A “sporadic” year for global travel retail prompts brand owners to rethink the retail experience

Like many other producers, Pernod Ricard’s travel retail sales have been severely affected by the steep decline in international passenger traffic caused by Covid-19. It reported a 64% fall in travel retail sales for July–September 2020, versus the same period of last year in its first quarter 2020–21 results presentation.

Pernod Ricard Global Travel Retail chairman and CEO, Mohit Lal, describes the recovery of the travel retail market this year as ‘sporadic’. He says: “when Europe started to re-open in the summer, we started to see some recovery. The numbers for July and August were better, but September saw a resurgence of the crisis, and shutdowns and quarantines got imposed in places again.”

Market trends

Optimistically, Lal highlights some locations where trends have been more positive, such as Russians travelling to Turkey, which has seen “quite robust growth”, and the introduction of new regulations on sales on the Island of Hainan, China, which allows wines and spirits to be sold duty- and tax-free for domestic China travellers for the first time. Lal adds that a surge in Chinese domestic tourism, in the second half of this year, boosted duty- and tax-free sales on the island. Thus, creating a permanent new opportunity in the travel-retail channel.

Lal reports the ferry business in Scandinavia and some European border shops, including those on the Czech/German border, have also performed relatively well. However, he adds that relative to the overall size of travel retail, these are small. He also feels prospects are less optimistic for the cruise channel, which has not seen any indication of a bounce back and will likely not see recovery at the same pace as that of the airport or the border channel. “Cruise ships are still perceived to be dangerous places and I haven’t seen too much in the news yet on how the cruise industry is tackling this,” remarks Lal.

Those passengers who are travelling are currently showing a stronger preference for well-known and trusted brands, which is a trend that Lal believes Pernod Ricard can tap into: “At Pernod Ricard, we have brands across multiple categories that are quite salient in the travel retail channel.” Lal further explains that rationalisation of retailers’ offerings has partly been driving this trend towards trusted brands. He adds: “the supply chain management has become a lot more complex for retailers. The larger the portfolio offering and the number of SKUs they have, the more complex that supply chain gets, which is costly to maintain. As [retailers] look to optimise the cost side, this leads to a trimming down of portfolio offerings within the stores.”

Category trends

The travel retail market has seen the emergence of many new brands in recent years, particularly in the gin category. Lal expects this trend to be reversed, as the economics for a new brand have become a lot more challenging due to the pandemic. He adds that the travel retail channel offers an attractive opportunity for new brands to build their brand identities, but it can also be an expensive channel for new brands to operate in.

However, gin has remained one of the better performing categories this year (following strong performance before 2020 as well), along with rum. Lal says geographical purchasing trends have benefited these categories, as rum and gin are more centred towards Europe and travel in Europe has been somewhat higher than other parts of the world, if vastly down from 2019 levels. He adds that there are other factors behind their relative success as well, such as lower price points, and therefore regular purchases for stocking up purposes, as opposed to gifting or treats. IWSR Director, Thorsten Hartmann, adds that taking advantage of lower price points resonates more with leisure travellers. High-frequency business travellers, on the other hand, are more likely to veer towards gifting and experimentation. While leisure travel may have seen a minor uptick, primarily in the summer months of 2020, business travel has been virtually non-existent.

Scotch whisky is one of the categories to suffer the biggest downturn this year, and Lal says it was among the first to be affected by the decline in travel. “If we look at how the crisis has impacted travel retail, it first impacted Asia, which is a large and growing market for Scotch whisky. Korea is perhaps the largest market for Scotch whisky in the world, especially the upper end. So, the contraction started coming quite quickly and remained very strong.”

While the negative trend has been seen across the Scotch category, Lal says the lack of Asian travellers has particularly affected the malt segment. “Taiwan is one of the largest markets for single malts in the travel retail channel, and despite the fact that Taiwan has had very few infections and very few fatalities caused by Covid-19, it’s still very conservative in terms of allowing inbound and outbound travel.”

Lal does not expect a recovery in the Scotch sector until travel restrictions begin to ease in Asian markets and feels this could take some time. “While initially there were high expectations for Asia to open travel much earlier, Asian governments have been more cautious and therefore slightly more adaptive to this crisis. We have not seen the recovery that we initially expected.”

Transforming the shopping experience

With restrictions on sampling in place in airport stores, and the recovery of passenger traffic difficult to predict, Lal says a more flexible approach to promotional activities is needed. “We are changing the speed at which we can respond, both for planning a promotion as well as executing it. We’re also looking at how we can digitalise the way we promote, so you can switch from one brand to the other without needing to rebuild the [store] furniture.”

Pernod Ricard has launched several new concepts, such as the Martell Perfect Door, an experience wall that features touchless technology driven by motion sensors, allowing travellers to access details of Martell products and learn about the brand’s heritage. Pernod Ricard also revealed a conceptual bar space that will be introduced at airports soon, which features a robot bartender. It allows hygienic, contact-free tastings with an AI bartender – and is claimed to be the first use of a tasting robot in travel retail. Like the new digital wall, the bar space branding has digital screens which can be switched instantly to another brand, removing the need to produce additional POS assets.

Lal adds that Pernod Ricard’s consumer research shows that the willingness to shop in travel retail substantially changes if certain basic hygiene measures are put in place. He elaborates: “as airports have re-opened for travel, the revenue per passenger earned by the duty-free channel has not seen a drop, which is telling us that so long as certain hygiene measures are kept in place when people travel, they will shop.”

While Lal says there is a risk that widespread economic downturn and higher taxation rates could lead to lower disposable incomes, he is cautiously optimistic about the long-term trends for travel retail, including premiumisation in the wine and spirits sector.

Lal adds: “The desire of people to travel is strong. Their trust in this channel to provide the right quality and offering of wines and spirits is very high, and travel retail is a key part of the economic make-up of the travel ecosystem.” Pernod Ricard Global Travel Retail strategy and insights director Anuj Roy agrees: “We believe in the transformational power of travel. It fulfils an intrinsic human urge to get out, connect and explore the world. International travel will rebound, and with it, travel retail.”

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