Global market review of the travel retail drinks sector 2013 edition

Global market review of the travel retail drinks sector 2013 edition

Global market review of the travel retail drinks sector 2013 edition By IWSR editor-in-chief, Alexander Smith April 2013 Published by Aroq Limited Seneca House Buntsford Park Road Bromsgrove Worcestershire B60 3DX United Kingdom Tel: +44 (0)1527 573 600 Fax: +44 (0)1527 577 423 Web: www.just-drinks.com/market-reseach/ Registered in England no: 4307068 i

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Table of contents 2013 edition... i By IWSR editor-in-chief, Alexander Smith... i April 2013... i Published by... i Table of contents... iv List of tables... vi Chapter 1 Scope of the market... 1 Growth of international travel... 2 Key emerging markets passenger groups (pax)... 3 The Chinese... 4 The Russians... 6 What happened to Japanese?... 7 Other emerging nationalities... 7 Meeting emerging market traveller requirements... 8 Luxury expansion... 8 Gifting opportunity... 10 Importance of differentiation and gifting... 11 A valued shop window... 12 Improved cooperation and execution... 13 Chapter 2 The markets... 16 Europe... 16 Travel trends and operating environment in Europe... 17 Travel retail liquor trends in Central and Eastern Europe... 18 Travel retail liquor trends in North-west Europe... 18 Travel retail liquor trends in Southern Europe... 19 Travel retail liquor trends in the Nordic markets... 20 Asia... 20 Travel trends and operating environment in East Asia...22 Travel retail liquor trends in East Asia...22 Australasia...25 Travel trends and operating environment in Australasia...25 Travel retail liquor trends in Australasia...25 Travel trends and operating environment in the Indian sub-continent...25 Travel retail liquor trends in the in the Indian sub-continent... 26 The Gulf... 26 Travel trends and operating environment in the Gulf... 26 Travel retail liquor trends in the in the Gulf... 26 The Americas... 27 Travel trends and operating environment in the Americas... 27 Travel retail liquor trends in North America and the Caribbean... 30 iv

Travel retail liquor trends in Latin and Central America... 31 Africa and the Middle East... 32 Travel trends and operating environment in the Middle East and the Levant countries... 32 Travel retail liquor trends in the in the Middle East and the Levant countries... 33 Travel retail liquor trends in Africa... 33 Chapter 3 Product categories... 34 Brown Spirits... 34 Scotch whisky... 34 Irish whiskey... 39 US whiskey... 40 Dark and golden rum... 43 Cognac... 45 Scarcity and the implications for margins... 49 Non-Cognac brandy... 51 White spirits...52 Vodka... 54 Gin...55 White rum... 56 White Tequila... 57 Baijiu... 58 Chapter 4 Top suppliers... 59 Diageo... 59 Pernod Ricard... 61 Bacardi Ltd... 62 Beam Inc... 63 Brown-Forman... 64 William Grant & Sons... 65 Rémy Cointreau... 66 LVMH Moët Hennessy... 67 Edrington Group... 69 Chapter 5 Wine in travel retail... 71 Appendix Forecast data... 76 v

List of tables Table 1: Duty free wines and spirits' share by region, 2002-2011 volume ('000s nine-litre cases, % change and share)... 1 Table 2: Europe, duty free wines and spirits' volume by minor region, 2002-2011 volume ('000s nine-litre cases, % change and share)... 16 Table 3: Top 5 spirits suppliers in European travel retail, 2006-2011 volume ('000s nine-litre cases), % change and share... 16 Table 4: Top 5 spirits categories in European travel retail, 2006-2011 volume ('000s nine-litre cases), % change and share... 16 Table 5: Top 10 spirits brands in European travel retail, 2006-2011 volume ('000s nine-litre cases), % change and share... 17 Table 6: Asia Pacific, duty free wines and spirits' volume by minor region, 2002-2011 volume ('000s nine-litre cases, % change and share)20 Table 7: Top 5 spirits suppliers in Asia Pacific travel retail, 2006-2011 volume ('000s nine-litre cases), %... 21 Table 8: Top 5 spirits categories in Asia Pacific travel retail, 2006-2011 volume ('000s nine-litre cases), %... 21 Table 9: Top 10 spirits brands in Asia Pacific travel retail, 2006-2011 volume ('000s nine-litre cases), % change and share... 21 Table 10: Top 10 Scotch brands in Asia Pacific travel retail, 2006-2011 volume ('000s nine-litre cases), % change and share... 23 Table 11: Top 10 Cognac/Armagnac brands in Asia Pacific travel retail, 2006-2011 volume ('000s nine-litre cases), % change and share... 24 Table 12: Americas, duty free wines and spirits' volume by minor region, 2002-2011 volume ('000s nine-litre cases, % change and share). 27 Table 13: Top 10 spirits suppliers in North America/Caribbean travel retail, 2006-2011 volume ('000s nine-litre cases), % change and share... 27 Table 14: Top 5 spirits categories in North America/Caribbean travel retail, 2006-2011 volume ('000s nine-litre cases), % change and share... 27 Table 15: Top 10 spirits brands in North America/Caribbean travel retail, 2006-2011 volume ('000s nine-litre cases), % change and share 28 Table 16: Top 5 spirits suppliers in Latin America/Central America travel retail, 2006-2011 volume ('000s nine-litre cases), % change and share... 31 Table 17: Top 5 spirits categories in Latin America/Central America travel retail, 2006-2011 volume ('000s nine-litre cases), % change and share... 31 Table 18: Top 5 spirits brands in Latin America/Central America travel retail, 2006-2011 volume ('000s nine-litre cases), % change and share... 31 Table 19: Africa & Middle East, duty free wines and spirits' volume by minor region, 2002-2011 volume ('000s nine-litre cases, % change and share)... 33 Table 20: Global duty free brown spirits volumes by quality, 2006-2011 ('000s nine-litre cases, % change and share)... 34 Table 21: Top blended Scotch brands in travel retail... 36 Table 22: Blended Scotch in travel retail by minor region... 37 Table 23: Top malt Scotch brands in travel retail... 38 Table 24: Top Irish whiskey brands in travel retail... 40 Table 25: Top US whiskey brands in travel retail... 41 Table 26: Leading dark rum brands in travel retail... 45 Table 27: Leading Cognac brands in travel retail... 51 Table 28: Leading non-cognac brandy brands in travel retail... 52 Table 29: Global duty free white spirits volumes by quality, 2006-2011 ('000s nine-litre cases, % change and share)... 53 Table 30: Leading vodka brands in travel retail... 54 Table 31: Leading gin brands in travel retail... 55 Table 32: Leading white rum brands in travel retail... 56 Table 33: Top 10 companies spirits volumes in travel retail, 2006-2011 ('000s nine-litre cases, % change and share)... 59 Table 34: Duty free wines share by region, 2002-2011 volume ('000s nine-litre cases, % change and share)... 71 Table 35: Duty free wine sales by category... 72 Table 36: Duty free wines and spirits, 2002-2011/F2012-F2017 volume ('000s nine-litre cases, % change and share)... 76 vi

Chapter 1 Scope of the market Global travel retail wines and spirits sales reached xxxxxm nine-litre cases in 2011, a x% rise over 2010, according to just-drinks/iwsr. Within that, total spirits were up by xx% to xxxxxm cases, while wine was flat at xxxm cases. Table 1: Duty free wines and spirits' share by region, 2002-2011 volume ('000s nine-litre cases, % change and share) Region Vol 2002 Vol 2006 Vol 2010 Vol 2011 Total DF Europe Total DF Americas Total DF Asia Pacific Total DF Africa & Middle East Grand Total Table 1: Duty free wines and spirits' share by region, 2002-2011 volume ('000s nine-litre cases, % change and share) (Continued) Region % Change 10-11 CAGR 06-11 Share 02-Total Share 06-Total Total DF Europe Total DF Americas Total DF Asia Pacific Total DF Africa & Middle East Grand Total Share of global total in 2011 Europe is the single largest regional market with travel retail sales of xxxxm cases, representing a xx% share of the global travel retail market. Europe s share has gradually been declining, falling from xxxx% share in 1998, the year before the abolition of intra-eu duty free, and xxxx% in 2007. North-west Europe alone accounts for about xx% of global sales, with Germany (xxx% share) and the UK (xxxx% share) the largest pieces of that. The combined Nordics (xxxx% share) and Southern Europe (xxxx%) are also substantial markets. Central and Eastern Europe has seen its share double between 2002 and 2011, rising from xxx% to around x%. North America is the other major market with a share of some xxxx%, slightly down from its 2007 level of xxxx %, but up from the 2002 level of xxxx%. Asia-Pacific has been steadily gaining share rising from xxxx% in 2002 to xxxx% in 2011. Most of that growth came from East Asia, which saw its share increase from xxx% to xxxx% in volume terms. Its share in value terms greatly exceeds that. Between 2007 and 2011, East Asia spirits added some xxxxxxx cases. 1

Chapter 2 The markets Europe Table 2: Europe, duty free wines and spirits' volume by minor region, 2002-2011 volume ('000s nine-litre cases, % change and share) Total DF Europe DF North West Europe DF Nordic Countries DF Southern Europe DF Eastern Europe & Baltics DF Central Europe & Balkans Vol 2002 Vol 2006 Vol 2010 Vol 2011 Table 2: Europe, duty free wines and spirits' volume by minor region, 2002-2011 volume ('000s nine-litre cases, % change and share) (Continued) Total DF Europe DF North West Europe DF Nordic Countries DF Southern Europe DF Eastern Europe & Baltics DF Central Europe & Balkans % Change 10-11 CAGR 06-11 Share 02-Total Share 06-Total Share of global total in 2011 Table 3: Top 5 spirits suppliers in European travel retail, 2006-2011 volume ('000s nine-litre cases), % change and share Rank Compay Vol 2006 Vol 2010 Vol 2011 % Change 10-11 CAGR 06-11 Share 11-Total Total 1 Diageo 2 Pernod Ricard 3 Bacardi - Martini 4 Brown Forman 5 Wm Grants Others Table 4: Top 5 spirits categories in European travel retail, 2006-2011 volume ('000s nine-litre cases), % change and share Rank Category Vol 2006 Vol 2010 Vol 2011 % Change 10-11 CAGR 06-11 Share 11-Total Total 1 Scotch Whisky 2 Vodka 3 Liqueurs 4 Rum 5 Cognac / Armagnac Others 16

Chapter 3 Product categories Brown Spirits Brown spirits (whisk(e)y, gold Tequila, dark rum, flavoured rum and brandy, including Cognac comprises the largest element of global travel retail) at xxxxm nine-litre cases. It is significant that higher qualities are growing faster than the overall market. Super-premium brown spirits posted the fastest growth, rising by xxxx% in 2011 over 2010, and now accounts for a xxxx% share of the brown spirits market. Ultra-premium increased by xxxx% and prestige by xxxx%. Table 20: Global duty free brown spirits volumes by quality, 2006-2011 ('000s nine-litre cases, % change and share) Quality Vol 2006 Vol 2010 Vol 2011 % Change 10-11 CAGR 06-11 Share 11-Total Total Standard Premium Super Premium Ultra Premium Value Prestige Scotch whisky Note: all figures in '000 nine-litre cases. Brown spirits: whisky, gold tequila, dark rum, flavoured rum, brandy Scotch whisky is the largest single category in travel retail at xxxxm cases. Scotch has enjoyed sustained growth within travel retail, with a xxx% CAGR between 2006 and 2011. The past decade has been something of a golden period for the global Scotch industry. Scotch s appeal continues to be rooted in a number of elements. The category contains some of the strongest brands within the liquor industry, owned by increasingly effective global marketing and distribution companies. The combination of provenance, quality and craftsmanship appeals to a broad and growing universe of consumers. Scotch is perhaps the most international spirit and it remains highly aspirational. There are few categories that are as international in scope as Scotch whisky and this is one of its real strengths. Scotch sells more than xm cases in xx markets (domestic and travel retail), and more than xxxxxxx cases in an additional xx markets. The growing number of high-net individuals has provided a substantial consumer market for luxury Scotch. At the other end of the spectrum, economic growth in the emerging markets has moved millions of people out of subsistence living. Many are reaching the stage, or tipping point, where they are in a position to switch from the bare necessities of life to enjoying the occasional defined luxury. These consumers are seeking to display 34

Chapter 4 Top suppliers Table 33: Top 10 companies spirits volumes in travel retail, 2006-2011 ('000s nine-litre cases, % change and share) Rank Compay Vol 2006 Vol 2010 Vol 2011 % Change 10-11 CAGR 06-11 Share 11-Total Total 1 Diageo 2 Pernod Ricard 3 Bacardi - Martini 4 Beam 5 Brown Forman 6 Wm Grants 7 Remy Cointreau 8 LVMH 9 Edrington Group 10 Campari Others Diageo The Diageo juggernaut continues to gather momentum and the company is on course this year to become the first to surpass the xm-case mark in annual travel retail spirits sales. The company just fell short in 2011, finishing the year at xxxxm cases, which represented a xxx% rise over the 2010 level. Diageo Global Travel and Middle East (GTME) managing director Roland Abella says: The general expectation is that global travel retail will be growing at a double-digit rate over the next five years. There are few businesses outside of the developing world that are able to grow at that pace. Our objective is to grow the Diageo travel retail business faster than the overall industry growth and gain share. If I look at where Diageo is within the travel retail channel, based on IWSR numbers, we are the market leader with xxxx% of volume sales, and many of our brands, such as Johnnie Walker or our super-deluxe vodkas, are growing at phenomenal rates. We are well-positioned to capture much of this anticipated growth over the next five years. As a company, we are in a great place. The greatest cause for optimism, as Abella notes, is the growth within the emerging market economies, particularly in Asia. In the recent fiscal year ended 30 June 2012, Diageo reported that in its Global Travel Asia subdivision net sales increased by xx%. The improvement was attributable to the increased focus on its highend Reserve Brands portfolio, together with price increases and a product differentiation strategy for duty free consumers. Overall, Johnnie Walker is far and away the largest brand in global travel retail. Sales of the Johnnie Walker family increased by xxx% in 2011 over 2010 to reach xxxxm cases and it will almost certainly be the first xmcase brand in travel retail. 59

Chapter 5 Wine in travel retail Table 34: Duty free wines share by region, 2002-2011 volume ('000s nine-litre cases, % change and share) Region Vol 2006 Vol 2010 Vol 2011 % Change 10-11 CAGR 06-11 Grand Total Total DF Europe DF North West Europe DF Nordic Countries DF Southern Europe DF Eastern Europe & Baltics DF Central Europe & Balkans Total DF Asia Pacific DF Asia DF Australasia Total DF Americas DF North America DF Latin America DF Caribbean DF Central America Total DF Africa & Middle East DF Africa DF Middle East Table 34: Duty free wines share by region, 2002-2011 volume ('000s nine-litre cases, % change and share) (Continued) Region Share 02-Total Share 06-Total Share 11-Total Grand Total Total DF Europe DF North West Europe DF Nordic Countries DF Southern Europe DF Eastern Europe & Baltics DF Central Europe & Balkans Total DF Asia Pacific DF Asia DF Australasia Total DF Americas DF North America DF Latin America DF Caribbean DF Central America Total DF Africa & Middle East DF Africa DF Middle East 71

Appendix Forecast data Table 36: Duty free wines and spirits, 2002-2011/F2012-F2017 volume ('000s nine-litre cases, % change and share) Spirits Wine Vol 2002 Vol 2006 Vol 2010 Vol 2011 Vol 2012 Vol 2013 Table 36: Duty free wines and spirits, 2002-2011/F2012-F2017 volume ('000s nine-litre cases, % change and share) Spirits Wine Vol 2014 Vol 2015 Vol 2016 Vol 2017 % Change 10-11 % Change 12-17 76