Don’t write off travel retail just yet

As the new year gets underway there’s a lot of doom and gloom surrounding the travel retail liquor business

A welter of mostly cyclical issues, from exchange rates and airline baggage restrictions to troubled emerging market economies and fears of terrorism, are undoubtedly dragging the business down at the moment. But there are deeper concerns that the traditional model of duty free retailing and many of the assumptions underpinning it, such as price savings, a captive audience and being a shop window for premium brands is broken.

Some commentators in the drinks press have given dire warnings that the business is as little as four years away from total collapse, brought to the brink by a busted airport retail rental model that squeezes profit margins for both retailers and suppliers. The duty free retail industry’s slowness in recognising the importance of engaging smartphone-obsessed millennials has only compounded the feeling of a business in danger of long-term decline.

I feel some of this doom-mongering is a little overdone. It’s true that for small to medium-sized brands it’s never been harder to get a foot in the door of the handful of liquor buyers of the handful of retailers that dominate the industry, but the larger players remain very much engaged in the sector.

As Mike Dolan, CEO of Bacardi, told me in Cannes last October: “We are very bullish about it [travel retail]. There have always been hiccups in the growth of travel retail, but the trend line over the long haul is positive and we think that is going to continue. It’s important for us to be there in the right way and we are in it for the long term.”

Bacardi isn’t alone. The past few months have seen Diageo Global Travel open a permanent Johnnie Walker House at Bahrain Duty Free and a standalone Diageo Exclusive store at Ecuador’s Quito airport in partnership with Motta Internacional. The Edrington Group has also opened a standalone Macallan shop at Taiwan Taoyuan airport, which is also the venue for a new store dedicated to The Dalmore.

All this retail activity hardly suggests the major liquor players are thinking of pulling out of travel retail any time soon, but clearly some soul-searching is needed. This is exactly what Jack MacGowan, CEO of Aer Rianta International, did last month at the annual Middle East & Africa Duty Free Conference in Dubai. MacGowan argued the industry needs to redefine the promise to customers by creating positive perceptions – communicating clearer pricing messages, offering exclusive and personalised products, and delivering surprising and memorable in-store experiences.

“Customers are not as engaged or excited as they used to be,” he said. “On average only one in four customers benchmark for prices, yet we still focus on discounting as a key response to driving passenger spend.”

MacGowan cited a recent Baileys promotion at Dublin airport where passengers were able to get specific names printed on to bottles – it led to a 58% jump in sales. He also highlighted the importance of targeting travellers before they begin their journey through social media and digital advertising because research shows 75% of people decide before they travel whether they are going to shop.

MacGowan’s analysis is just the kind of imaginative leadership the business needs to get back on its feet.