Just last month a good friend of mine back from Boston University finally decided to take the plunge with his college sweetheart, so I of course hopped on a flight to drink to the couples everlasting happiness. Now of course the wedding was fantastic, and I wish the happy couple all the best, but for me the highlight of any trip is doing the rounds at the liquor stores. Hong Kong, for all its strengths, still lingers at the tails of the new craft spirit movement, meaning that many of the most exciting products can only be found by people going overseas. It’s become an integral part of my planning for any trip to bookmark any notable liquor stores as well as cocktail bars in each city I visit.
On my way to my friends wedding, I managed to stop by the old college liquor marts, and in New York, I visited Ambassador Wines and Spirits, Astoria Wines and Spirits, and Sea Grape Wine Shop. To put it briefly, Astoria is worth visiting for value, Sea Grape if you happen to be next to Employee’s Only, but to find anything worth collecting, Ambassador is the place to be.
Of course, regardless of your destination, everyone catching a flight out of Hong Kong, or any modern airport even, passes through an often overlooked liquor store with a fantastic selection of spirits; the duty free store (henceforth referred to as DFs, in spite of the possible confusion with Hong Kong’s duty free store operator DFS). Yes, you’re not going to find that bottle of craft mezcal or that small batch bourbon, and yes, some airports do it better than others, but what DFs excel at are ‘travel retail exclusives’. You may have seen them before; limited edition bottles of well known spirits, specialty flavours, or perhaps even an entire brand that’s only available in DFs. For the educated bartender these offerings are at times scoff-worthy, at other times, an object of desire.
To really understand whats going on with these products, one should first understand the market behind it. The entire travel retail market is a unique animal that has enormous challenges that off set its proportionally great benefits. From a numerical standpoint, travel retail in general was responsible for USD63.5 billion worth of sales in 2014, of which 16.4% (approximately USD1 billion) was made up of wine and spirit sales. In comparison, the entire US market took in over USD211 billion. To put these numbers in further perspective, there were about 3.3 billion commercial airline passengers (average spending of USD0.30 per person) versus a US population of 319 million people (average spending of USD661 per person) in 2014.
While these numbers don’t seem to show travel retail in a great light, don’t forget that there are only a few hundred DFs around the world, versus the 65,000 plus bars and restaurants and 42,000 plus liquor stores in the US. What this represents is a highly efficient use of your overhead costs; a set up where you can access thousands of travellers in one day with only a small troupe of sales personnel and one logistics channel. Granted, the market has already seen fit to balance this advantage whereby airports are now charging astronomical prices for retail space inside the airport. For example, Korea’s Incheon airport reportedly increased their commercial concession fee to over USD3,400 per square foot for space in 2014 year.
So what are the benefits of setting up shop in an airport? The volume of traffic alone doesn’t seem to justify the cost, but rather it is the kind of traffic that a DFs sees. Nowhere else in the world do you have so many people who are
A) Confined to your premise for 1-6 hours – whether you came early for your flight, or stuck on a layover, you’ve got precious else to do
B) In the mood to spend – quite a proportion of travellers are on holiday and have a budget to spend on indulgences
C) Pressured to make snap decisions – in a traditional liquor store, you can defer your decision until later and come back whenever you want, but with respect to a DFs, you probably aren’t going to travel again for a while, so you need to make a decision to buy the product immediately
D) Segregated by spending power – If you have the money for an international flight, you usually have some discretionary income, so a larger proportion of a random sample of people will be able to afford luxury items compared to a sample taken outside the airport.
E) Provided the perception of a discount – The duty free store is so called because their products are exempt from tax. One would then presume that purchasing at a DFs will provide better value for the same product compared to home.
As you can see, there is a lot of power inherent in a DFs. Of all of these points however, the only thing that DFs have control over are points C) and E). Of course a basic rule of economics is to drive volume by discounting products, but any sustainable business needs to avoid that whenever possible, for obvious reasons. How then,can DFs increase the pressure for a customer to make that snap judgement to purchase a product? By releasing ‘travel retail exclusives’: items which if the customer does not buy right away, will likely never see again until they travel to the same airport in the future.
Most major spirit companies have utilised this, in one form or another. Strategies to achieve this vary depending on the product, but can be as simple as a change in the labelling, to a new blend to cater to a specific taste, or as I mentioned before, a whole new product from a longstanding producer.
To bring my recent experiences up as an example, I was browsing through Hong Kong International Airport’s DFS before my flight, and I noticed that they had two products that represented the best and the worst example of label change. The first was a Woodford Reserve’s 141th anniversary commemorative bottle, and the second was Johnnie Walker Blue Label’s series of customised bottles. From the outset, the Johnnie Walker series is the supreme example of fitting with a market; in HKIA and Incheon Airport, I saw two different bottles with gold engravings of local landmarks, as well as bottles with each animal of the Chinese Zodiac (a wise decision that Chinese Tourists now make up about 30% of travel retail sales). Now in contrast, the Woodford Reserve bottle has printed artwork of the Kentucky Derby across its front on a narrow band under its regular branding, and a special color paper seal covering its cork and neck. Why I think this fails as a global travel retail release (though I’m sure it sold in regular retail channels in the US) is firstly, the choice of artwork, secondly, the presentation of said artwork, and finally the lack of local flavour. Coming from Brown-Forman, Woodford Reserve is the company’s upscale offering in the American whiskey category as opposed to Jack Daniels, and as such occupy’s a position with more discerning drinkers, what with its grand stately bottle and sombre color schemes. In contrast, the Kentucky Derby packaging is full of garish colours (yes I get it, it comes from the jockey’s colours) and the artwork is limited to a tiny band in the front of a bottle. Were it up to me, moving the images to the back of the bottle, much like 1800 tequila does with it’s artist collaboration bottles, would be a wiser use of its bottle real estate, and a change of color scheme to natural tones of dark brown, black, copper and white would suit Woodford’s position in Brown Forman’s portfolio. Woodford’s final offense, to me, was the lost opportunity to somehow tie in the release to Hong Kong’s own Happy Valley races, something that could have quite possibly boosted sales in a region where bourbon tends to lose to scotch in retail sales. In the end, both bourbon and the Kentucky Derby are cultural references lost on the Asian market.
As for Johnnie Walker’s offering, despite the liquid in the bottle being identical to what you could get anywhere else in the world, the bottle design makes you want to buy it for a whole variety of reasons. Firstly, it speaks of locale, what better way to say that you’ve visited a country then something stamped with images of it? Second, is the personal touch; if the bottle is a gift for a business partner or even for yourself, the added personalisation unique to the country screams for you to buy it. Finally, the way that the bottle was decorated is permanent. As an expensive bottle of scotch, JW Blue Labels tend to sit on a shelf looking pretty for quite a long time. The customisation that made it so special will not, in the meantime, come off or otherwise lose effect, meaning that it retains that extra oompf as a gift. This was an excellent example of its producers understanding exactly what their product meant to the consumers and catering to that segment.
This effort by JW was, in my opinion, a far better use of resources than their last travel retail campaign, the Explorer’s Club series (though it was apparently temporarily stopped for other reasons). This was an example where new blends were used for travel retail exclusives, and during this campaign, four different blends were made available in different regions. This kind of strategy similarly played off of regional localism, but with broader specificity. While this kind of move would of course put pressure on your operational capacity by adding new products to your line, it does carry the benefit of increased price discrimination. The Explorer’s Club was sold at a range of prices hovering between the prices of Gold and Blue Label. What this does is allow shoppers who can afford Gold Label but not Blue to stretch their wallets a little bit and spend a bit more with the help of the pressures naturally inherent to DFs. The result is increased revenue per sale for both the DFs and the producer.
A more recent example of new blends (though it would be more fair to say its a new brand as opposed to a new product within an existing line) is the launch of Hazelwood, which I saw recently in HK. William Grant and Sons, of Grant’s blended whisky (duh.) released this exclusively for travel retail from February to September of 2016, from which it will launch in a few specific markets. Now I forgot to make a note of its price (and for the life of me I can’t seem to find a mention online), so I can’t comment on pricing strategies, but the period before it goes into the regular market shows another benefit of travel retail. Because of the high volume and international access, DFs become a ideal place to test new products before they go live, giving producers an indicator where their marketing money would be best put to use, or if their marketing angle is resonating well with consumers. For new products, it also provides a great way for them to control limited supply until their production ramps up, or in contrast, determine whether they should spend more money to increase capacity.
This kind of strategy is ideal for blended whiskies, cognacs, vodkas, gins, rums, and liqueurs, where production lead time is short. Why blended whiskies and cognacs you ask? Because blending bypasses the lag between the beginning of production to bottling to some degree, as component malts can be purchased to replace those that are in short supply. In addition, ultra-premium cognacs, which make up the majority of DFs offerings, have values that ride on super rare eau-de-vies, for which tight volume control is a must. Single malt whiskies are not entirely exempt from this strategy, as they have the option of releasing specialty bottles, usually with no age statement, with a unique style, such as with Highland Park, which to me has the most visible travel retail series with its Highland Park Warrior Series.
Rums and Bourbons for the most part have failed to take travel retail by storm, unfortunately. In the case of Rum, the only real unique item has been Ron Zacapa (again, Diageo, masters of marketing) with its Edicion Negra bottling, a strategy no doubt made possible by its solera system. I am of the belief that most people still have not yet discovered quality sipping rums, and because the naturally low price point creates the perception of rum as a poor gift choice, single-mix-purposed rums dominate sales for personal use such that DFs operators do not want to test the market for high value rums. As for Bourbon, Jack Daniels and Jim Beam both dominate the DFs in all their expressions, again for similar reasons as above, but there is the added challenge that creating differentiated products is difficult, as production regulations for bourbon suggest that a new product has to begin entirely from scratch; blending, after all, is not a large part of a bourbon’s identity.
Suprisingly, sales of tequila seems to be taking off in Korea’s Incheon DFs. Though there was nothing to really write home about, I was pleasantly surprised to see 1800 and Olmeca’s Altos 100% agave tequila, neither of which is available in HK’s DFs. That was it for things that held my interest. Pernod Ricard holds the monopoly in Korea’s spirits market, thanks to Ballantine’s overwhelming popularity in the country, and it certainly shows. The only travel retail item to speak of from the company were special wooded editions of Ballantines, which, while I’m sure were delicious, unfortunately did not stand out among the solid wall of Ballantine and Royal Salute bottles decking all corners of the stores. Whether this is due to Pernod themselves, or the management at Shilla Hotel’s Duty Free Department, I’ll never know, but it did make my layover at Incheon just that little less interesting.