Travel retail: Total Immersion

What with terrorist threats, a slowdown in the Chinese economy and rouble trouble in Russia, the world of Global Travel Retail (GTR) might seem a bit shaky. Mike Birch, head of Bacardi’s GTR, admits there may have been a slight blip of late, but insists the fundamentals are very strong. “The long-term trend in travel retail, if you look back over the last 15 years, is for consistent and very healthy growth,” he says.

His optimism is supported by a recent IATA forecast for global air passenger numbers to double from 3.5 billion last year to 7 billion by 2034.

For now, Cristina Carmueja, Pernod Ricard’s consumer controller for GTR in Europe, Middle East & Africa, is missing those high-spending Russians. “We used to have a massive business in Russia, but we’re now down by over 20%,” she reveals.

Whether a possible post-Brexit return to duty-free for Brits travelling in Europe will make up the shortfall, who knows? Nothing has been decided on that front, and whatever happens there will be no change before 2018.

MISSING CLINK

The days of EU duty-free with those clinking bags of Bells and Bacardi ended in 1999. It was a market driven by its attractive discounts to the high street, but shoppers’ motivations appear to have changed. “Some consumers will only buy on value,” says Carmueja. “But one of the things we know from a recent study is that only 7% of them are shopping to stock up.” To appreciate how far GTR has evolved, a good place to start is the Dutch airport hub of Schiphol and the new Johnnie Walker House that opened in May.

It is a permanent, two-storey temple to the Scotch brand in its adopted hometown of Amsterdam – the first of its kind outside of Asia. “The aim of the Johnnie Walker Houses was to create an environment in which shoppers can be immersed into the brand,” explains Dayalan Nayager, Diageo’s MD global travel. “Being in the house you feel like you are in a museum of Johnnie Walker where you can experience the brand and all the elements of making whisky all around you.”

The design features copper, oak, water and there is even a wall of peat. As you wait for your flight, you can taste, smell and touch the whiskies and the ingredients involved while well-trained brand ambassadors guide you through the process.

It is total immersion marketing that makes even the glossiest cinema advert appear tame by comparison. The 2D medium of film only appeals to two of our senses, and while you could try licking and sniffing the screen you would be none the wiser. By contrast, an hour in the Johnnie Walker House should give you a 3D sensorial experience you will remember long after you’ve landed on the other side of the world. At least that’s the fervent hope of Diageo given how much the firm has invested.

In terms of measuring the return, Nayager says: “It is looked at as the payback on a normal brand investment, but there is some element allocated to marketing and the brand equity we’re going to drive from it.” Of course the operator, in this case Gebr Heinemann, may be more interested in the bottom line given how much it has to pay its airport landlord. Three years ago, Heathrow was claiming sales of £2,782 per square foot while Harrods was generating just £1,000.

Such space does not come cheap.

Carmueja’s current mantra is ‘fewer, bigger, better’ to create brand activations that hit the spot. Among the latest is Casa Havana, a three-month fixture at Schiphol promoting Havana Club. “It’s decorated with pictures of cars, colourful buildings and people dancing in the street,” she explains.

“And it has the rustic wooden feel of a Cuban bar, so when you get in the space you actually feel you’re in Cuba.” But as your mind drifts off to Havana with the taste of rum and a trumpet playing in a back alley, the reverie may not last. At any moment it might be shattered by one of those maddening ‘unattended baggage’ announcements.

Mike Birch, MD of Bacardi GTR, talks of creating ‘shopper magic’, but it must be difficult at times given the heightened levels of airport security and the interminable queues that result. Still, once through to the other side, Birch points to a stash of research that suggests that “when you’re in ‘travel mode’ you have a very different mindset to purchasing”.

He adds: “You’re not on autopilot as you might be in the supermarket. You’re open to buying and considering other things – so it’s a very strong psychological retail environment.

“It’s especially powerful with emerging markets where consumers are often experiencing large international brands for the first time.”

Within European GTR, Bacardi claims to be the brand leader in rum, gin and premium vodka. In the whisky and Cognac-fuelled markets of Asia, the firm is playing catch up with its John Dewar Whisky Emporium in China.

“Unlike a lot of our rivals we’re offering age-statement, high quality whiskies,” says Birch. “We are putting a huge amount of money behind the Chinese traveller who we know is almost the de facto Chinese international spirits consumer.” The longterm goal is to engage China’s new generation of consumers who might be open to the charms of Bacardi, Grey Goose and Bombay Sapphire. Having exceeded 100 million for the first time last year, Chinese air passengers are set to overtake the US by 2029. Yet at present less than 7% are on international flights.

“GTR is not the only part of the marketing mix, but at Bacardi we see it as absolutely crucial,” Birch continues. “It’s a unique environment where you can bring your brands to life, and where you can tell your brand stories and product truths.”

Sometimes the activations rely more on visual appeal, as with the recent ‘Grey Goose Boulangerie Bleue’ in Dubai airport where sampling is forbidden, but overall, he says, the work done to date has borne “fantastic results”.

No doubt Colin Campbell, William Grant’s head of marketing in GTR, feels the same about his efforts with Glenfiddich, Balvenie and Hendrick’s. He talks of creating “curious, eccentric and compelling experiences such as the Hendrick’s G.O.S.H, ‘gin oscillating sensory helmet’”.

“Now that is innovative – and totally in keeping with the edginess of Sailor Jerry,” says Campbell.

He describes GTR as “the global stage for our brands”, but insists that activations still have to meet such mundane targets as volume and value. Diageo’s Dayalan Nayager puts the conversion rate of air travellers to buyers of alcohol at only 12%.

But according to Michael Cockram, head of GTR marketing at Beam-Suntory, it increases to around 50% after sampling.

One of his key activations, ‘Explore the Whiskies of the World’, began two years ago with Asia DFS. It features Scottish Laphroaig, Irish Connemara, American Jim Beam, Japanese Hibiki and Canadian Club.

Cockram sees it as a new take on ‘luxury’, that is “about exploration and discovery as opposed to traditional ‘bling’.” Only three to four years ago Hong Kong airport was cluttered with very expensive Cognacs behind glass, but he says, “even Chinese consumers are moving away from that”.

With these ‘whiskies of the world’ people get to sniff goldfish bowls of vanilla pods and crumble bricks of peat in their hands.

“We’ve found that having ingredients you can touch, feel and taste is really important,” says Cockram. “They’re not radical ideas, but they seem to work.” Less touchy-feely is the use of virtual reality headsets to promote Jim Beam in US airports, and the hi-tech tools employed by Patrón Tequila.

John Kilmartin, vice president for GTR at Patrón Spirits, says: “Over the years we’ve executed everything from tastings and cocktail demonstrations to virtual ‘tours’ of our distillery in Mexico.” The tours use something called Oculus VR technology. At present the possibility of standalone Patrón stores is being discussed.

Like others, Patrón has used GTR as a bridgehead into new markets like Brazil, and to launch new products that are later rolled out into domestic markets. Yet opinions vary over how well it works as a test market. “Travellers might go through an airport one to three times a year, so it’s very difficult to get repeat purchases,” reckons Nayager. For that reason, he says Diageo wouldn’t use it “to test a new, first-to-market item”. At Bacardi Birch says: “We’ve done a lot of launches in GTR first, like Grey Goose VX” – a vodka- Cognac hybrid now available across the US. And while he accepts the repeat purchase argument, he feels GTR does provide “very clear data, very quickly”.

Travel retail exclusives have become a huge part of the trade, especially since the demise of EU duty-free.

“Ten years ago I think the rationale was around protecting margins and making sure there weren’t price comparisons,” says Cockram. “But I think it’s evolved whereby the majority now have actual added value versus domestic products. People are putting a lot more effort into the liquid in the bottle.”

When it comes to gin, he accepts simply upping the ABV might be enough, but with exclusive whiskies he reckons people want something genuinely different.

“What travel retail exclusives give us is a conversion element when shoppers are in store,” says Dayalan. While Birch points to how they play to the key drivers of gifting, which accounts for an estimated two-thirds of GTR sales, and personal treats.“Consumers know that within travel retail they can find products they can’t find in the supermarket,” he says. “It makes a treat or a perfect gift.”

Overall, he believes: “The retailers have to look at what’s going to differentiate themselves in future. E-commerce will become a much bigger threat in price comparison, and supermarkets are much better set up to compete on price. It would be a mistake for retailers to do anything other than play to their strengths, which is being able to bring brands to life and share that experience. I think exclusives are absolutely vital in GTR which is why we have a steady pipeline of providing them.”

For Michael Cockram, one of the challenges is to avoid the hard sell and give the travellers some breathing space having made it through security. “We have to create activations that allow people to feel they’re being educated and not forced into a sale,” he says.

“The worst thing for me would be an environment where people are afraid to go into a store and be mobbed by a dozen brand ambassadors.” This can be an issue in certain Indian airports.

As for the greatest potential regions for GTR, he says: “For us it would be fantastic if Africa emerged as a hub for travel retail.

There will be explosive population growth over the next 10 years, and if those economies start taking off, I think you’d have a third growth lever after Europe and Asia-Pacific.”

Yet Mike Birch is still mesmerised by growth prospects in Asia, especially China, while Dayalan Nayager believes Diageo’s brands have the heritage and stories to win through.

“Today’s shoppers are looking for more than just a purchase,” he says. “So the need for an experience is growing faster than the need for a possession.”