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Quarterly update on liquor in duty free

With Asia Pacific now leading the way in global duty free and travel retail, understanding China and its travelling consumers is crucial, says Erik Juul-Mortensen, TFWA president

Erik Juul-Mortensen Tax Free World Association

This quarter’s update has a deliberately oriental flavour inspired by the second TFWA China’s Century Conference in March. While the Chinese domestic market has been difficult for many drinks companies recently, duty free and travel retail are on a firmly upward trajectory there. Factor in the dramatic growth in outbound Chinese travellers, and the potential for liquor sales looks a lot brighter.

Long dominated by Europe, worldwide duty free and travel retail reached a landmark in 2012 when Asia Pacific overtook the old continent as the largest region by turnover. Since then, the new leader has consolidated its advantage and continues to outpace Europe in the latest figures from Generation Research. While total duty free and travel retail sales grew +4.9% over the first three quarters of 2014 to $47.1bn, Asia expanded +6.1% to achieve $17.6bn across all product categories. Liquor edged up its share of the global pie with receipts of around $7.8bn, making it the second-biggest seller to travellers after fragrances and cosmetics. For now, Europe still claims the lion’s share of duty free and travel retail wine and spirit sales, but Asia is hard on its heels, gaining ground and likely to take the lead before long.

China’s rise as the largest economy in Asia is reshaping the duty free and travel retail landscape both within the region and beyond. Already in 2013, Generation Research reckoned two of the world’s top five locations for duty free liquor sales were Chinese airports (Shanghai Pudong and Beijing Capital), and despite slower domestic growth, the sheer size of the Chinese market plus increasing interest in travel are driving growth.

Adding to this trend is the development of 'domestic duty free', with Chinese nationals enjoying access to goods free of tax within China’s borders. One offshore example is Hainan Island in the South China Sea, where last month the airport retailer announced a +47% rise in year-on-year sales to around $130m for the first 11 months of 2014. There are also plans to build 35 leisure, sports and duty free shopping resorts under the Jihua Park banner as tourist destinations that will encourage Chinese citizens to holiday at home.

Chinese travellers are becoming increasingly influential when they venture overseas, too. They accounted for half of international passenger growth at Sydney Airport last year and are the second largest foreign nationality after New Zealand (and also the second-fastest growing). Chinese passengers represent about 14% of all international passengers through the airport. And outbound passengers from China represented over 40% of all international visitors to Korea last year according to figures just released by the country’s tourist authority, helping to make Seoul’s Incheon International Airport the world’s largest single location for duty free sales with revenue of $2bn. Liquor (together with tobacco) accounted for 16% of that total, behind perfumes and cosmetics as well as leather goods. The category is not yet top of mind with Chinese shoppers and will need to raise its profile.

The forthcoming TFWA China’s Century Conference (10-12 March at the Jing An Shangri-La Hotel in Shanghai) will analyse the country’s burgeoning duty free and travel retail market, together with the needs and wants of its outbound travellers. Organised in partnership with the Asia Pacific Travel Retail Association, the conference offers an impressive line-up of speakers that includes leading national and international travel retailers, major Chinese airports and brand houses already active in China, such as Scotch whisky distillers the Edrington Group.

Among the topics we’ll be discussing at the two-day event are the Beijing Daxing International Airport, set to be the world’s largest when it opens in 2018, recent developments in duty free retail including the Haitang Bay complex, China’s luxury market in the mobile internet era and the new Shanghai Free Trade Zone.

The inaugural conference in 2013 drew strong praise from participants and the liquor sector was well represented, from publicly quoted heavyweights such as Diageo, Pernod Ricard and Brown-Forman through to independent players like Illva Saronno and Ian Macleod. This year’s edition builds on the same formula of maximising networking opportunities with Chinese-based companies in the duty free and travel retail arena. TFWA’s ONE2ONE bespoke meetings service will be on hand to arrange encounters with potential partners, so I hope anyone seeking to establish a foothold in this vital market will join us in Shanghai this March.

26 January 2015