THE PRODUCT GROUPS 2007 - THEIR PERFORMANCE

By Generation Research, 1 July 2008

With a turnover of US$ 34 billion in 2007 (+17.2% on 2006), the duty free and travel retail trade has become an integral part of international commerce. The industry encompasses players with substantial, specialist knowledge and experience, some of them clear leaders in areas such as international trade, retailing and marketing.

Wine & Spirits

Sales of alcohol have long been important to duty free and travel retail shops, though this product group’s share of global sales – all merchandise considered - has dropped from 47.6% in 1979 to 17.2% in 2007. The decline of recent years seems, however, to have halted in 2007 - the Wine & Spirits category was in fact 2007’s star performer in the biggest market, Europe (+22.7% in sales).
 
In 2007, the sales of wine grew by +18.0% whilst spirits sales advanced +16.1%. Total wine’s share now stands at 33.5% (compared to 14.5% in 1992) whilst total spirits represent 66.5% (versus 85.5% in 1992).
 
Liquor’s largest market in Europe represents 45.7% of global sales, equal to US$ 2,666.4 million. Asia Pacific stands at 26.5% (US$ 1,546.0 million), whilst the Americas make up 22.6% (US$ 1,318.6 million). The Middle East (3.8% / US$ 222.7 million) and Africa (1.5% / US$ 87.1 million) are relatively minor markets for duty free and travel retail liquor.
 
More than half (51.5%) of global liquor sales are at airports, equal to US$ 3.0 billion. Other Shops & Sales represent 28.3% (US$ 1,653.7 million), whilst ferries make up 13.1% (US$ 766 million). Sales onboard the world’s airlines are worth US$ 411.8 million (7.1%).
 
In 2007, duty free and travel retail liquor sales grew fastest in Europe at +22.7% to US$ 2.666.4 million, and in the Middle East, where sales advanced by +22.5% to reach US$ 222.7 million. Airport sales developed at a rate of +21.3%, slightly outpacing inflight sales growth of +20.6%.      
 
In 2007, the leading brands by value were:

Top 12 Brands in Duty Free & Travel Retail Liquor Sales 2007 

1. Johnnie Walker
2. Chivas
3. Ballantine’s
4. Rémy Martin
5. Absolut
6. Hennessy
7. Martell
8. Baileys
9. Glenfiddich
10. Jack Daniel’s
11. Camus
12. Smirnoff                                

Source: TRAQ Beverage 2008 / Generation Research, Sweden
 
Undoubtedly, Wine & Spirits will continue to play a significant role in duty free shops' assortments, especially in areas with high local taxes and where duty free offers important savings to the domestic market.           Fragrances & Cosmetics 

In 2007, global duty free and travel retail sales of  Fragrances & Cosmetics reached close to US$ 10.2 billion, +19.0% on 2006. Beauty products now account for 30.0% of global duty free and travel retail sales.
 
Typically, duty free and travel retail accounts for 5% to 20% of any major beauty manufacturer’s global sales by value. The importance of this market in terms of profitability, however, is usually about 2-3 times this percentage. The big fragrance and cosmetics houses make more from duty free and travel retail than from many domestic markets. This unlike eg. the liquor companies that make a lot less in duty free / travel retail as the pricing is much lower in this market as compared to domestic markets. That is why some liquor brands are restricted in duty free / travel retail if stocks are tight – liquor brand owners earn more domestically.
 
In 2007, total travel retail beauty sales in Europe reached more than US$ 4.9 billion, nearly half (48.3%) of the global total. Asia Pacific made up 24.9%, equal to US$ 2,535.5 million. The Americas represented 20.3%, equating to retail sales of slightly more than US$ 2.0 billion. Sales in the Middle East reached in 2007 US$ 487.5 million (4.8% of the global total), whilst sales in Africa closed 2007 at US$ 181.9 million (1.8% of the global total).
 
Beauty suppliers are focusing increasingly on high-end airport shops. In 2007, airport shops represented 70.0% (US$ 7,132.9 million) of global sales, up +22.0% on 2006. Other Shops & Sales represented 15.5% (US$ 1,583.5 million) of all sales; ferries 4.7% (US$ 481.1 million) and airlines 9.7% (US$ 992.5 million).
 
2007 duty free and travel retail beauty sales developed best in Africa (+36.9%), followed by the Americas (+21.3%), Europe (+21.0%), the Middle East (+19.8%) and Asia Pacific (+12.5%).
 
Ferries did well at +20.5%, reaching US$ 481.1 million. Inflight sales rose +16.4% to US$ 992.5 million, whilst Other Shops & Sales registered growth of +8.3%, closing 2007 at US$ 1,583.5 million.
 
Notably, three of the Top 5 Product Categories in Duty Free & Travel Retail are beauty categories: in first place, Women’s Fragrances (+16.3% in sales 2007 vs 2006); in second, Women’s Cosmetics (+17.9%), followed later by Men’s Products (+27.1%).

Top 12 Brands in Duty Free & Travel Retail Beauty Sales 2007 

1. Chanel
2. Lancôme
3. Dior
4. Estée Lauder
5. Clinique
6. Calvin Klein
7. Giorgio Armani
8. YSL
9. Clarins
10. Guerlain
11. Biotherm
12. Ralph Lauren                                 

Source: TRPReport 2008 / Generation Research, Sweden
 
Sales of cosmetics - skin care and treatments, make-up etc. - have shown substantial growth in recent years. In 2007, the increase (+27.1%) in Men’s Products – including men’s skin care – was especially impressive. 

Tobacco

In 2007, Tobacco sales in the world's duty free and travel retail shops reached US$ 2.9 billion, +10.6% on 2006. Tobacco's share of global duty free and travel retail has plummeted from 24.0% in 1983 to 8.5% in 2007.
 
57.6% - equal to US$ 1,669.7 million - of global Tobacco sales are in Europe. Asia Pacific represents a further 24.2% (US$ 702.1 million), followed by the Americas with a 9.4% (US$ 271.7 million) market share. Africa is a small market for duty free and travel retail Tobacco, representing only 2.7% (US$ 79.0 million) of global sales.
 
Airport shops account for 60.3% (US$ 1,746.7 million) of all global duty free and travel retail Tobacco sales. Other Shops & Sales represent 18.3% (US$ 529.8 million), followed by Ferries (12.7% / 367.9 million) and Airlines (8.7% / US$ 253.1 million).
 
The Middle East recorded the biggest growth in ’07 Tobacco sales at +26.7%. Sales in Asia Pacific improved +15.0%; Europe was up +9.3%; Africa added +8.2%, whilst sales in the Americas edged up +1.1% only.
 
Airport shops recorded growth of +16.2% in Tobacco sales; inflight sales increased +11.2% whilst Other Shops & Sales grew +7.8%. Sales onboard Ferries actually fell –7.2%.   Top 12 Brands in Duty Free &

Travel Retail Tobacco Sales 2007 

1. Marlboro
2. Camel
3. Silk Cut
4. B & H
5. Mild Seven
6. Dunhill
7. Gauloises
8. Davidoff
9. Prince
10. Golden Virginia
11. Barclay
12. John Player

Source: TRAQ Tobacco 2008 / Generation Research, Sweden
 
The tobacco industry is facing some interesting challenges ahead. The global trend is towards fewer smokers, and those who still smoke are cutting back. Additional restrictions, more package warnings, health and legal issues all leave Tobacco’s duty free and travel retail prospects under a cloud. Sales are largely driven by tax discrepancies between countries.
 

Luxury Goods

Back in 1983, Luxury Goods (defined as all merchandise other than Confectionery & Fine Food, alcohol, tobacco and perfumery products) represented only 19.5% of global duty free sales. By 2007, this percentage had risen to 35.5%.
 
In 2007, global sales of Luxury Goods advanced +16.6% to US$ 12.1 billion. The Americas (32.0%), Asia Pacific (31.3%) and Europe (28.1%) each accounted for about a third of this. The Middle East added a further 7.9%, whilst Africa’s share (0.8%) was miniscule.
 
Airport Shops and Other Shops & Sales represent together 91.1% of global sales. The sales onboard ferries are very small (2.4%), whilst airlines make up the remaining 6.4%.
 
In 2007, sales developed particularly well in the Middle East (+25.2% to US$ 952.6 million) and Asia Pacific (+21.5% to US$ 3,776.6 million).
 
The best-performing merchandise categories were Leather Goods (+21.3% in sales vs 2006), Writing Instruments (+20.4%) and Sunglasses (+20.3%).
 

Confectionery & Fine Food

A milestone was reached in 2007, when the market share of Confectionery & Fine Food (included in Luxury Goods until 2001) exceeded that of Tobacco for the first time. The market shares at the close of 2007 show that Confectionery & Fine Food now has 8.8% of the global duty free and travel retail market, whilst the market share of Tobacco stands at 8.5%.
 
In the past decade, Confectionery & Fine Food has been one of the fastest-growing categories in duty free and travel retail. In 2007, no category could match its growth of +21.6%.
 
Total sales amounted to almost US$ 3.0 billion. Europe accounted for 55.2% (US$ 1,652.0 million) of all sales. Asia Pacific, with the Philippines as the principal market, represented 19.7% (US$ 589.4 million). The Americas made up a further 17.9% (US$ 534.7 million), with the Middle East claiming a market share of 6.7% (US$ 200.8 million). Africa was of virtually no importance (0.5%) to this category.
 
Well over half (55.1% / US$ 1,647.2 million) of all Confectionery & Fine Food sales are channelled through airport shops. Other Shops & Sales make up a further 22.1% (US$ 659.8 million), whilst ferries represent 17.1% (US$ 509.9 million). Inflight sales account for 5.8% (US$ 173.8 million) of global turnover.
 
Apart from Africa (+54.1% in sales 2007 vs 2006 albeit from a very small base), in 2007 the Middle East performed the best (+36.0%), followed by the Americas (+33.5%). Both Europe (+18.8%) and Asia Pacific (+15.3%) underperformed average global growth (+21.6%) for Confectionery & Fine Food category in 2007.
 

Top 12 Companies in Duty Free & Travel Retail Confectionery Sales 2007 (in value): 

1. Kraft Foods
2. Mars
3. Nestlé
4. Lindt
5. Cadbury
6. Toms
7. Godiva
8. Cloetta Fazer
9. Ferrero
10. Guylian
11. Storck
12. Neuhaus

Source: TRIQ Confectionery Report 2008 / Generation Research, Sweden

The above companies made up approximately 70% of global duty free and travel retail sales of Confectionery in 2007.