantile International, which owns Le Clos, lays out the reasoning behind its strategy: “Le Clos grew out of a timely opportunity and gap in the travel retail market. Fine wines were being offered for sale without understanding the subtle nuances associated with such an emotive product, be that the wine itself or level of customer service required to sell it.”

With 600 or more wines and 150 spirits on offer and 100 wines from the most prestigious estates, with vintages going back to the 1940s, Le Clos is the only dedicated fine wine retailer in the Gulf. As a result it has built extremely close relationships with the châteaux themselves and is also capable of offering wines en primeur.

Odgers explains that this closeness to the estates means the retailer has “access to unprecedented products and pricing.

The purchasing economies of scale and direct relationships with châteaux and wine estates allow us to pass the savings onto the customer while generating strong returns.”

Staff are put through the WSET qualifications and it is a multinational as well as multilingual team. The problem of transporting limited bottles is also addressed with a service that allows travellers to phone or email ahead of their arrival, order their wines and, after giving their inbound flight details they will be met in arrivals by a member of the team with their wines safely packaged.

This kind of commitment to good service and a fine selection of wines and spirits has meant, says Odgers, that “we have seen regular visitors trade up having placed trust in the provenance of our range and the quality of the advice from the experienced team, with the breadth of the products being sold anywhere between $28 and $28,000”.

Fine and rare wines in the travel-retail sector will not, in the short-term at least, generate the volume sales so common in the multiples. However, their potential niche as a treasure trove for the collector is one that is only just being looked into.

With Asia on the march, thirsting, apparently insatiably, for vintages and wines that offer mystique, rarity and serious money, the category’s potential is worthy of serious attention.

Rupert Millar, the drinks business, October 2010