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UNPREDICTABLE CURRENCY rates, Brexit and a drop in spending by Chinese travellers have all contributed to a downturn in global travel retail over the past few years. This is bad news for cognac producers because the travel retail market has gone from being a reliable goldmine for sales and advertising in the late 20th century to the opposite by 2018.

One of the key travel retail markets which has suffered the most in recent years is China. The country’s booming middle class prompted a major increase in the number of Chinese tourists. But, since North Korea’s missile tests upset the Chinese government in 2017, the number of international travellers from China to the rest of Asia dropped by 46.5% in the first half of 2017.

However, according to data offered by China Outbound Tourism Research Institute, 156m Chinese tourists are forecast to visit another country in 2018.

The reason China’s brief downturn was such a problem for GTR is that the country has become integral to many spirits categories around the world over the past 20 years, due to the sheer size of the population and the sudden wealth obtained by its burgeoning middle class. China’s travel blip has no doubt contributed to the fact that the volume of cognac sold in GTR is down 1.6%, according to data released by Bureau National Interprofessionnel du Cognac.

NOT ALL BAD

The most positive news surrounding China’s relationship with cognac is that export figures are up. Earlier this year the BNIC released statistics which showed shipments of cognac to the Far East had risen 13.5% from 2017-18, with China now the third biggest importer at 262m bottles over that year. So the demand for cognac is still there in China and the question which needs to be explored is: “How can cognac brands reconnect with China’s influential travel retail market?”

According to a report released in 2017 by Nielsen Holdings, 61% of Chinese tourists like to shop in duty free when leaving China and 63% use mobile payment methods. Drinks International’s travel retail expert Joe Bates has written in this magazine (p37) about how technology is being harnessed to increase sales in GTR and it is no coincidence that cognac brands have begun to adopt QR codes on bottles, opening the category up to Chinese travellers.

ANTI-CORRUPTION

Cognac now shares around 16% of the total GTR market for spirits but there has been a change in the type of cognac being offered in China by some brands due to a shift in market demand.

In the early stages of the 21st century a lot of the profits from big brands in China relied on corruption in the government and the country’s attitude towards bribery in business. Expensive bottles of cognac were ‘gifted’ as part of a business deal or favour, which is why a large portion of elite-level cognac was sold in China. However, when Xi Jinping was elected general secretary of the Communist Party of China in 2013, one of the first things on his to-do-list was clamp down on corruption in the country, which had a negative effect on the sales of cognac in GTR.

Since then brands have changed their strategies and now tend to focus on the premium sector rather than exclusive products.

Jerome Durand, managing director of Larsen and Renault cognacs, is choosing Asia as one of its main focal points in GTR. Larsen recently launched its VSOP and XO Reserve range specifically for the Asian market. The range sits at the top end of premium in GTR and Durand says: “Both these cognacs share the Larsen hallmark, which is all about purity, elegance and fruit expression, but we have worked with our partners, Asiaeuro, to tailor them to the market.

“Asia is very important to our travel retail sales. We have a three-year plan there and we’re already one year into this. It’s quite intense also because the market is so competitive.”

BLING BLING

The Chinese middle and upper-classes are renowned for investing heavily in material goods. Tables in nightclubs, for example, are often covered in expensive bottles to showcase wealth – hence the development of fancy, expensive bottles for the Asian travel retail sector.

Courvoisier global brand ambassador Rebecca Asseline, says: “GTR offers a special gifting opportunity. It is important to present expressions that cannot be found elsewhere – a unique line of creations creating excitement and offering an exclusive feel.”

Although the premium market is now being exploited by the big cognac houses, exclusive releases will always be present in duty free shops. Not only are the savings greater, but this provides an opportunity to showcase exclusive expressions which can’t be found in supermarkets.

Whether these crystal decanters of 30-year-old cognacs are generating high sales is not really the point – they act as a giant advertisement to tourists, and if a premium range is sitting beneath them it could prompt increased GTR sales.

STAYING LOCAL

Durand from Renault and Larsen also values the brands’ traditional markets in GTR as well as Asia and the US. He says that the Nordics, Larsen’s biggest market, is still at the forefront of its plans in travel retail.

“For us the Nordics are true connoisseurs of cognac – they love it. Of course we want to succeed in Asia, but it’s just as important to retain popularity in markets that have been good for us in the past,” he says.

“We’re seeing the generation effect coming into play in the Nordics. Younger consumers are the focus because we need to attract the next wave to cognac, whereas in places such as China it is still a very new thing to many people.”

Although China’s imports of cognac have returned to a healthy place, the fact is that GTR is still lacking on a global scale.

The positives are that cognac brands are now adapting to the changing attitudes of Chinese tourists – which remain hugely influential in GTR – by offering different styles and price points, but for sure there is more work to be done.

Technology needs to advance, payments need to be more flexible and different travel retail markets need to monitor the trends in destinations of Chinese tourists in the future.